Kipoi Holdings Mauritius Ltd v Tiger Resources Ltd (subject to deed of company arrangement)
[2021] WASC 165
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: KIPOI HOLDINGS MAURITIUS LTD -v- TIGER RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) [2021] WASC 165
CORAM: MASTER SANDERSON
HEARD: 11 & 12 MAY 2021
DELIVERED : 25 MAY 2021
PUBLISHED : 25 MAY 2021
FILE NO/S: COR 53 of 2021
BETWEEN: KIPOI HOLDINGS MAURITIUS LTD
Plaintiff
AND
TIGER RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
First Defendant
ROBERT MICHAEL KIRMAN as joint and several administrator of TIGER RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
ROBERT MICHAEL BAUER as joint and several administrator of TIGER RESOURCES LTD (SUBJECT TO BEED OF COMPANY ARRANGEMENT)
Second Defendants
YINGKOU YANGZHOU TRADE CO LTD
Third Defendant
Catchwords:
Corporations Law - Application to set aside Deed of Company Arrangement - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Insolvency Practice Rules (Corporations) 2016
Rules of the Supreme Court 1971 (WA)
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | RCA Higgins SC, J Hutton & T Palmer |
| First Defendant | : | P Edgar |
| Second Defendants | : | P Edgar |
| Third Defendant | : | S Maiden QC & J Abberton |
| Intervening Creditor | : | W Zappia |
Solicitors:
| Plaintiff | : | Clayton Utz |
| First Defendant | : | Norton Rose Fulbright Australia |
| Second Defendants | : | Norton Rose Fulbright Australia |
| Third Defendant | : | Lavan |
| Intervening Creditor | : | King & Wood Mallesons |
Case(s) referred to in decision(s):
Allatech v Construction Management Group [2002] NSWSC 293; (2002) 167 FLR 324
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 27
BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510
City of Swan v Lehman Brothers Australia Ltd [2009] FCAFC 130; (2009) 179 FCR 243
Parkview Constructions Pty Ltd v Tayeh [2009] NSWSC 186; (2009) 71 ACSR 65
MASTER SANDERSON:
Introduction
By originating process filed 26 March 2021, the plaintiff sought the following orders:
On the facts stated in the supporting affidavit, the plaintiff claims:
1.The deed of company arrangement (DOCA) dated 19 February 2021 in relation to Tiger Resources Limited (Subject to Deed of Company Arrangement) (Tiger) be terminated under ss 445D(1) or 447A(1) of, or s 90-15 of Schedule 2 to, the Corporations Act.
2.The first defendant, Tiger, be wound up, and Robert Kirman and Robert Brauer be appointed as joint and several liquidators of Tiger.
3.Part 5.3A of the Corporations Act is to operate in relation to Tiger as if s 444D of the Corporations Act did not have the effect of providing for the DOCA to bind all creditors of Tiger so far as concerns claims arising on or before the day specified in the DOCA under paragraph 444A(4)(i) of the Corporations Act in terms of clauses 13.1 and 13.2 of the DOCA.
4.The plaintiff has leave, under s 444E(3) of the Corporations Act, to institute and continue with this proceeding against Tiger.
5.Such further or other orders as this Honourable Court sees fit.
Alternatively to paragraphs 1 to 3 of the above orders, the plaintiff claims:
6.Subject to paragraph 7 below, the DOCA be terminated under ss 445D(1) or 447A(1) of, or s 90-15 of Schedule 2 to, the Corporations Act.
7.Upon the order set out in paragraph 6 above taking effect, Part 5.3A of the Corporations Act is to operate in relation to Tiger as if:
(a)[Company not taken to be wound up] s 446AA(2) of the Corporations Act did not have the effect that Tiger was taken to have passed a special resolution under s 491 of the Corporations Act that Tiger be wound up voluntarily;
(b)[DOCA not taken to have extinguished the claims of creditors of the Company] s 444D of the Corporations Act did not have the effect of providing for the DOCA to bind all creditors of Tiger so far as concerns claims arising on or before the day specified in the DOCA under paragraph 444A(4)(i) of the Corporations Act in terms of clauses 13.1 and 13.2 of the DOCA;
(c)[Commencement of further administration] s 435C(1) of the Corporations Act had the effect that a further administration of Tiger began;
(d)[Appointment of administrators] in respect of the further administration, the second defendants were appointed as joint and several administrators of Tiger under s 436A of the Corporations Act;
(e)[Dispensation of administrators' need to make declaration] ss 436DA(2), (3), (4) and (4A) of the Corporations Act did not apply to the further administration of Tiger;
(f)[Continuation of committee of inspection (if any)] Tiger was taken, for the purposes of s 436E(1) of the Corporations Act, to have convened a meeting of Tiger's creditors on the date on which the order set out in paragraph 6 above takes effect and:
(i)if a committee of inspection of Tiger was in place immediately prior to that date (Previous CoI), to have determined at that meeting to appoint a committee of inspection containing, as its members, those persons who were members of the Previous CoI; and
(ii)if a committee of inspection of Tiger was not so in place, to have determined at that meeting not to appoint a committee of inspection,
and s 436E of the Corporations Act otherwise did not apply to the further administration of Tiger,
(g)[Dispensation of any need for administrator to investigate company affairs further] s 438A(a) of the Corporations Act did not apply to the further administration of Tiger;
(h)[Dispensation of directors' statements] ss 438B(1), (2) and (2A) of the Corporations Act did not apply to the further administration of Tiger;
(i)[Continuation of proofs of debt] any proofs of debt of creditors previously received by the administrators in respect of Tiger, including in their capacity as trustees of the creditors trust referred to in the DOCA, stand as proofs of debt in the further administration of Tiger;
(j)[Timing for convening second meeting of creditors] notwithstanding s 439A(2) of the Corporations Act, the administrators may convene the meeting required by s 439A of the Corporations Act during the convening period at the earliest convenient date, provided that the requisite period of notice stipulated by s 75-225(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) is otherwise complied with.
At this point, it is apposite to note the sections of the Corporations Act 2001 (Cth) primarily relied upon by the plaintiff were s 445D(1)(a), s 445D(1)(c) and s 447A. The reference to other sections in the originating process is really incidental - these sections provide the mechanism to give effect to the orders sought under these three sections. At its heart, this application sought to set aside a Deed of Company Arrangement (DOCA) entered into between the first and third defendants.
Throughout the hearing, the plaintiff was referred to as 'KHML'. The third defendant was referred to as either 'YYTCL' or more simply 'YYT'. Throughout these reasons, I will refer to KHML and YYT. The first and second defendants were represented by the same solicitors and it was the second defendants, in reality, who took an active part in the proceedings. I will refer to these defendants as the first and second defendants or Tiger (first defendant) and the administrators (second defendant). The intervening creditor was represented by counsel at the trial. The intervening creditors supported the position of the first and second defendants and YYT. Counsel participated in the hearing only to the extent of making closing submissions. Apart from referring to those closing submissions, I will have nothing to say concerning the position of the intervening creditor.
Case management principles
On 16 February 2021, at a meeting of the first defendant's creditors, a DOCA proposal advanced by YYT was accepted. These proceedings were issued some six weeks later. In conformity with the court's usual practice, the matter was made returnable in Master's chambers on 13 April 2021. After they were served with the originating process, YYT's solicitors wrote to the court asking that the first return date be brought forward and the matter be mentioned as soon as possible. The matter was listed on 8 April 2021. Below I will detail the orders made on that date and the reasons why I made those orders. But from the first, it was plain that YYT and the first and second defendants were anxious to have the matter heard as soon as possible. In the end, a two day hearing was held just over a month after the first return date. Given the extent of the material filed by the parties and the breadth of the evidence, it is clear all parties worked within a very tight timeframe. That was no accident.
At the first return date, counsel for the plaintiff proposed a timetable which would have seen this matter heard some time in August. In response to submissions to counsel for YYT that the matter ought be brought on for hearing at the first available date, counsel for KHML said effectively, KHML should be able to put their case in a way and within a timeframe that ensured the case was run as they wished. With respect, that is not an approach which I regard as satisfactory. If the DOCA was to be terminated, then that decision needed to be made as soon as possible. Apart from anything else YYT was funding a mine in the Democratic Republic of Congo at a cost of between US$250,000 and US$500,000 per week;[1] but leaving that fact aside, it seems to me it is important to make a prompt decision when dealing with commercial matters such as this. It allows the parties to get on with the real business of the commercial enterprise.
[1] Affidavit of Aiping (Maggie) Wei sworn 21 April 2021 [18].
Case management is not and never can be, an end in itself. It must always be engaged to further the interests of justice. But the idea that litigation is driven by the party with the court simply accommodating their wishes is no longer an acceptable approach. It is a matter of striking a balance. On the one hand, there is the need to provide all parties with the opportunity to present their case as comprehensively as possible. On the other hand, there is the necessity to use the resources of the court effectively to provide as swift an outcome as possible. Getting the balance right is not always easy. Adjustments have to be made to timetables which, when set, seem reasonable. In this case, all parties cooperated in a way that facilitated an early hearing. But I acknowledge timeframes were short and the parties could not always include everything they would have liked. But I am satisfied the application of case management principles in this case was justified.
Background
Overview
KHML is a creditor and a shareholder of the first defendant (Tiger). In January and February 2021, KHML and YYT submitted a series of competing proposals for a DOCA in relation to Tiger. These proposals culminated in a final proposal made by KHML on 15 February 2021, the eve of the schedule reconvened second meeting of Tiger's creditors. KHML's proposal provided for a better return to all of Tiger's creditors and shareholders than the final and best proposal made by YYT.
On 15 February 2021, the solicitors acting for YYT wrote to the creditors of Tiger (other than KHML), indicating that:
(a)an order for KHML's proposal to be voted on by creditors, it would be necessary to adjourn the meeting on 16 February 2021;
(b)if YYT's final offer was not accepted by Tiger's creditors on 16 February 2021, the offer would be withdrawn;
(c) funding then being offered to one of Tiger's subsidiaries, Societe d'explotation de Kipoi SA (SEK), would then also be withdrawn and immediate steps would be taken to have Tiger and SEK placed into liquidation; and
(d)there was a risk that KHML's proposal might not result in any return to creditors and could not be implemented.
At the meeting of Tiger's creditors held on 16 February 2021, the administrators recommended to the creditors of Tiger that they accept YYT's final DOCA proposal. When doing so, they identified a number of risks associated with KHML's final proposal. A majority of creditors in number and in value voted in favour of the YYT DOCA. The DOCA in relation to Tiger was executed on 19 February 2021.
Factual background
The factual background to the present proceedings is largely uncontroversial. It is set out in [12] and [13] of the plaintiff's opening submissions filed 30 April 2021, and [10] at appendix B of YYT's submissions lodged 7 May 2021. What follows is largely taken from KHML's submission, supplemented as and where necessary by the submissions of YYT. Virtually all of the background facts are found in the affidavit of Amit Gupta sworn 25 March 2021. This affidavit which was filed the same day as the originating process, may be regarded as the founding affidavit supporting the application.
Tiger was registered in 1997 and listed on the Australian Securities Exchange in the same year. It is a holding company for nine controlled subsidiaries incorporated in jurisdictions other than Australia. These jurisdictions include the Democratic Republic of Congo (DRC), British Virgin Islands and South Africa. SEK is the main operating company in the Tiger group.
In or about late 2015/early 2016, each of Taurus Mining Financing Fund LP (Taurus), International Finance Corporation (IFC) and Resources Capital Fund LP (RCF) lent funds to SEK. Pursuant to the financial arrangements, Tiger guaranteed the obligations of SEK. On or about 2 March 2020, IFC transferred its rights and obligations under the finance agreements to KHML (which at that time was called Teichmann Construction Mauritius Ltd).
In or around September 2019, Tiger commenced steps to undertake a scheme of arrangement (Scheme) which was implemented on 11 June 2020. The resulting debt structure at Tiger was that (among other things) the secured debt (which was owed by SEK and guaranteed by Tiger) was compromised from approximately US$271 million to approximately US$100 million. As a result of the scheme the secured lender group was to receive shares equal to approximately 99.3% of Tiger's issued share capital in respect of which 23.66% was to be issued to the plaintiff and 75.64% to the (former) secured lenders (QMetro Ltd) and Taurus.
The current shareholding position is that 99.3% of the shares are held by Mr Richard Tucker in his capacity as scheme administrator in accordance with the terms of the scheme and pursuant to the terms of an express trust which was created by the Jericho Master Trust Deed dated 25 March 2020. The 99.3% of the total shares outstanding (being those shares issued by Tiger under the scheme) are still held by Mr Tucker (as trustee under the Jericho Master Trust Deed) due to his fees as scheme administrator not being paid.
The financing arrangements of Tiger were extremely complex. Relevantly, the lenders entered into a document titled 'Intercreditor and Security Sharing Agreement' (ISSA). A copy of that agreement forms part of attachment AG4 to Mr Gupta's first affidavit. Without going to the documents in detail the agreement appoints Law Debenture Trustees Ltd, a London based company, as 'Security Trustee'. Under s 1(b), read together with s 9(a)(vi), the Security Trustee had and has the power to appoint a receiver over the undertakings of Tiger. It also has the power to take enforcement action as defined in s 5(a)(vi) of the agreement. No individual lender has power unilaterally to take action. It is the Security Trustee that has that power.
On 5 November 2020, the administrators were appointed to Tiger.
On 27 January 2021, Jinji purportedly acquired the secured debt of SEK (guaranteed by Tiger) from Taurus and QMetco Ltd (QMetco) which was another senior lender under the finance agreements. On the same day YYT submitted a binding proposal for a DOCA to the administrators of Tiger. This was the first YYT DOCA proposal.
On 29 January 2021, KHML submitted its first DOCA proposal. On 11 February 2021, KHML submitted to the administrators a binding term sheet which materially improved the return to creditors.
On 12 February 2021, Lavan Legal (Lavan), acting on behalf of Jinji, purportedly instructed the security trustee to vote for the full value of the senior lender's debts under the finance agreements in favour of the YYT proposal. That meant there would be no vote in favour of an adjournment at the second creditor's meeting.
On 13 February 2021, after certain clarifications were sought by the administrator's solicitors, KHML submitted an updated DOCA proposal. This was the third KHML DOCA proposal. The consideration in that proposal remained the same, but a creditor's trust was incorporated and certain definitions and timing issues were clarified.
On the same day, the security trustee wrote to the administrator's solicitors advising that, if the KHML proposal was successful, then the security trustee would take immediate action to enforce its rights to recover the amount owed by the company. These rights were said to include appointing a receiver and winding up the company. It is worth noting that KHML disputes the entitlement of the security trustee to appoint a receiver and wind up the company. This has its genesis in doubts raised about Jinji's entitlement to enforce any rights under the finance agreements. I will deal with this issue in some detail later in these reasons.
On 14 February 2021, Lavan wrote to the administrator's solicitors saying that if the second creditor's meeting was adjourned, Jinji would immediately take steps to have Tiger and SEK placed into liquidation. The following day, 15 February 2021, YYT, by their solicitors, sent letters direct to the creditors of Tiger. The letters were essentially in the same form and each contained the following statements:
(1)in order for the KHML proposal to be voted on by creditors, it would be necessary to adjourn the reconvened meeting of creditors. YYT's position (and the position of its associated entities) was that the YYT proposal expired at close of business on 16 February 2021. If the meeting was adjourned or the YYT proposal was not approved on 16 February 2021, the proposal would be immediately withdrawn;
(2)the funding to SEK for the care, preservation and maintenance of the mine that is currently arranged will cease immediately; and
(3)Jinji would immediately take steps to have the company and SEK placed in liquidation.
The letter went on to say that YYT did not consider that KHML's proposal could be implemented and thus considered there was a risk as to whether the KHML proposal 'will actually result in any return to creditors'.
On 15 February 2021, the administrators issued a further circular to creditors which included the following statements:
(1)YYT had improved its DOCA proposal so that 'Available Trust Property' was now $1,150,000;
(2)the administrators had conferred with KHML and YYT and prepared and filed a court application to 'provide the opportunity (but not the obligation) for the reconvened second meeting to be further adjourned to no later than 18 March 2021';
(3)that whilst the administrators had not had the opportunity to consider the KHML updated proposal in the required level of detail, they had undertaken a preliminary estimate of the return to creditors as against the YYT proposal and liquidation. They concluded both proposals provided for an amount of $1,100,000 to be available to creditors and that each proposal would utilise a creditor's trust to facilitate the return to creditors;
(4)the administrators noted that the outcome to individual creditors varied in each proposal, however, overall the return to all but one creditor was higher in the YYT proposal; and
(5)the administrators concluded:
'the financial return under any DOCA must be balanced against the conditionality and risk of the proposal. The administrators have considered the risk of the YYT DOCA in detail and outlines these considerations in the supplementary report. Due to time constraints outside the control of the administrators, a similar analysis has not been completed in respect of the KHML updated proposal. The administrators are in the process of considering certain risks associated with the KHML updated proposal and intend to discuss these risks with creditors at the reconvened second meeting.'
On the evening of 15 February 2021, KHML submitted a further binding term sheet to the administrators. (In fact, the proposal was submitted just after 10.30pm). It is accepted by all parties that this offer was materially better than the second YYT DOCA proposal in every category of creditors, save for two (which were already receiving 100% return). It represented a $300,000 increase over the YYT proposal - a return to creditors of $1,400,000 as against a return of $1,100,000.
On the morning of 16 February 2021, I heard an application by the administrators for orders allowing the administrators to adjourn the reconvened second creditors' meeting at their own motion. As an alternative, the administrators sought orders allowing the creditors to adjourn the meeting if they chose to do so. After hearing argument, I made orders which allowed for the creditors to adjourn the meeting, but did not permit the administrators to adjourn the meeting of their own motion.
On 16 February 2021, the second meeting of creditors was held. The following relevantly occurred:
(1)the meeting was held by virtual conference and polls were used for each vote;
(2)the chair of the meeting was Mr Robert Kirman who communicated to creditors by way of audio, video and Powerpoint at various points during the course of the meeting;
(3)KHML was not admitted to vote or permitted to speak, but was allowed to attend as an observer;
(4)the administrators recommended the YYT DOCA proposal;
(5)the administrators admitted that they had 'not fully assessed' the final KHML proposal;
(6)the administrators raised a number of 'risks' for the final KHML proposal described as:
(i)potential enforcement by secured creditors (which could impact the timely effectuation of the KHML DOCA);
(ii)a potential lack of funding at the SEK level which could impact the mine operations;
(iii)the lack of final documentation; and
(iv)solvency of Tiger post completion of the KHML DOCA;
(7)these were the only factors raised in justification for why the final KHML proposal was not preferred despite having a better return for creditors in all but two classes which were otherwise equal;
(8)the administrators stated that an adjournment would risk the YYT DOCA proposal;
(9)Lavan, the solicitors for Jinji and YYT, attended the meeting and held and exercised the majority of votes by proxies in both number and value in the meeting;
(10)a proposal for a one week adjournment in order for the administrators to consider the two DOCA proposals further was defeated by a poll with 22 creditors voting against and two in favour; and
(11)the YYT DOCA proposal was successful with 23 voters representing some $185,984,821 voting in favour and 1 abstaining in the poll.
The minutes of the second creditors' meeting and an attendance register recording all proofs of debt and proxy forms received in respect of the meeting and the slideshow presentation used by the chairperson at the meeting are attachment 'AG40' to Mr Gupta's affidavit. The Powerpoint annexure shows that the administrators recommended the YYT proposal, citing a number of risks in relation to the KHML proposal (being enforcement by secured creditor, solvency post completion of the DOCA and final documentation).
Interlocutory disputes
Prior to, and during the start of, the final hearing of this matter there were a number of interlocutory disputes which arose and upon which I ruled. Each of these interlocutory disputes had the potential to affect the rights of the parties. I will detail the disputes set out the way in which they were resolved and provide reasons why I made certain rulings.
Hearing of 8 April 2021
Prior to the first return date, the plaintiff submitted a minute of proposed directions. That minute reads as follows:
Pleadings
1.The plaintiff is to file and serve its statement of claim by 16 April 2021.
2.The defendants are to file and serve their defences by 23 April 2021.
Lay evidence
3.The plaintiff is to file and serve any further affidavit lay evidence by 30 April 2021.
4.The defendants are to file any affidavit lay evidence by 7 May 2021.
5.The plaintiff is to file and serve any responsive lay evidence by 14 May 2021.
Further directions
6.That matter is to be brought on before the case manager for further directions not before 18 May 2021.
Discovery
7.All parties are to confer regarding discovery by no later than 12 May 2021.
8.Any application for discovery orders is to be brought by 18 May 2021.
9.Inspection of documents discovered (by provision of text searchable electronic documents) shall be completed within seven days after completion of discovery.
Expert evidence
10.The parties are to confer about whether expert evidence is required by no later than 11 June 2021.
11.Any application is to be brought by 14 June 2021.
Trial preparation
12.The plaintiff is to file and serve its outline of submissions by 30 June 2021.
13.The defendants are to file and serve its outline of submissions by 7 July 2021.
Costs
14.Costs be in the cause.
Earlier in these reasons I mention that the plaintiffs initially approached the matter on the basis that a hearing would be held in August. That is largely reflected in the timelines found within the above minute. As I have indicated, I did not see it as appropriate to allow the matter to progress in that fashion. In effect, I rejected the plaintiff's proposed timeline for reasons which I set out above. There were three further matters raised by the minute. The first was the issue of pleadings. It is not generally the case that corporations matters proceed on pleadings. Of course, in the appropriate case, pleadings can be ordered. But this was not such a case. The founding affidavit of Mr Gupta ran to just under 2,000 pages. With respect, it was very carefully drawn. It set out with admirable clarity the background facts and the reasons why KHML said the administrators mislead creditors. Really, from the first it was clear there were no disputes of fact between the parties. All parties acknowledged KHML and YYT had made a number of DOCA proposals. Both KHML and YYT had representatives at the second creditors' meeting and so they knew precisely what had taken place at the meeting. Each party was in possession of the minutes of the meeting and had access to the Powerpoint presentation. In my view, there was no sufficient factual differences between the parties to warrant pleadings. They would not have assisted the resolution of the dispute. Furthermore, requiring the parties to file pleadings often leads to disputes about the pleadings themselves. That can lead to a delay in the ultimate resolution of the dispute.
The second issue between the parties was to do with discovery. Once again, it is not usual to make orders for discovery in corporations matters. It is done - and in fact, eventually it was done in this case ‑ largely because the parties were able to agree the issue. But on the first return date, I was not satisfied discovery was necessary. In reaching that conclusion, I was mindful KHML was alleging the administrators had misled the meeting. That could have occurred in two ways. First, it was possible the administrators were in possession of documents or information which was material to the creditors' decision and was not put before the meeting. There was nothing in Mr Gupta's affidavit to suggest such information existed. There was nothing KHML could point to which suggested such information existed. So discovery was at best, speculative and at worst, a fishing expedition.
The second possible misleading conduct of the administrators was they did not properly advise the creditors in relation to the KHML proposal. But if that was the allegation, it must have been based on documents and information in the possession of the administrators which was also in the possession of KHML. In other words, rather than requiring the provision of extra documents, it was a question of whether the proper interpretation of the documents the administrators had relied upon could not lead to an order for discovery.
Having said all of that, eventually the parties did agree on a discovery regime and certain documents were produced. To that extent, the initial orders I made refusing a general discovery order were overtaken by events.
The third issue was expert evidence. Essentially, KHML wanted to lead evidence as to the value of the Tiger shares. Throughout this case, that was an issue which was repeatedly raised. From the first, I was satisfied the value of the Tiger shares was an irrelevant issue. The YYT DOCA requires the administrators to apply to the court under s 444GA for a transfer of the shares in Tiger to YYT. The DOCA anticipates the transfer will be for nil consideration. So the first point is this. The creditors, having been provided with a draft of the YYT DOCA, would have known that (a) it involved a s 444GA application and (b) if the DOCA was to proceed, their shares in Tiger would be transferred to YYT for nil consideration. The creditors would also have known that the KHML proposal did not involve a s 444GA application. Thus, it must have been clear to creditors that, if the Tiger shares had any value, they would have been better off accepting the KHML proposal than the YYT proposal. Having expert evidence as to the value of the shares would not make any difference.
Further, obtaining a valuation of the shares was likely to be a time consuming process. Tiger's corporate structure is complex. Some valuation of SEK's interest in the copper mine in the DRC would have to be obtained. The scope for disputes between experts was significant.
In the end, I was not satisfied the prohibitive value of the expert evidence was such that the expense and delay occasioned by obtaining such evidence was justified.
Directions hearing of 22 April 2021
At this directions hearing, I made the following orders:
Discovery
1.By 27 April 2021, the defendants are to provide, and the third defendant is to cause Jinji to provide the plaintiff with electronic copies of the documents in their possession, custody or control (including in their solicitors' possession custody or control) which respond to the categories in annexed Schedule A.
Expert evidence
2.The plaintiff's application for expert evidence be dismissed.
Submissions
3.By 30 April 2021, the plaintiff is to file and serve an outline of submissions.
4.By 5 May 2021, the defendants are to file and serve their respective outlines of submissions.
Security for costs
5.Within 14 days after this order is made the plaintiff give security for the costs of the:
(a)first and second defendants up to and including trial in the sum of AUD$65,000 to be paid into Court; and
(b)third defendant up to and including trial in the sum of AUD$65,000 to be paid into Court.
Joinder
6.Pursuant to rule 2.13(1) of the Supreme Court (Corporations) (WA) Rules 2004, leave is granted to King & Wood Mallesons ABN 22 041 424 954 (Intervening Creditor) to be heard in relation to the proceeding without becoming a party to the proceeding.
7.The time for service of the Intervening Creditor's application dated 21 April 2021 and the supporting affidavit of Timothy Michael Klineberg sworn 21 April 2021 is abridged and service is to be effected by 22 April 2021.
8.The parties provide the Intervening Creditor with any evidence served on their behalf in the proceeding by 4pm on 22 April 2021.
9.The Intervening Creditor file and serve any affidavit evidence by 23 April 2021.
Confidential affidavit
10.The first defendant and second defendants have leave to file any further affidavit evidence by 22 April 2021 (Further Affidavit Evidence).
11.The Further Affidavit Evidence be sealed and is not to be accessed by any person who is not a party to the proceedings without leave of the Court.
12.Any application for leave or access pursuant to Order 67B r11 of the Rules of the Supreme Court 1971 (WA) to inspect the Further Affidavit Evidence:
(i)be referred to the Court; and
(ii)not be determined until notice of the application is given to the deponent, by their solicitor, and the deponent has reasonable opportunity to be heard in opposition to the application for inspection.
13.The matter be listed for hearing on Tuesday, 11 May 2021 at NB 10:00am.
Costs
14.The costs of today be reserved.
At this directions hearing, there were two contentious issues. The first was a further application by KHML to adduce expert evidence. The application was put more comprehensively and by closer reference to documents which had by then been filed. But the result was the same. I was not satisfied an order for expert evidence was appropriate. Essentially, my reasoning was the same as on the first application.
The further dispute had to do with security for costs. The parties had agreed KHML would provide security. YYT wanted the provision of security to be subject to a springing order. KHML maintained no springing order was necessary and given the draconian nature of such orders, should not be made in circumstances where it had complied with the court's directions. In the end, security was provided in conformity with the timetable. Really, this issue does not need to be developed further, suffice that to say that on this issue the arguments put by KHML carried the day - the conduct of the proceedings by KHML did not warrant the making of a springing order.
Directions hearing of 4 May 2021
At this further directions hearing, I made the following orders:
1.By no later than 4pm on 4 May 2021, the parties complete discovery.
2.By no later than midday on 5 May 2021, the plaintiff deliver the bundle of documents.
3.The time for defendants and intervening creditors to file and serve their outline of submissions be extended to 9am on 7 May 2021.
4.The plaintiff file and serve any outline of submissions in reply by midday on 10 May 2021.
5.The plaintiff's application to cross examine any witness be heard and determined at 2:15pm on 5 May 2021.
6.The costs of today be reserved.
The orders were largely agreed and in the main, being mechanical in nature, they require no comment. However, it was at this directions hearing that for the first time, senior counsel for KHML indicated she wished to cross-examine Mr Kirman. It was Mr Kirman, one of the joint administrators, who had sworn affidavits upon which the first and second defendants intended to rely. Given the limited time available for hearing the matter and given the uncertainty as to Mr Kirman's availability, I adjourned the matter for further argument.
Directions hearing of 5 May 2021
By the time this matter came back to court, the parties had agreed Mr Kirman should be made available for cross‑examination. The parties had filed competing minutes. The minute filed by the first and second defendants placed time limits on cross-examination and would have limited the scope of the cross‑examination. Counsel for KHML indicated she would attempt to limit the time taken with cross‑examination, but was not prepared to place firm temporal limits on the cross-examination; nor was she was prepared to concede the subject matter of cross‑examination should be limited. It was clear Mr Kirman would not be in court on 11 May - he had a long standing commitment which took him out of the jurisdiction. Both parties were content to have the cross‑examination conducted via video link or failing that by audio link. In the end, the cross‑examination was conducted by video link, and leaving to one side some intermittent technical difficulties, there were no problems with that approach.
After hearing argument, I determined orders should be made for cross‑examination of Mr Kirman without any temporal or other limits being placed on cross‑examination. I indicated to the parties I would provide reasons for my decision and despite the fact this was not a highly contentious matter, it is appropriate I say something as to why I made what were effectively unlimited cross‑examination orders.
Cross‑examination of deponents to affidavits is the subject of Rules of the Supreme Court 1971 (WA) O 6 r 2. As KHML conceded in its written submissions, there is no 'right' to cross‑examine a deponent of an affidavit absent an order from the court. An application must be made and a deponent is not subject to cross‑examination unless an order or direction of the court has been made. If the court considers it reasonable in the circumstances of the case, it may make an order allowing a deponent to be cross‑examined on their affidavit. The power is discretionary.
Having considered the evidence lodged by Mr Kirman and mindful of the issues between the parties, I found it difficult to see what cross‑examination in this case might achieve. Nonetheless, I was conscious of the tight timeframes imposed upon all parties and the prospect that matters may develop in cross‑examination which were clear only after discovery had been given. In the end, it seemed to me to be in the interests of justice to provide KHML with the greatest possible scope to put their case. Counsel felt that included a need to cross‑examine Mr Kirman. Once I had determined cross‑examination should be permitted, I could see no basis upon which that cross‑examination could be properly limited. Accordingly, I granted KHML's application to cross‑examine Mr Kirman.
Interlocutory applications filed 7 May 2021
These two applications were filed on the Friday before the trial which was due to begin on Tuesday. The first application sought an order KHML be relieved of a Harman undertaking. The actual order sought was as follows:
(a)the Plaintiff and its legal representatives be released from any implied undertaking not to use the document identified in the response to notice to produce from Norton Rose Fulbright to Clayton Utz dated 4 May 2021, to the limited extent that the document may be adduced or referred to in proceedings to be commenced by Kipoi Holdings Mauritius Limited (formerly Teichmann Construction Mauritius Limited), against Taurus Mining Finance Fund LP, QMetco Limited, The Law Debenture Trust Corporation PLC and Law Debenture Trustees Limited concerning the validity and effectiveness of the Loan Agreement between Jinji Resources Finance Pty Ltd (Jinji) dated 27 January 2021 and the Purported Debt Transfer of rights and obligations from Taurus and QMetco under the CTA to Jinji Resources Finance Pty Ltd.
It was not entirely clear any release was necessary. However, for the avoidance of doubt and with the concurrence of all parties, I made the orders sought. Clearly, this was a case where the document in question was being used for an entirely proper purpose and did not in any way constitute a collateral use of a discovered document.
The second chamber summons was an application for leave to rely on additional evidence in support of the originating process. The orders sought were as follows:
(a)the Plaintiff have leave to file and serve additional evidence concerning:
(i)the circumstances in which the agreement between Jinji Resource Finance Pty Ltd and Societe d'explotation de Kipoi SA (SEK) described in paragraph 32(b)(i) of the first affidavit of Robert Kirman dated 21 April 2021 (Loan Agreement) was entered into;
(ii)the validity and effectiveness of the Loan Agreement and the purported transfer of debt from Taurus Mining Finance Fund LP (Taurus) and QMetco Limited (QMetco) to Jinii [sic] on 27 January 2021 (Debt Transfer);
(iii)communications between the second defendants and third defendant with the creditors of the first defendant in respect of the Loan Agreement and Debt Transfer,
and to rely on such evidence in support of the relief specified in the originating process filed on 25 March 2021.
(b)if and to the extent necessary to enable (a) to occur (and to enable the defendants to prepare, file and serve any responsive evidence), the trial listed for 11 May 2021 at 9.00 am be vacated.
The fact that granting orders in terms of sub-par (a) would necessitate the making of the order vacating a trial in par (b) made this application of particular importance. Given the limited time available between the making of the application and commencement of the trial, I ordered this interlocutory application be heard prior to the commencement of the trial. In support of its application, KHML relied upon what is described as the third affidavit of Mr Gupta sworn 7 May 2021, an affidavit of James Te Riele sworn 8 May 2021 and an affidavit of Ian Howard Davies sworn 10 May 2021. Objection was taken by both the first and second defendants and YYT to certain parts of these affidavits. Essentially, it was said the affidavits contained hearsay material. While that was the case, this was an interlocutory application and for the purposes of such an application, hearsay material is, subject to the form in which it is presented, admissible. Without going through the objections seriatim, it is enough for me to say in determining the application, I took into account all of the material in each of the three affidavits.
KHML put its position this way. On 27 January 2021, as a result of a purported debt transfer, Jinji became the purported major senior lender to the Tiger group and thus the purported majority secured creditor of the first defendant. Jinji supported the YYT DOCA and information was provided to the creditors of the first defendant relating to the position as majority secured creditor and its support for the YYT DOCA. KHML had concerns about the validity and effectiveness of the purported debt transfer. These doubts arose as at 7 February 2021 when it first learned of the debt transfer. It sought a copy of the Loan Agreement. That was only provided in early May. KHML asked the second defendants to investigate the validity and effectiveness of the purported debt transfer but the second defendants informed the plaintiff on 9 February 2021 that 'while certain arguments had been raised by [KHML] disputing the validity of the transfer … for the purposes of the reconvened second meeting the administrators are satisfied that Taurus and QMetco's debt had been transferred to Jinji.'
On receiving the Loan Agreement, the plaintiff became aware that it was signed by Mr Paul Mappan and not the trustee liquidator of SEK, Mr Jean-Pierre Chansa Lumbwe. On 6 May 2021, Mr Lumbwe provided KHML with documents which taken together with the Loan Agreement, KHML says establish that as at 27 January 2021:
(1)SEK was in liquidation under DRC law;
(2)Mr Lumbwe was the trustee liquidator of SEK;
(3)Mr Mappan was not the trustee liquidator of SEK;
(4)the Loan Agreement was signed purportedly on behalf of SEK by Mr Mappan only; and
(5)Mr Lumbwe had not delegated any authority to Mr Mappan and was not consulted about SEK's purported entry into the Loan Agreement.
Further documents provided by Mr Lumbwe on 6 May 2021, according to KHML, establish that Mr Lumbwe was appointed trustee liquidator of SEK on 27 October 2020. Mr Lumbwe asserts that as trustee liquidator, he has had since 27 October 2020 sole control of SEK and the sole right to deal with its assets. He says the power of SEK's board to control it ceased upon his appointment as trustee liquidator.
Mr Gupta observes that subject to the court's leave, KHML will contend in these proceedings that:
(1)under cl 8.07(f)(i) of the Credit Transfer Agreement, a transfer of debt was only effective if the lender (Jinji) and the borrower (SEK) first entered into a relevant loan agreement;
(2)the debt transfer is ineffective or likely to be ineffective because Mr Mappan had no right or power to bind SEK whilst it was in liquidation in respect of the Loan Agreement;
(3)the second defendants were aware of the essential facts that result in the debt transfer being ineffective or being likely to be ineffective from at least 20 March 2021; and
(4)the creditors of the first defendant were provided with false or misleading information or alternatively material matters were omitted from what was reported to them in respect of the effectiveness of the debt transfer and Jinji's status as a major senior lender and in respect of the second defendant's awareness of the essential facts identified by Mr Gupta.
It was KHML's position it would be required to file and serve further evidence including expert evidence as to DRC law. It said it had already taken steps to prepare such evidence. Mr Gupta says KHML proposes to bring proceedings seeking orders and/or declarations challenging the validity and effectiveness of the Loan Agreement and the debt restructure. To allow this further evidence to be submitted, an adjournment of the trial was necessary.
As might have been expected, counsel for the first and second defendants and YYT objected to the orders sought by KHML. After hearing argument, I dismissed the application. I did so for two main reasons. First, I was not satisfied the interests of justice favoured granting the adjournment to allow extra evidence to be obtained. During the course of his submissions, counsel for KHML maintained the issues to be raised could be dealt with within a relatively short time frame. He indicated KHML would do everything possible to facilitate that tight time frame. Accordingly, although there was no certainty as to when the issues could be canvassed, the delay would not be great. The difficulty with that submission is there was no certainty how long it would take for KHML to gather its evidence and how long it would take YYT and/or the first and second defendants to gather their evidence. I have already detailed why I considered it essential this matter be dealt with promptly. To grant KHML's application would have frustrated those aims.
Secondly, and more importantly, I was not satisfied the evidence, was of sufficient prohibitive value to alter the outcome of these proceedings even if it went the way KHML suggested it would. What KHML was alleging was the administrators misled the creditors. But the administrators, alerted to potential difficulties with the debt transfer by KHML, had brought this issue to the attention of the creditors. True is they had not undertaken a detailed investigation and they were probably not in a position to do so. But the fact remains the first defendant was put into administration because the directors reached the conclusion the company was or might become insolvent. This all had to do with an inability to service its loan obligations. The debenture trust company, as manager of the loans, had threatened to appoint receivers and liquidate Tiger. It was their position which was crucial. Counsel for the first and second defendants suggested any fight between the lenders really took place 'behind the blanket'. In other words, it may or may not be the case that the Debt Transfer Agreement was effective. But that made no difference to the right of law debenture trustees to take steps in relation to secured property.
As I indicated earlier, the securities granted by Tiger were subject to the ISSA. KHML did not put on any evidence of a security document granted in its favour or in favour of any individual lender. The first and second defendants submitted that was because, as set out in the definition of 'security documents' in the Common Terms Agreement (CTA), all security documents were granted to the Security Trustee. Law Debenture Trustees Ltd, in its capacity as Security Trustee, holds the charge property for the secured parties on the terms of the ISSA. Under s 3(a)(ii) of the ISSA, each secured party authorised the Security Trustee to perform the duties, obligations and responsibilities and exercise the rights, powers and authorities and discretions specifically given to the Security Trustee under or in connection with the financing documents together with any other incidental rights, powers, authorities or discretion. As is usual in such arrangements, the Security Trustee is granted broad powers. S 3(a)(ii) does not in any way caveat or limit the authorisations granted to the Security Trustee. That section is not expressed to be subject to any other section of the ISSA.
The first and second defendants submitted when considering the exercise of those broad powers:
(a)the Security Trustee was the appropriate entity for the administrators to listen to;
(b)the company's relevant contractual arrangements were with the security trustee;
(c) the administrators are not required to interrogate the ISSA or any other document relating to the arrangements between the lenders and security trustees to which the company was not a party;
(d)there was no reason for the administrators to consider the views of the individual senior lenders; and
(e)the plaintiffs had not established the Security Trustee acted in breach of their rights and obligations under the relevant documents.
These submissions are unanswerable. It is a question of how far the chain of enquiry could and should have been taken by the administrators. What is telling is KHML could provide no answer to the first and second defendants' claims. What they were effectively trying to do was question the Security Trustee's right to take the action they threatened if the YYT DOCA was not accepted. As a matter of contractual interpretation, they failed.
The law
Section 445D of the Corporations Act 2001 (Cth) is in the following terms:
445D When Court may terminate deed
(1)The Court may make an order terminating a deed of company arrangement if satisfied that:
(a)information about the company’s business, property, affairs or financial circumstances that:
(i)was false or misleading; and
(ii)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;
was given to the administrator of the company or to such creditors; or
(b)such information was contained in a document that accompanied a notice of the meeting at which the resolution was passed; or
(c)there was an omission from such a document and the omission can reasonably be expected to have been material to such creditors in so deciding; or
(d)there has been a material contravention of the deed by a person bound by the deed; or
(e)effect cannot be given to the deed without injustice or undue delay; or
(f)the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:
(i)oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or
(ii)contrary to the interests of the creditors of the company as a whole; or
(g)the deed should be terminated for some other reason.
(2)An order may be made on the application of:
(a) a creditor of the company; or
(b) the company; or
(ba) ASIC; or
(c) any other interested person.
Section 445D(1)(a) provides the court with the power to terminate a DOCA if it is satisfied the information about the business, property, affairs or financial circumstances of the company was false or misleading and can reasonably be expected to have been material to such creditors. The use of the word 'and' here is clearly conjunctive. To satisfy the requirements of the subsection, an applicant must satisfy both limbs of the subsection. That said, the expression 'false or misleading information' looks at the objective quality of the information not at whether anyone was actually misled. Further, the expression looks at whether the information was actually false or misleading, not whether anyone intended it to be false or misleading or did not care whether or not it was false or misleading. In other words, the subsection looks at the truth or falsity of the information itself and whether the information is misleading without any consideration of the state of mind of the person who provides the information. KHML put their case on the basis the information provided by the administrators was actually false and misleading. They did not at any time argue the administrators intended to provide false information or mislead the creditors.
In written opening submissions filed 30 April 2021 (at [19]), KHML noted that certain statements were made about events that lay in the future - that is beyond the time when the deed was adopted. It was submitted a statement about an event that lies in the future at the time when the statement is made can be demonstrated as events unfold to be a false statement. Further, it was submitted it is possible for a statement about an event which lies in the future to be misleading if it is a statement with the capacity to lead a recipient into error. In deciding whether a statement about an event in the future ought properly be regarded as one which is false or misleading, the court should take into account whether or not it purports to be anything more than the present estimate or prediction of the author. This statement of principle was based upon the decision of Campbell J in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd.[2] This point requires further consideration.
[2] Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510.
What Campbell J had to say was as follows:
In the present case, some of the matters which are alleged to be false or misleading related to events that lay in the future, at the time the deed was adopted. Even though there are always difficulties about making accurate predictions of the future, it is still possible for a statement about an event which lies in the future at the time the statement is made to be demonstrated, as events unfold, to be a false statement. Further, it is possible for a statement about an event which lies in the future to be misleading, if it is a statement with the capacity to lead a recipient of it into error.
In deciding whether a statement about an event in the future ought properly be regarded as one which is false or misleading, the court should take into account whether or not it purports to be anything more than the present estimate or prediction of the author [148] - [149].
Not even administrators can look into the future. I do not understand Campbell J to be saying that, if a statement is made by an administrator and it later proves not to be accurate, that renders the actions of the administrator in making the statement misleading. The concept of 'false or misleading' is the subject of extensive jurisprudence in the field of consumer law. There is no reason why that jurisprudence should not be applied into provisions of the Corporations Act. On that basis, the particular rules which apply to false and misleading statements as to future matters have application in this context. So it is not simply a question of whether or not a statement made proved not to be correct. That is not enough to activate the section. Insofar as the submissions of KHML were to the contrary, they should be rejected.
In their submissions, KHML noted sub‑section (a)(ii) introduced the concept of 'materiality'. They submitted this connoted something which was relevant and did affect or might have affected the outcome of the vote at the second creditor's meeting. Further, when deciding whether the false or misleading information was material, all of the false and misleading information about the relevant business, property, affairs or financial circumstances should be considered collectively. In other words, an overview has to be adopted. This is consistent with Campbell J's views in the Bidald Consulting decision. In this case, the first and second defendants and YYT relied on evidence that even after the creditors were provided with further information, a significant number would not have altered their vote. Correctly, KHML noted these counterfactual views of the creditors did not go to materiality but discretion.
In its written submissions, YYT identified four legal issues which they said required determination. First, there were the issues raised by s 445D(1)(a) and s 445D(1)(c). The second was whether the discretion embodied in s 445D ought be exercised to make the orders sought by YYT. The third question is whether or not the orders sought by KHML which relied upon s 447A ought be made. Finally, there was the question of standing - did KHML fall within s 445D(2) such as to allow it to make this application.
This final point was treated in some detail in the written submissions of YYT but was not developed to any extent in oral submissions. However, it does require analysis. The only category into which KHML could possibly fall is s 445D(2)(c). In Allatech v Construction Management Group [2002] NSWSC 293; (2002) 167 FLR 324, Austin J defined an 'interested person' as a:
…
(a person) whose material rights or economic interests are or may be affected by the operation or effect of the Deed of Company Arrangement which they seek to challenge, at least where the effect is substantial [20].
In BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336, Campbell J, having cited with approval Austin J's decision in Allatech, said:
In my view, Allatech and Commonwealth v Rocklea Spinning Mills were correctly decided so far as who is an 'interested person' within s 445D(2) is concerned. Some statements in them need modification to be applied to the present case. That is because in the context of s 445D(2) an 'interested person' is a person who has an interest in whether the court makes an order terminating a DOCA. By contrast, in the context of s 447A an 'interested person' is a person interested in whether the court makes the order that is sought under s 447A [168].
In this case, it would seem that KHML is a secured creditor of Tiger. Given its rights as a secured creditor would appear to be held by Law Debenture Trust Co, there must be a question as to whether or not it satisfies the test of 'interested person'. It is arguable the interested person is Law Debenture Trust Co. It is to be noted that Austin J referred to the effect being 'substantial'. There is no evidence in this case the effect on KHML of any DOCA would be 'substantial'.
For the purposes of this application, I am prepared to proceed on the basis KHML has standing to bring the application. I would note however, that I have reached that conclusion only because whether it is right or wrong, it does not affect the outcome of an application which was argued on substantially different grounds. I would say however, that if, as I was urged to do by counsel for the first and second defendants, I had treated this matter as a preliminary issue and determined the case on that basis, I would have reached the conclusion that KHML did not have standing to bring this application.
The real focus of YYT's submissions was what was said to be an impermissible use of s 447A. It is clear that s 447A was only engaged if KHML was able to satisfy the requirements of s 445D. Given the conclusion I have reached in relation to the failure of KHML to satisfy the requirements of that section, it is not strictly speaking necessary for me to deal with s 447A. But for the sake of completeness and in fairness to YYT, I will deal briefly with that issue.
It was YYT's position that although the powers under s 447A are wide, they are not without limitation. In particular, orders under s 447A can only have effect from the time of their making although they can have effect in relation to past matters or past events. Rights that have accrued before the date of the proposed s 447A order may render orders that are inconsistent with those rights either without power or outside the permissible exercise of the court's discretion. That is particularly the case where those rights are derived from something other than the operation of pt 5.3A. A creditor's trust provides an example. Such matters can properly be said to be 'beyond the scope' of pt 5.3A and therefore outside the proper operation of s 447A. In making these submissions YYT relied upon the decisions in Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 27 [282], Parkview Constructions Pty Ltd v Tayeh [2009] NSWSC 186; (2009) 71 ACSR 65 [77]‑[78] and City of Swan v Lehman Brothers Australia Ltd [2009] FCAFC 130; (2009) 179 FCR 243.
It was YYT's position that significant steps had been taken by YYT, the administrators and Tiger's unsecured creditors since the YYT DOCA was entered into. It was said rights had been created and extinguished under the creditor's trust in much the same manner as in Parkview. YYT referred to the following matters:
(a)On 23 February 2021, YYT paid some US$1.44 million to the administrators on account of the 'available trust property' and the 'Fees Fund' in accordance with its obligations under cl 9.1.1 and cl 9.3 of the YTC DOCA. From that day:
(i)the administrators were entitled under cl 22 of the YYT DOCA to look to the Fees Fund to satisfy their remuneration and expenses incurred as voluntary administrators and deed administrators;
(ii)Tiger had the right under cl 22.5 to any surplus in the Fees Fund after payment of that remuneration and expenses; and
(iii)the administrators have incurred the right to remuneration and expenses in execution and effectuation of the DOCA (including in taking steps in response to this proceeding) which they can look to the Fees Fund to satisfy;
(b)On 26 February 2020, Tiger and the administrators executed the Creditors Trust Deed pursuant to the obligations under cl 9.1.2 of the YYT DOCA;
(c) On 4 March 2021, the administrators paid the 'available trust property' into the creditor's trust pursuant to the obligations under cl 9.1.3 of the DOCA;
(d)As a consequence of these steps and the operation of cl 13.1 of the DOCA, on 4 March 2021:
(i)the unsecured creditor's rights were 'discharged, satisfied, released and extinguished' on and from 4 March 2021;
(ii)the unsecured creditors obtained rights to claim against the creditor's trust;
(iii)the administrators obtained the right to execute and deliver to Tiger, written releases of their former claims under cl 13.3 of the YYT DOCA; and
(iv)Tiger and the administrators obtained the right to plead the deed against any person having a claim against Tiger; and
(e) By operation of the Creditor's Trust Deed from 4 March 2021:
(i)the administrators became entitled to the payment of up to $50,000 out of the Trust Fund in payment of their remuneration and expenses under cl 6.1.1 and 19;
(ii)the unsecured creditors became entitled to the payment of certain sums out of the Trust Fund under cl 6.1.2 ‑ 6.1.8 and cl 7.2;
(iii)the unsecured creditor's claims to those payments operated in satisfaction and discharge of all 'claims' under cl 7.20;
(iv)the administrators became entitled to call on unsecured creditors to execute and deliver a written release of all those former claims under cl 7.20; and
(v)Tiger obtained the right to payment of any surplus in the Trust Fund under cl 9.1.
The Final Dividend has been paid. The plaintiff was aware of the accrual and vesting of these rights at all material times and took no action to prevent such rights arising or in some other way, prevent the effectuation of the DOCA rights. It may have been open to KHML to seek injunctive relief. It chose not to do so. In now seeking to unwind all that has taken place KHML is, on YYT's case, going beyond what is permissible under s 4457A. Put colloquially, it is no longer possible for the court to make orders which would 'unscramble the egg'.
There is considerable force in YYT's argument. As the submissions were framed, considerable emphasis was placed on the use of the creditor's trust, the power to unwind that trust being beyond the power which is given under s 447A. To use the phrase found in Australian Memory at [32], the existence and indeed perfection of the creditor's trust represents an 'insuperable discretionary obstacle' to the making of such orders.
Had it been necessary for me to deal with this issue, I would have accepted the arguments put by YYT. The reason for reaching that conclusion is based on two grounds. First, the authorities I have mentioned and particularly the decision in Parkview, support such a conclusion. There are clearly limits to the discretionary power, and attempting to use s 447A in the manner proposed by KHML seems to me to be beyond the limits of the discretion.
The second reason has to do with timing. As I have been at pains to point out, seeking to terminate a DOCA has significant temporal implications. If it is to be done, it should be done quickly. As at the date of the second creditors' meeting, KHML knew exactly what would follow and what steps all parties including the administrators would take, which positioned them perfectly to seek injunctive relief. It is no answer to say KHML needed to consider their position that they needed to take time to gather their evidence and all parties - the administrators, the creditors and YYT - should have taken no steps perhaps before proceedings were issued but certainly after the proceedings were issued. Furthermore, an undertaking proffered by KHML during the course of counsel's closing submissions to effectively hold harmless YYT in respect of the payments made to the creditors' trust was too little too late.
Accordingly, had it been necessary to do so, I would have determined remedies were not available to KHML under s 447A.
Cross‑examination of Mr Kirman
Mr Kirman was cross‑examined at some length and to no real purpose. As I have indicated above, it was never suggested by KHML that the administrators had deliberately misled the creditors or they had acted negligently or dishonestly. So what could be achieved by cross‑examination was necessarily limited. In the end, all Mr Kirman did was confirm the contents of his affidavit and demonstrate he had at all times acted with great care and probity. If anything did emerge from the cross‑examination, it was how careful Mr Kirman had been to ensure all relevant information was put before creditors in a completely balanced way. For instance, when he instructed his staff to contact creditors, the staff were required to conform with a prepared script. They were told to take any questions on notice. They were specifically forbidden to offer their own personal views or in any way colour information universally provided.
There were two aspects of the cross‑examination of Mr Kirman which are worthy of comment. The first has to do with notes Mr Kirman made (it seems) prior to the hearing. These notes became exhibit 1. It would seem Mr Kirman had been provided with the trial bundle late in the day and, in preparation for cross‑examination, he had examined the documents, refreshed his memory and, to assist him in answering questions, had made notes. He should probably not have had those notes before him in the witness box. But as a reading of the notes makes plain, there is no mischief in what Mr Kirman did. Quite the reverse. He was attempting to put himself in a position to answer counsel's questions as quickly and as accurately as possible.
The second issue has to do with so called 'lock‑in letters'. At one stage I thought the issue of these lock‑in letters may be central to the resolution of the case. A lock‑in letter is an agreement, usually by deed poll, in which a creditor agrees to support the position of a party proposing a DOCA. The term 'lock‑in letter' or 'lock‑in agreement' does not appear in the Corporations Act. However, as was pointed out by counsel for YYT, such agreements appear to have legislative effect under s 75 - 110(6) of the Insolvency Practice Rules (Corporations) 2016. Mr Kirman, early in cross‑examination, appeared to give evidence to the effect he did not understand what was meant by lock‑in letters. If that is the proper interpretation of his evidence (and I am not sure that it is), it seems surprising. Lock‑in letters appear to be a feature of the DOCA regime. Clearly, a party proposing a DOCA has to ascertain whether or not the proposal will garner enough support to be accepted. There is no point in going to a meeting of creditors proposing a DOCA in hope rather than expectation and finding creditors are not interested. It is one thing for a DOCA proponent to obtain verbal or even written assurance of support and quite another to be sure those assurances will be carried into effect at the creditors' meeting. Lock‑in letters are therefore a feature - at times an essential feature - of the DOCA process.
But whether or not Mr Kirman was familiar with lock‑in letters and whether or not he knew in this case YYT had arranged a number of lock‑in letters was immaterial to the outcome of this litigation. It was not alleged, and it could not have been alleged that Mr Kirman's failure to ascertain whether or not all or any of the creditors were subject to lock‑in letters was in some way 'false or misleading'. The relations between the creditors and the DOCA proponent had no impact on the duties of the administrators. Counsel for KHML suggested in her closing submissions that aspects of Mr Kirman's evidence were 'unsatsifactory'. She particularly highlighted his response to questions about the lock‑in letters. In my view, Mr Kirman's evidence was in all respects satisfactory. His even-handedness and professionalism was obvious.
Alleged breaches of s 445D(1)
Schedule C to the reply submissions of KHML helpfully contain a concise statement of what KHML alleges was false or misleading information. The schedule also provides what are said to be examples of false and misleading information and pinpoint where in the affidavit evidence reference is made to that material. During the course of his submissions, counsel for the first and second defendant handed up a document which incorporated sch C and provided the response of the first and second defendants. Given it was the first and second defendants who dealt with this aspect of KHML's application, the document proved very useful. I will deal with each of the seven categories of allegedly false and misleading information by reference to the KHML schedule.
The administrators omitted to tell creditors that SEK was subject to liquidation.
KHML refers to a communication which references SEK being placed (only) 'on care and maintenance' and omitted to report the fact that SEK was in fact in liquidation. Appearing as attachment "AG11' to Mr Gupta's first affidavit, is the administrator's 'circular to creditors'. The circular is dated 2 December 2020. Appearing under the heading 'Head Office Function', there is the following:
Following their appointment, the Administrators made enquiries of the Senior Lenders as to whether they would provide funding to maintain Tiger's operations, including SEK and the Kipoi Project. Ultimately, no funding commitment was received and, in the absence of certainty of a sale and/or recapitalisation proceeding, the Administrators determined it was in the best interest of Tiger's creditors that the head office function be discontinued on 23 November 2020. At this time, the Director and CFO were retrenched and the head office lease disclaimed.
Later in the circular under the sub‑heading 'History' the administrators had this to say:
In October 2020, QMetco advised Tiger that it was unwilling to continue funding Kipoi's ongoing holding costs or Tiger's corporate costs. Absent funding by the Senior Lenders to meet these costs while sale negotiations with interested parties were progressed, the Board formed the view that Tiger was insolvent, or was likely to become insolvent, and resolved to appoint the Administrators on 5 November 2020.
It is difficult to see how any of that material is misleading. What the administrators have done is state the facts. What further investigation they might have undertaken or how in some way they might have elaborated upon what they told to creditors is unclear. It may well be that in making the statements they did, the administrators provided what might be regarded as superficial advice. But it was an accurate summary of the way the position had unfolded and how Tiger was placed at the time the circular was issued. Nothing happened subsequently which suggests the information was in any way false or misleading. I am not satisfied KHML has made good this point.
The administrators omitted to tell creditors the consequence of SEK being in liquidation.
KHML says the administrators never reported to creditors that SEK was in liquidation and that meant Tiger did not control SEK (despite SEK being wholly owned). It is difficult to see what effect this might have had on the voting intention of the creditors. If anything, the fact that Tiger did not control SEK suggests a diminution in value of the SEK shares as an asset and an impediment to Tiger in some way dealing effectively with the assets in SEK. But primarily, the level of detail which KHML seems to see as necessary was simply beyond the requirements falling on the administrators.
The administrators informed creditors that the debts of Taurus/QMetco had been validly transferred to Jinji or alternatively, the creditors should proceed on that basis
It is KHML's position that communications referencing Jinji acquiring the secured debt were false or misleading because there was real doubt as to whether or not that debt had been validly acquired.
Appearing as attachment 'AG25' to Mr Gupta's affidavit is a circular to creditors which attaches a supplementary administrator's report to creditors. The document is dated 9 February 2021. Section 1 is entitled 'Executive summary'. It sets out the history of the administration and the recommendations. Section 2 entitled 'Subsequent Events' deals with matters which had occurred after the adjourned second creditor's meeting. The second dot point reads as follows:
On 27 January 2021, the Administrators understand that Jinji acquired the secured debt of SEK (guaranteed by Tiger) that was previously held by Taurus Mining Finance Fund L.P. and QMetco Limited. Whilst certain arguments have been raised by Kipoi Holdings Mauritius Limited (another senior lender) disputing the validity of the transfer, the Administrators have received evidence confirming the secured debt has been assigned, including confirmation from the Security Agent and Trustee. Accordingly, at the time of writing this Supplementary Report, and for the purposes of the Reconvened Second Meeting, the Administrators are satisfied that Taurus Mining Finance Fund L.P. and QMetco Limited’s debt has been transferred to Jinji.
Once again, it is difficult to see how this statement is either false or misleading. The paragraph advises the administrators 'understand' Jinji had acquired the secured debt of SEK. The acquisition of the debt is not stated in absolute terms. The fact KHML disputed the validity of the transfer is acknowledged. Perhaps most importantly, reference is made to the security agent and trustee confirming the assignment of the debt. What is contained in the paragraph is an accurate statement of the then prevailing situation. It is neither false nor misleading.
The administrators omitted to properly advise the creditors of the risk of the Jinji transfer being invalid
In the agenda for the reconvened second creditor's meeting under the heading 'Subsequent events', there is a run down of matters which occurred after the adjourned second creditors' meeting. Appearing as the second dot point, there is the following:
Acquisition of Taurus/QMetco secured debt by JinJi Resources Finance (Jinji). Validity of assessment disputed by senior lender (KHML)
This complaint really repeats the point made earlier. Apart from to say I am not satisfied that there is anything misleading in that statement, I need say nothing further.
The administrators asserted Jinji had control over the secured creditors
KHML appears to rely on communications which suggest that Jinji controlled the security trustee and that if the transfer was invalid, these assertions were false and misleading. This complaint finds expression in the notes for the reconvened second creditors' meeting. The administrators 'on balance' recommended the YYT proposal. The notes put the position this way:
Administrators' recommendation
On balance, the Administrators recommend the YYTCL proposal as:
-it provides a higher and more timely return than liquidation
-it is supported by the security trustee and a number of key creditors, notwithstanding the lower return
-it is in an advanced form and could be executed expediently
-an adjournment would risk the YYTCL Proposal
the KHML proposal is subject to a number of risks which have not been fully considered and mitigated, including:
-Enforcement by secured creditor
-Solvency post completion of DOCA
-Final documentation
In some ways, this complaint is at the heart of KHML's case. The argument appears to be that the KHML DOCA was, in all respects, superior to the YYT DOCA and acting rationally, creditors ought to have accepted the KHML proposal. The argument seems to be that with a little more information, particularly an explanation as to the alleged assignment of the debt to Jinji, the creditors would have voted for the KHML proposal. It was not argued there was anything improper about the administrators recommending the YYT proposal. Rather, the complaint seems to be that insufficient emphasis was placed on the benefits of the KHML proposal.
The first thing to say about the administrators' recommendation is that it does not contain anything which is false. It acknowledges, even if it does not spell out, the return on the KHML DOCA would be higher than under the YYT DOCA. It notes the YYT DOCA is well advanced and it was the case that it could be signed immediately.
That said, it must be acknowledged the recommendations did not mention a number of matters. Two in particular are of importance. First, it did not mention that although an adjournment would have been required to allow the KHML DOCA to be put in a form which could be signed, there was a binding term‑sheet and the actual drafting of the DOCA would not have taken more than a few days. It probably could have been ready for execution within a week. That meant if the meeting had been adjourned for 7 days, the creditors could have expected a higher return for the nominal delay.
Second, there was no mention that under the YYT DOCA no s 444GA application was needed so that the creditors could retain their shareholding. That may have offered the creditors an enhanced return although as I have said, it is difficult to see how the administrators could possibly have ascertained what the shares in Tiger might have been worth and the extent of any enhanced return to the creditors.
But these and any other omissions really did not alter the basis upon which the administrators made their recommendation. The creditors were advised at the meeting an adjournment to further investigate and, at least by implication, draft the terms of the KHML proposal was available. A creditor who carefully considered the competing proposals would have realised the difference in treatment of their shares. Neither of these two matters was of such a significant moment as to render the administrators' recommendation false or misleading.
The administrators asserted that the secured creditors' intention was known
KHML says that if the transfer of the debt to Jinji was invalid, the instructions to the security trustee were incorrect and any reporting of the intention or views of the secured creditor was false and misleading. With respect, that ignores the position of the security trustee. I have detailed the nature of that relationship and the way in which the security trustee was entitled to act unfettered by any directions from secured lenders. It may well be the case that security trustee would not have acted in direct defiance of the wishes of a major creditor. There is no evidence on that issue. Even so, it is not a matter which the administrators could have been expected to investigate and it was not something that they could have put before the creditors.
The administrators asserted that the secured creditors supported the YYT DOCA
It was KHML's position that if the transfer was invalid, the instructions to the security trustee were incorrect and any reporting of the intentional views of the secured creditors were false and/or misleading. Really, that is a re‑statement of at least one of the other complaints. In my view, it is of no moment.
Other complaints
There were three other matters which were raised in KHML's written submissions and which require further attention. The first has to do with the risks that if the YYT DOCA was not accepted, receivers would be appointed and Tiger placed in liquidation. At par 42 of its written submissions, KHML puts the position as follows:
Mr Gupta's evidence is that, at the second creditor's meeting, the Administrators did not inform Creditors that:
(a)KHML's position was that if a receivership arose, KHML would participate as a bidder to acquire the relevant assets and thus any resulting receivership would not pose a problem for the proposed KHML DOCA effectuating as:
(i)the Creditors' Trust would proceed in any event such that all unsecured creditors were protected;
(ii)KHML would participate as a bidder to purchase the assets of KHML at market value;
(b)the secured creditors' interests would adequately be protected by their right to appoint a receiver, and there was considerable doubt about whether any winding up application would be made (or would proceed); and
(c)even if the secured creditors (on Jinji's instructions 'through the Security Trustee) could validly appoint a receiver, it was KHML's position that, if a receivership arose, KHML would participate as a bidder to acquire the relevant assets and thus any resulting receivership would not pose a problem for the proposed KHML DOCA.
With respect, much of what is contained in that submission is highly speculative. If receivers were appointed, there would inevitably be a delay before it could be ascertained what return, if any, the creditors would receive. As I have indicated above, the corporate holdings under the umbrella of Tiger were complex. By way of example, SEK is in liquidation and subject to the DRC's law. It is perfectly reasonable for the administrators to have approached the matter on the basis that the creditors had an appreciation of what might flow from Tiger being placed in receivership and/or liquidation and the delays in any potential return. Even if they trusted the good offices of Mr Gupta and KHML, there was no warrant for the administrators bringing these matters to the attention of the creditors. Put another way, it was not false or misleading to say nothing about this issue.
Second, it was said it was misleading to inform the creditors if it was not accepted the YYT DOCA proposal might lapse. It is difficult to see what else the administrators could have done. They were told in as many words by YYT that if the meeting was adjourned, the DOCA proposal would lapse. It was possible YYT would backtrack on that threat but there was no reason to expect they would do so. They had been quite definite. There is nothing in the evidence to suggest theirs was an empty threat. The administrators could not be expected to make that suggestion to creditors. In not making any statement about the possibility the threat would not come to pass, they were not in any way acting in a manner which was false or misleading.
Finally, it was said the information provided was false and misleading with respect to the need to detail the KHML proposal. This complaint has about it two aspects. First, it was said that the meeting would need to be adjourned to allow the DOCA to be put in final form. (The meeting was also advised the administrators wanted more time to consider the KHML proposal. But that aspect of the proposal for an adjournment can, for the moment, be put to one side). That was clearly a correct statement of the position - as at the date of the reconvened meeting there was a binding term‑sheet but there was no DOCA as such. During the course of the hearing, I indicated to senior counsel for KHML, that I was not satisfied the evidence indicated there would be any difficulty in actually drafting the DOCA. In other words, there was nothing to suggest there would have been a sticking point which meant the terms of the DOCA could not be agreed. The risk was that having voted for the adjournment, the creditors would not have been in a position to vote in favour of a subsequent KHML proposal because supervening events, such as the appointment of receivers, would so have altered the landscape as to make the DOCA unworkable.
Conclusion
Taking in the overall and looking at the totality of the evidence, I am not satisfied what was put before the creditors by the administrators was false or misleading. Nor am I satisfied there was any omission which was of any significance at all. Accordingly, I am satisfied that KHML has not shown a breach of s 445D(1)(a)(i) or s 445D(1)(c). Having reached that conclusion, it is not necessary to consider whether any false or misleading information was 'material' under the provisions of s 445D(a)(ii).
Nor is it specifically necessary for me to deal with the question of discretion. The discretion can only arise if the requirements of the section are satisfied. But insofar as there may have been information which was false or misleading, I would have exercised my discretion against setting aside the DOCA. This clearly was a difficult administration. The fact the corporate structure was complex, and a significant part of Tiger's activities were conducted in jurisdictions other than Western Australia, compounded the problem. So did the disputes between KHML on the one hand and YYT and its related entitles on the other. The administrators acted in an even‑handed fashion and in doing so, they created tension between KHML and YYTC which resulted in a higher return to creditors than would otherwise have been the case. To terminate this DOCA would have been to push Tiger into the unknown.
Finally, there was no evidence any of the creditors wanted the DOCA terminated. There was one intervening creditor who supported the position of the first and second defendants. All of the other creditors had been advised of these proceedings and what was at stake. None was prepared to support the position of KHML. There was no public interest in terminating this DOCA. Rather, leaving it in position was respecting the wishes of fully informed creditors who, under the DOCA regime, have the right to the final say.
Conclusion
For these reasons, I am satisfied KHML's application ought be dismissed. On publication of these reasons, the parties should confer and bring in a short minute of orders. My preliminary view is the costs of all parties ought be paid by KHML. If the parties are unable to agree that order, then short submissions as to costs ought be filed within 7 days of the publication of these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LH
Research Associate to the Honourable Chief Justice Quinlan
25 MAY 2021
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