Lau (Administrator), in the matter of Southern Australian Cattle Company Pty Ltd (subject to Deed of Company Arrangement) v Ko
[2021] FCA 1534
•3 December 2021
FEDERAL COURT OF AUSTRALIA
Lau (Administrator), in the matter of Southern Australian Cattle Company Pty Ltd (subject to Deed of Company Arrangement) v Ko [2021] FCA 1534
File number(s): QUD 392 of 2021 Judgment of: GREENWOOD J Date of judgment: 3 December 2021 Catchwords: CORPORATIONS – consideration of an application under s 447A of the Corporations Act 2001 (Cth) and s 90.15 of the Insolvency Practice Schedule (Corporations) being Schedule 2 to the Act Legislation: Corporations Act 2001 (Cth), s 447A; s 90.15 of Schedule 2 to the Act, Insolvency Practice Schedule (Corporations) Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 15 Date of hearing: 3 December 2021 Counsel for the Plaintiff: Mr P E O’Brien Solicitor for the Plaintiff: Hall & Wilcox Lawyers Solicitor for the First Defendant: Ashurst Australia ORDERS
QUD 392 of 2021 IN THE MATTER OF SOUTHERN AUSTRALIAN CATTLE COMPANY PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 007 735 168
BETWEEN: (MELISSA) POH BEE LAU AND JIMMY TRPCEVSKI AS JOINT AND SEVERAL DEED ADMINISTRATORS OF SOUTHERN AUSTRALIAN CATTLE COMPANY PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 007 735 168
Plaintiff
AND: CHEUNG KO
First Defendant
HONG YUAN
Second Defendant
YIYONG HU
Third Defendant
ORDER MADE BY:
GREENWOOD J
DATE OF ORDER:
3 DECEMBER 2021
THE COURT ORDERS THAT:
1.Pursuant to section 447A of the Act, that Part 5.3A of the Act is to operate in relation to Southern Australian Cattle Company Pty Ltd (subject to deed of company arrangement) ACN 007 735 168 (Company) such that clause 5 of the deed of company arrangement entered into by the Company dated 15 September 2021 (DOCA) read:
‘5(a)Cheung Ko must pay the Contribution to the Deed Administrators on or before 6 December 2021, or such longer period as the Deed Administrators agree in their absolute discretion.
5(b)The Deed Administrators and the Company acknowledge that:
(i)upon and effective from the Deed Administrators receiving the Contribution, and in consideration for Cheung Ko making the Contribution, the Deed Administrators and the Company fully and finally release and discharge Cheung Ko and Pacific Minerals Limited Hong Kong Certificate of Incorporation No. 851193 (PML) from all actions, proceedings, suits, causes of action, injunctions, liabilities of any nature including (without limitation, any costs, whether or not the subject of a court order), arbitrations, debts, demands, dues, expenses, claims, indemnities, loans, obligations, entitlements, taxes, restraints, verdicts and judgments however it arises and whether it is present or future, fixed or unascertained, actual or contingent or otherwise whether at law, in equity, under statute or otherwise, to the fullest extent permitted by law, arising in relation to or in connection with the payments made by the Company to Cheung Ko and PML in the total amount of $1,210,000 on or around 5 May 2021, including but not limited to the matters set out in the Administrators' supplementary report to creditors dated 26 August 2021 and the letter from HFW to Cheung Ko dated 11 October 2021; and
(ii)Cheung Ko will take steps under this Deed, including the payment of the Contribution, in reliance on the acknowledgements and releases given in this clause 5(b).’
2.The plaintiffs’ costs in this application be paid as a cost in the administration of the company.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
EX TEMPORE REASONS FOR JUDGMENT
GREENWOOD J:
This is an application by Ms Melissa Lau (whose name is Ms Poh Bee Lau), and Mr Jimmy Trpcevski, as joint and several deed administrators of Southern Australian Cattle Company Pty Ltd (the “company” or “SACC”). The defendants in the proceeding are Cheung Ko (“Mr Ko”), Huong Yuan (“Mr Yuan”), and Yin Yong Hu (“Mr Hu”). Those three defendants are the directors of the company. The application is made under s 447A of the Corporations Act 2001 (Cth) (the “Act”) and, alternatively, s 90‑15 of the Insolvency Practice Schedule (Corporations) which, of course, is Schedule 2 to the Act. It is given force by s 600K of the Act.
The application is for an order under s 447A that Part 5.3A of the Act is to operate in relation to the company such that cl 5 of a deed of company arrangement entered into by the company dated 15 September 2021 should read that Mr Ko must pay the contribution contemplated by the deed on or before 6 December 2021 or such other longer period as the deed administrators agree in their absolute discretion.
In addition, the deed administrators and the company acknowledge that the deed (for the purposes of the application) is to operate on the footing that, upon and effective from the deed administrators receiving the contribution contemplated by the deed, and in consideration of Mr Ko making that contribution, the deed administrators and the company fully and finally release and discharge Mr Ko and an entity called Pacific Minerals Limited (“PML”) from all actions and liabilities as described in the proposed form of order “arising in relation to or in connection with the payments made by the company to Mr Ko and PML in the total amount of $1,210,000.00 on or around 5 May 2021, including but not limited to the matters set out in the administrators’ supplementary report to creditors dated 26 August 2021” and a letter from the administrators’ solicitors to Mr Ko dated 11 October 2021.
The orders also contemplate that Mr Ko will take the particular steps under the deed.
Alternative orders are sought under s 90‑15 but at the hearing counsel for the plaintiff indicated that only orders under s 447A would be sought.
The application, of course, is supported by an affidavit from Ms Lau in which she deposes to a range of matters. I do not propose to recite in these brief reasons all of the contextual facts relating to the history of the matter. It is sufficient to note that on 26 August 2021, the administrators received two proposals for a deed of company arrangement, from Mr Ko and one from Mr Yuan in identical terms, and on 28 August 2021, the administrators received a further deed proposal from Mr Hu in identical terms to the other proposals. The deed relevantly provides that Mr Ko will make a contribution to the deed administrators of $1 million and that the contribution, cash held by the administrators or held at bank, and the company’s receivables, be transferred to trustees of a creditors’ trust for the benefit of the creditors.
On 26 August 2021, the administrators issued a Supplementary Report to creditors attaching the Deed of Company Arrangement (“DOCA”) proposals. On 3 September 2021, at a reconvened second meeting of creditors, the creditors resolved that the company enter into the DOCA. On 15 September 2021, the DOCA was executed and became operative.
Turning to the Supplementary Report to creditors, the administrators note that the dividend outlook in the world governed by the DOCA would result in a payment to unsecured creditors at the low end of 46 cents in the dollar, and at the high end of 51 cents in the dollar and, in a liquidation scenario, unsecured creditors would receive at the low end 25 cents in the dollar, and at the high end, 33 cents in the dollar.
The Supplementary Report sets out an assessment of the assets and liabilities and in particular the judgment of the administrators as to the estimated realisable value of assets and the capacity to gather in liabilities. In the result, the administrators formed the view that there would be a deficiency to creditors of between $1.787 million and $1.842 million. The administrators formed the view that unsecured creditor claims amounted to $1.997 million. The administrators set out the results of their extensive investigations, within the limits of what was possible according to the report, of the affairs of the company. Again, I do not propose to recite in these brief reasons the detail of those matters except to note that the investigation appears to be thorough. It resulted in a conclusion that the company had likely been trading whilst insolvent since 1 November 2020, but the quantum of any such claim that might be made on that footing was only $15,000.00.
The matter which has become the focus of attention is the observations by the administrators at para 5.8 of the Supplementary Report that there has likely been an unreasonable director‑related transaction in contravention of the Act. That matter concerns a loan agreement which was entered into in February 2021 between a company related to SACC, North Australian Cattle Company Pty Ltd (“NACC”), the entity called PML, Mr Hu and Mr Yuan. The short point is that a proposition has emerged on the facts that Mr Ko caused SACC to make payments in reduction of those loan obligations owned by NACC to the lenders. The proposition is that that is an unreasonable director‑related transaction for the purposes of s 588FDA of the Act.
In the result, the DOCA contemplates that Mr Ko will make a contribution of $1 million to the administrators to be held on trust for the creditors, and for the purposes of the implementation of the deed. The difficulty that emerged in relation to that matter is simply this. According to Ms Lau’s affidavit and the related documents which I have considered, the background facts are that during the administrator’s investigations it became a matter of concern to the administrators that Mr Ko appeared to have caused SACC to pay, on 5 May 2021, two amounts, one of $210,000.00 and one of $1 million in reduction of NACC’s liabilities. At para 5.8 of the Supplementary Report, the administrators advised the creditors that these payments represented an unreasonable director‑related transaction.
During discussions with Mr Ko in July 2021, Mr Ko was informed by Ms Lau that, should the company enter liquidation, it would be likely that proceedings would be taken for the recovery of those amounts from Mr Ko and PML. In the result, negotiations took place which resulted in a commitment by Mr Ko to pay $1 million as a contribution under the DOCA. However, on 25 October 2021, Ms Lau received a call from Ms Chan of Ashurst Lawyers, the solicitors for Mr Ko. Ms Chan advised the administrators that Mr Hu, through his solicitors, had sent a letter to Mr Ko alleging that Mr Ko had breached director duties he owed to SACC under the Act by reason of authorising and causing the company to make the NACC payments. It was asserted that Mr Ko had breached his obligations and duties under the Act.
The end result of those propositions was that Mr Ko made it clear that he was proposing to make his contribution to the DOCA on the footing that he would secure a release from all liabilities arising in connection with these historical events. Propositions were then discussed about making amendments to the DOCA but the administrators were not willing to go forward with arrangements unless all proponents of deeds were willing to accept that Mr Ko ought to be released from all liabilities howsoever arising in connection with the NACC matters. The deed administrators made clear in their affidavit in support of the application that they were apprehensive about entering into proposed arrangements to provide a release to Mr Ko unless the Court was willing to make orders of the kind sought today providing the administrators with the appropriate protections by making the amendments to the operation of Part 5.3A of the Act.
Having considered the interests of the creditors at large and the Supplementary Report of the administrators generally, and having considered the advantages and disadvantages of the proposed DOCA as set out in that report, and having taken into account the factors set out in s 90‑15(4) of the Insolvency Practice Schedule (Corporations), I am satisfied that it is in the interests of the unsecured creditors that the orders be made to enable the contributions to be made to enable the distributions to be made to the unsecured creditors as contemplated by the DOCA.
Accordingly, I so order, and I make orders in terms of the draft as submitted to the Court.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood. Associate:
Dated: 3 December 2021
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