Lithium WA Investments Pty Ltd v Robert Michael Kirman and Robert Conry Brauer as joint and several administrators of Alita Resources Ltd (Receivers and Managers Appointed) (Administrators Appointed)
[2021] WASC 3
•7 JANUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: LITHIUM WA INVESTMENTS PTY LTD -v- ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) [2021] WASC 3
CORAM: HILL J
HEARD: 3 JANUARY 2021
DELIVERED : 3 JANUARY 2021
PUBLISHED : 7 JANUARY 2021
FILE NO/S: COR 158 of 2020
BETWEEN: LITHIUM WA INVESTMENTS PTY LTD
Plaintiff
AND
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of LITHCO NO 2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Second Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of TAWANA RESOURCES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Third Defendants
AUSTROID CORPORATION
Interested Party
Catchwords:
Corporations - Insolvency - Deeds of Company Arrangement - Interlocutory injunction sought - Whether plaintiff has standing - Serious question to be tried as to whether the plaintiff has claim under s 4450D of Corporations Act 2001 (Cth) - Balance of convenience - Injunction granted
Legislation:
Corporations Act 2001 (Cth), s 447A, s 445D, Sch 2, s 90-15
Rules of the Supreme Court 1971 (WA), O 59 r 9
Result:
Plaintiff's application for injunction granted
Category: B
Representation:
Counsel:
| Plaintiff | : | S J Penrose |
| First Defendants | : | A R Fleming |
| Second Defendants | : | A R Fleming |
| Third Defendants | : | A R Fleming |
| Interested Party | : | J A Abberton |
Solicitors:
| Plaintiff | : | Tottle Partners |
| First Defendants | : | Clayton Utz |
| Second Defendants | : | Clayton Utz |
| Third Defendants | : | Clayton Utz |
| Interested Party | : | Lavan |
Case(s) referred to in decision(s):
Allatech Proprietary Limited v Construction Management Group Proprietary Limited [2002] NSWSC 293; (2002) 167 FLR 324
Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322
Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [2020] FCA 1395
HILL J:
(This decision was delivered extemporaneously on 3 January 2021 and has been edited from the transcript).
On 31 December 2020, Lithium WA Investments Pty Ltd (Lithium WA) filed an originating process and an interlocutory process against the administrators of Alita Resources Ltd (Alita), Lithco No 2 Pty Ltd (Lithco) and Tawana Resources Pty Ltd (Tawana) (collectively, the Companies). The plaintiff seeks orders under s 445D and s 447A of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule terminating the deeds of company arrangement entered into on 23 December 2020 and seeks orders that each of these companies be wound up. In the alternative, Lithium WA seeks orders for a variation of the subsidiary deed of company arrangement between Lithco, Tawana and Austroid Corporation (Austroid) (Subsidiary DOCA).
The interlocutory process seeks orders extending the effectuation date of the deeds of company arrangement until these proceedings have been heard and determined.
These proceedings were commenced following my refusal of an interlocutory application by Galaxy Resources Ltd (Galaxy) on 22 December 2020 in COR 154 of 2020 in respect of the second creditors meetings of the Companies.
The interlocutory process came on for hearing before me today on an urgent basis. The basis for the urgent hearing was that unless it was heard and determined today, the Subsidiary DOCA will effectuate tomorrow, 4 January 2021, and the application will be rendered nugatory.
In support of its application, the plaintiff relied on the affidavits filed in COR 154 of 2020, as well as three affidavits sworn in support of the application in these proceedings, being an affidavit of Karen Louise Smith sworn 31 December 2020, an affidavit of Mark Rowsthorn sworn 2 January 2021 and an affidavit of Caroline Cecilie Spencer sworn 2 January 2021.
The application was opposed by the defendants, as well as by Austroid, the proponent of the DOCAs and the sole secured creditor and financier of the Companies. The administrators filed an affidavit of Adriano Poncini sworn 3 January 2021, which annexed the minutes of the creditors meeting and the two deeds of company arrangement. Austroid relied on an affidavit of Zachary Sharp sworn 3 January 2021.
Factual Background
The defendants are the joint and several administrators of the Companies. The primary asset of the Companies is the Bald Hill lithium mine in the Eastern Goldfields region of Western Australia.
Galaxy is a shareholder of Alita and holds approximately 12% of the issued share capital of Alita, but is not a creditor of any of the Companies.
On 4 December 2020, the defendants were appointed as administrators of the Companies, and on the same date, Richard Tucker and John Bumbak of KordaMentha were appointed as receivers.[1]
[1] Affidavit of Karen Louise Smith sworn 31 December 2020, 'KLS2', 'KLS3', 'KLS4'.
On about 8 December 2020, orders were made by this court shortening the convening period for the second creditors meeting.
The first creditors meeting was held on 16 December 2020. On the same date, the defendants issued a notice of meeting for the second creditors meeting, which was held on 23 December 2020 at 3:00 pm.
Austroid, the only creditor of Alita, which holds the secured debt, submitted two interrelated DOCA proposals which were considered and approved at the creditors meeting on 23 December 2020.[2] Both DOCAs are subject to a number of conditions precedent. The evidence before me is that the conditions precedent under the Subsidiary DOCA were satisfied on 23 December 2020 and that effectuation will occur on 4 January 2021 unless orders are made by this court.[3]
[2] Affidavit of Adriano Poncini filed 3 January 2021, 'AP1'.
[3] Affidavit of Caroline Cecilie Spencer filed 2 January 2021, 'CS1'.
On 1 January 2021, the plaintiff acquired 15 million shares in Alita from Galaxy.[4] It is not clear from the evidence before me whether Lithium WA is currently a registered shareholder of Alita, although I infer from the evidence that it is currently not registered.
[4] Affidavit of Mark Rowsthorn filed 2 January 2021 [5], 'MR1'.
On the same date, the plaintiff made an offer by letter to the defendants and the receivers of the Companies.[5] The plaintiff offered to purchase the assets comprising the Bald Hill mine for $55 million by purchasing the shares in Lithco and Tawana, alternatively, by purchasing the assets comprising the Bald Hill mine. There are limited conditions precedent to the offer, but the conditions precedent include that Lithium WA undertake a limited due diligence on the assets. The offer is open for 60 days from the date of the letter.
[5] Affidavit of Mark Rowsthorn filed 2 January 2021 [6], 'MR2'.
As I noted in my reasons for decision on Galaxy's application on 22 December 2020, which I delivered extemporaneously, there is a long and somewhat complicated history to the external administration of these Companies. Administrators and receivers were appointed by Galaxy in August 2019 following the purchase by Galaxy of the then secured creditors debt. At that time, two alternative DOCA proposals were put forward. The administrators considered the China Hydrogen Energy Ltd (CHEL) DOCA was the superior proposal, and in December 2019, the CHEL DOCA was executed by all parties. On 27 November 2020, orders were made by Master Sanderson varying the terms of this DOCA.
On 3 December 2020, the CHEL DOCA effectuated, which extinguished in full all claims of creditors against the company, excluding the secured debt. At or about this time, Austroid purchased CHEL's debt and became the only secured creditor of the companies.
Statutory regime
In considering the statutory regime that governs this application, I have had consideration to the relevant sections in pt 5.3A of the Corporations Act. Relevantly, s 445D of the Act gives the court the power to make an order terminating the DOCA on a number of grounds. In the plaintiff's submissions filed in support of the application, the plaintiff relies on s 445D(1)(g), namely, that the deed be terminated for some other reason.
It is not in doubt that this section must be construed and applied taking account of the objects of pt 5.3 of the Corporations Act, which is set out in s 435A.
In Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited,[6] Beach J summarised the court's discretion under s 445D(1)(g) of the Corporations Act. In essence, this section gives the court the discretion to terminate the DOCA if it considers that 'for some other reason' this should occur. For example, the court may terminate a DOCA under this subsection if it is contrary to the public interest, which includes notions of commercial morality and the interests of the public at large. His Honour noted that:[7]
[G]enerally speaking, one should not terminate a DOCA and order a company to be wound up if the DOCA will restore the company to financial health and the DOCA does not have the purpose or effect of unjustifiably quarantining third parties from investigation. If the company is trading and it is likely that its business will continue, then unless there are real public interest concerns, termination of a DOCA and causing a company to be wound up are inappropriate outcomes. The interests of creditors should be the primary consideration, but they may be outweighed if the DOCA has a fraudulent or wrongful purpose.
[6] Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [2020] FCA 1395 [409].
[7] Habrok (Dalgaranga) Proprietary Limited v Gascoyne Resources Limited [410].
On an application under s 445D of the Corporations Act, the plaintiff bears the onus of proof in establishing there is a basis under this section to set aside the DOCA and that the court should exercise its discretion to do so.[8]
[8] Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322 [91].
Disposition
Before turning to consider the substantive application, an issue was raised by the defendants and the interested party as to whether there had been conferral as required by O 59 r 9 of the Rules of the Supreme Court 1971 (WA) (Rules). The evidence before me is that the application was filed on 31 December 2020 prior to any attempt at conferral by correspondence, which commenced on 1 January 2021, and that there has been no oral conferral.
While I accept there has not been sufficient conferral for the purposes of O 59 r 9 of the Rules, for the following reasons, I am prepared to waive the requirement for conferral.
First, 31 December 2020 was the last working day prior to the hearing of this application. If the plaintiff had waited for conferral to take place before filing the application, it would not have been possible to file the application prior to the effectuation of the deed.
Second, I accept that the matter is urgent and that in cases of urgency it is appropriate to waive the need for conferral.
Third, the timing of the applications is due to the decision of the defendants and Austroid to hold the meeting of creditors on 23 December 2020. Had a shortening of the time to convene the second creditors meeting not been sought and obtained by Austroid, it would not have been necessary for the application to be filed and heard at this time of year.
In considering whether orders should be made in terms of the interlocutory process, I am required to consider two matters. The first is whether there is a serious question to be tried and, second, where the balance of convenience lies.
Serious question to be tried
The primary complaint raised by the plaintiff is that the sale process undertaken by the administrators was truncated and inadequate and did not enable sufficient time for competing proposals to be made.
The plaintiff contends that the offer it has made is a superior offer to the DOCAs that have been entered into as its offer will enable the secured creditor to be paid out in full, with the balance available to be retained for the benefit of shareholders, including both for itself and also for Galaxy. The plaintiff submits that if the Subsidiary DOCA is effectuated, the directors of Tawana and Lithco could make a number of decisions in respect to the Bald Hill mine that cannot be undone, including entering into the loan agreement.[9]
[9] Affidavit of Adriano Poncini filed 3 January 2021, 'AP3' (cl 7.2.3).
The defendants oppose the application on a number of grounds, including that the plaintiff does not have standing to bring this application. In addition, the defendants and Austroid contend that the offer by the plaintiff is in relation to Alita and has no impact on the Subsidiary DOCA. They submit the Subsidiary DOCA should be allowed to proceed in accordance with the Corporations Act, and the plaintiff and Galaxy can raise any concerns they have in respect of the Alita DOCA.
Turning first to consider the question of standing. An order under s 445D and s 447A of the Corporations Act may be made on the application of a creditor of the company or any other interested person. It is not in dispute that the plaintiff is not a creditor of the companies; the question is whether it is an interested person. The evidence before me is that on 1 January 2021, after the filing of the application, the plaintiff acquired 15 million shares in Alita for $71,000, although the share transfer has not been registered.
Austroid contends that the plaintiff is not a shareholder and accordingly is not an interested person. While Austroid accepts that there is no specific provision in the Act that renders any transfer of shares void, it relies on cl 14.3 of the Alita DOCA and says that on a proper construction of the Alita DOCA as a whole, the deed administrators have no power to register the transfer.
Clause 14.3 of the Alita DOCA provides that during the term of the deed, the deed administrators will seek the prior written consent of Austroid before exercising any power to sell, assign, transfer or otherwise dispose or part with possession of any of the shares.
In my view, this clause does not resolve the question of standing as it is not the deed administrators who are selling, assigning, transferring or otherwise disposing or parting with possession of any of the shares. It is Galaxy who has sought to do so.
In Allatech Proprietary Limited v Construction Management Group Proprietary Limited, Austin J held that Allatech was an 'other interested person' when Allatech sought to terminate a DOCA.[10] His Honour said that 'other interested person' are words of wide scope and are intended to encompass applicants whose material rights or economic interests are or may be affected by the operation of a DOCA, at least where the effect is substantial.
[10] Allatech Proprietary Limited v Construction Management Group Proprietary Limited [2002] NSWSC 293; (2002) 167 FLR 324 [20].
In my view, the question of the plaintiff's standing cannot be resolved in the interlocutory application before me today. On the evidence currently before me, I consider there is a serious question to be tried as to whether the plaintiff has standing to bring the application and that its rights may be affected by the operation of the subsidiary DOCA.
The primary relief sought by the plaintiff is that the Companies be wound up. The evidence before me is that no sale process was undertaken by the administrators and that there was a truncated timeframe for the holding of the second creditors meeting.[11] The plaintiff contends that this did not allow any party other than the secured creditor to put forward a proposal.
[11] Affidavit of Martin Ronald Rowley filed 21 December 2020 (in COR 154 of 2020).
On the basis of the offer that has now been made by the plaintiff, I consider it is possible that on a winding up of the Companies, the shareholders may receive a payment and that there may be grounds on which the court would exercise its discretion to order the termination of the DOCA under s 445D(1)(g) of the Corporations Act. For this reason, I consider there is a question to be tried as to whether the DOCA should be terminated under s 445D of the Act, although I would not consider the case to be a particularly strong case.
Balance of convenience
In respect of the balance of convenience, the evidence before me is that the conditions precedent were satisfied on 23 December 2020 and that effectuation will occur on 4 January 2021.[12] The defendants say that the balance of convenience does not favour the injunction being granted as they have been required to seek further funding from Austroid to respond to the application and that any extension will lead to further costs and expenses. Austroid also refers to applications for forfeiture that have been made in respect of certain tenements which require urgent work to be done during the course of this month.[13] However, there is no evidence before me that this work will not be done if an injunction is granted.
[12] Affidavit of Caroline Cecilie Spencer filed 2 January 2021, 'CS1'.
[13] Affidavit of Zachary Sharp filed 3 January 2021 [7] – [15], 'ZS1' – 'ZS7'.
While I accept that additional costs will be incurred by the defendants as a consequence of any extension, unless an injunction is granted, the plaintiff will lose any ability it has to have its originating process heard and determined. In circumstances where I consider that there is a question to be tried as to whether the DOCA may be terminated, the balance of convenience strongly favours the making of orders which restrain the defendants from giving effect to the DOCA.
Conclusion
So that there is minimal prejudice to all parties, I consider that an injunction should be granted to restrain the defendants from effectuating the DOCA until after the hearing and determination of the plaintiff's originating summons, but that is on the condition that it is heard and determined on an urgent basis and as soon as is practicable.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill7 JANUARY 2021
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