Martin and ors; re AED Oil Limited (administrators appointed)
[2011] VSC 460
•16 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL LAND EQUITY DIVISION
COMMERCIAL COURT
LIST E
S CI 2011 4716
| BETWEEN | |
| AED OIL LIMITED (ADMINISTRATORS APPOINTED) (ACN 110 393 292) | |
| - and - | |
| NICHOLAS JOHN MARTIN, DANIEL MATTHEW BRYANT AND IAN MENZIES CARSON in their capacity as joint and several administrators of AED OIL LIMITED (ADMINSTRATORS APPOINTED) (ACN 110 393 292) | Plaintiffs |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 September 2011 | |
DATE OF JUDGMENT: | 16 September 2011 | |
CASE MAY BE CITED AS: | Martin and ors; re AED Oil Limited (administrators appointed) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 460 | |
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CORPORATIONS – Application by administrators for extension of time for convening second meeting of creditors required under Section 439A(6) of the Corporations Act2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr JWS Peters SC with Ms C Button of counsel | Blake Dawson |
HIS HONOUR:
On 6 September 2011, the plaintiffs, Nicholas John Martin, Daniel Matthew Bryant and Ian Menzies Carson, who are the joint and several administrators of AED Oil Limited, made application under ss 439A(6) of the Corporations Act 2001 (Cth) (“Act”) for orders that the period within which they must convene the second meeting of creditors of the company be extended to 29 February 2012. In the absence of such an order, the convening period would have expired on Friday 9 September 2011.
The plaintiffs also sought an order pursuant to s 447A(1) of the Act that notwithstanding the provisions of s 439A(2) of the Act the second meeting of creditors be held at any time within the convening period as extended by the Court or within five business days after the end of that period.
Because relief was being claimed under s 447A, the application was the subject of an order of Ferguson J made on 7 September 2011, referring the application to an Associate Judge for hearing and determination pursuant to Rule 77.05 of the Supreme Court (General Civil Procedure) Rules 2005 and, if required, also pursuant to Rule 16.1(3) of the Supreme Court (Corporations) Rules 2003.
On 7 September 2011 I made orders of the type sought by the plaintiffs together with an order that the plaintiffs or their solicitors inform the creditors of the company and others affected by the orders that such orders had been made. I now set out my reasons for the orders that I pronounced on 7 September 2011.
The plaintiffs’ application is supported by two affidavits of one of the plaintiffs, Nicholas John Martin, both sworn 6 September 2011.
Factual background
On 12 August 2011, Messrs Damien Templeton and Damien Hodgson of the firm of KPMG were appointed as joint and several administrators of the company pursuant to s 436A of the Act. At the first meeting of creditors of the company which was held on 24 August 2011, the creditors resolved pursuant to s 436E(4) of the Act to remove Messrs Templeton and Hodgson as administrators and appointed the plaintiffs to replace them.
The company is a public company incorporated in Australia and is listed on the ASX. It has a number of wholly owned subsidiaries in Australia and in Singapore. One of the Australian subsidiaries, AED Oil Investments Pty Ltd, has subsidiaries incorporated in Cyprus and the Netherlands. I was informed at the hearing of this matter by Mr Peters SC, who appeared as senior counsel on behalf of the plaintiffs, that AED Services Pte Limited, a subsidiary of the Singapore subsidiary of the company, Puffin Installation Services Pte Limited, has recently also entered into a form of insolvency administration in Singapore.
Through these subsidiaries, the company has interests in and is involved in the planning, exploration and appraisal of potential oil and gas opportunities in exploration fields throughout South‑East Asia.
In the period before it went into administration, the company was engaged in a capital raising in order that funds could be provided to its subsidiaries to maintain these projects. In order to preserve the value of the existing assets of the whole group, Mr Martin states that it is necessary that those projects be supported and maintained.
The appointment of administrators to the company occurred when an international arbitration panel made an award against, among others, the company’s wholly owned subsidiary, AED Services Pte Limited, in Singapore. The company had provided a guarantee in respect of AED Services Pte Limited’s liabilities, including the award in favour of Puffin FSPO Limited (“Puffin”) of $72M.
Mr Martin deposes that the background to the arbitration is complex. He states that it will be necessary for the plaintiffs to understand the contractual arrangements which gave rise to dispute the subject of the arbitration and to consider the voluminous documentation surrounding the award in order to appreciate its implications for the company. The company has a right of indemnity against a Chinese state‑owned entity, Sinopec, which indemnifies the company in relation to the arbitration award. That right of indemnity is a major asset of the company and Mr Martin says that this requires detailed consideration.
Since the plaintiffs’ appointment in place of the first administrators, they have been engaged in gaining an understanding of the company’s current financial position and that of its subsidiaries. They have negotiated with certain parties with a view to preserving so far as possible the ability to restructure the company to enable its recapitalisation on the ASX and have continued to seek further expressions of interest from parties who may wish to participate in that recapitalisation.
Two expressions of interest have been received in respect of the recapitalisation of the company. Neither proponent desires to be identified and I consider it to be in the interest of creditors that the terms of the respective proposals remain confidential as to divulge their substance has the serious potential to compromise sensitive commercial negotiations which are presently underway. For present purposes, it suffices to state that they both involve elaborate negotiations, which if successful, will involve implementation of complex arrangements with a number of parties. Both proposals will require several months to implement.
Mr Martin deposes that he anticipates that the recapitalisation of the company would take at least three to six months. The recapitalisation would involve either the first or second proposal outlined above being entered into in the very near future, with the resultant funds being paid to the company’s subsidiaries in order to finance their ongoing projects in South East Asia. This would be followed by a six to eight week marketing campaign in order to explore a recapitalisation and restructure of the company. This would perhaps involve a sale of its assets, followed by a further four to eight weeks to receive and consider any additional offers. Finally, a three to four week period would be required to negotiate and finalise the offers and prepare the required s 439A report to creditors ahead of the second creditors’ meeting. Mr Martin says that having regard to the fact that the Christmas vacation period will fall within that timeframe, an extension of the convening period for up to six months is sought in the application.
Aside from the above matters, Mr Martin deposes that the plaintiffs do not presently have sufficient information to enable them to compile and circulate a report to creditors that would comply with s 439A(4) of the Act. Significant work is required to advance negotiations with potential stakeholders and to enable expressions of interest for the recapitalisation of the company under a deed of company arrangement or other mechanism. In addition, the parties who are presently short‑listed to undertake further due diligence will require time to access the company’s management personnel and to review relevant documents.
Mr Martin also says that the plaintiffs are not in a position to form a view as to the merits of a deed of company arrangement or liquidation without knowing what recoveries are available. For these reasons Mr Martin says that any report completed by the administrators within the statutory convening period would not be adequate for the creditors’ needs.
Mr Martin deposes that it is his belief that it is in the best interests of the creditors of the company that the convening period be extended, in particular to enable negotiations to be progressed with stake-holders who have expressed an interest in undertaking a recapitalisation of the company. Furthermore, time is needed to market and realise the company’s assets in order to maximise the best return for its creditors. He states that if a second creditors’ meeting is held without giving the administrators the opportunity to explore a recapitalisation and restructure of the company, or a sale of its assets as the case may be, it is likely that the company will be wound up and this would result in a lower return to the creditors.
According to Mr Martin, the matter is given additional complexity by reason that it involves the insolvency of a publicly listed entity. This requires an investigation of alternative recapitalisation methods by means of the transfer of all or some of the existing shares in the company to a new investor pursuant to s 444GA of the Act, in return for a cash sum as an alternative mechanism to recapitalising the company in order to preserve its ASX listing.
Mr Martin deposes that the value of the company and the subsidiaries is best maintained if the group is preserved intact. The ability to recapitalise the company is dependent on being able to maintain the company’s subsidiaries in Brunei and Indonesia. Those companies have their own funding obligations involving numerous contracts which are required to be reviewed and considered in detail.
Mr Martin states that if the convening period is not extended and the second meeting of creditors is held, the plaintiffs would recommend that the meeting be adjourned until the matters referred to have been completed, resulting in there having to be two meetings rather than one, with the result that substantial expenditure would be incurred and ultimately thrown away for no good purpose. Section 439B(2) of the Act provides that the maximum period for which a meeting of creditors can be adjourned once convened is 45 business days and that will not enable the plaintiffs sufficient time to complete the tasks required.
A committee of creditors was established at the first meeting of creditors. Mr Martin has contacted the four creditors on that committee to discuss the intention to seek an extension of the convening period by up to six months. By the time of swearing his longer affidavit of 7 September 2011, he had been able to consult with three members who expressed support for the application. At the hearing of this application, was indicated that the fourth member has subsequently made contact and also expresses support for the application.
I enquired of Mr Peters what other persons would be affected by the making of the order and in particular what the attitude of parties such as lessors of property occupied by the company and secured creditors was in regard to the extension. Mr Peters indicated that the company only leases one property. The secured creditors have not expressed dissent.
In my view the best way of dealing with any prejudice which might arise by reason of the extension of the statutory moratorium occasioned by the granting of the orders sought is to grant liberty to apply to such persons who may be adversely affected to bring on an application to vary the orders. This would include any secured creditors and any owners or lessors of property affected by the orders; those parties are not, in any events, prevented by my orders in making application for leave under Section 440B 440C of the Act, as the case may be.
Legal principles to be applied
The principles dealing with this type of application have recently been considered by Judd J in the case of Algeri; Re Colorado Group Limited,[1] a case involving a large retail and wholesale business group. After referring to the relevant statutory provisions, Judd J stated at paragraphs 24 and 25:
[1][2011] VSC 260.
When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders.[2] Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension.[3] In Re FEA Plantations Ltd [2010] FCA 468, at para 19, Dodd‑Streeton J said:
[2]Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 [10]; Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77 [41]-[42]; Re Austcorp Group Ltd [2009] FCA 636 [18]; Re Midas Australia Pty Ltd [2009] FCA 38 [11]; Re Dimidium Group Pty Ltd [2010] NSWSC 1086 [15].
[3]Re Riveria Group Pty Ltd [2009] 72 ACSR 352, [18]; Re ABC Learning Centres Ltd(No7) (2009) 71 ACSR 560; Re Rivercity Motorway Pty Ltd [2011] FCA 295.
Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company.
In Re Riviera Group,[4] Austin J noted that extensions had been granted in cases falling within the following broad categories:
[4][2009] 72 ACSR 352 [13].
The reasons given for an extension in subsequent cases can be grouped into the following broad categories:
·the size and scope of the business: Re Lombe; Babcock & Brown Ltd (admins apptd) [2009] FCA 349 (Re Lombe); Re Worrell; Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584 ; [2009] FCA 70 (Re Worrell); Re ABC Learning Centres Ltd; Application by Walker (No 5)[2008] FCA 1947;
·substantial offshore activities: Re Lehman Bros Australia Ltd[2008] NSWSC 1132;
·large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari[2005] VSC 496; Re Ansett Australia Ltd and Korda; sub nom Ansett Australia Ltd (No 3) (FCR) (2002) 115 FCR 409 ; 40 ACSR 433 ; [2002] FCA 90;
·complex corporate group structure and intercompany loans: Re Lombe; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd) (ACN 107 863 436)[2008] QSC 272; Re LED Builders Pty Ltd (admin apptd)[2008] NSWSC 633; Hall; Re Australian Capital Reserve Ltd (admins apptd) [2007] FCA 1328;
·complex transactions entered into by the company (for example securities lending or derivatives transactions): In Re Lift Capital Partners Pty Ltd (admin apptd)[2008] NSWSC 446 (Re Lift Capital);
·complex prospects of recovery proceedings: Re Worrell; Coal Developments (German Creek) Pty Ltd v Cmr of Taxation(2007) 241 ALR 667 ; [2007] FCA 1324;
·lack of access to corporate financial records: Re Sims; Destra Corp Ltd[2008] FCA 2002; Re Fincorp Group Holdings Pty Ltd(2007) 62 ACSR 192; [2007] NSWSC 363;
·the time needed to execute an orderly process of disposal of assets: Re Carter, SFM Australasia Pty Ltd (admin apptd) (ACN 105 317 333) (No 2)[2009] FCA 419; Re ABC Learning Centres Ltd; Application by Walker (No 7)(2009) 71 ACSR 560 ; [2009] FCA 454;
·the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admin apptd) [2009] FCA 636;
·where the extension will allow sale of the business as a going concern: Re Lombe; Australian Discount Retail Pty Ltd[2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admin apptd) [2008] FCA 721; Re Uni-Aire Security Pty Ltd (admin apptd)[2006] FCA 1423;
·more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No Pty Ltd (No 2)[2009] FCA 190; Re Fitzgerald; Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd)[2008] FCA 1247; Re Vouris; Marrickville Bowling and Recreation Club Ltd[2008] FCA 622.
Conclusion
In my view, on an application of the above principles, there are substantial grounds to support an extension of time and it is appropriate to grant the orders sought by the plaintiffs. The undertaking of the company and its subsidiaries is complex and substantial, and is, for the large part, conducted in South East Asia. The administration of the company will involve protracted and elaborate negotiations. The imposition of the time frame for convening the second meeting of creditors prescribed by the Act, if required to be complied with, will not be conducive to achieving the optimum outcome for creditors. The plaintiffs, who are experienced insolvency practitioners, consider that it is in the best interests of the creditors that the convening period be extended for the period sought. They indicate that they are not currently able to prepare and circulate a meaningful report to creditors so as to comply with their obligations under s 439A(4) of the Act. If the application is not granted, Mr Martin indicates that any meeting which is convened will need to be adjourned. The period of such adjournment can, in any event, only be for a further 45 business days, which will not enable the administrators to undertake the tasks which it is said are required to be performed. The granting of the application will prevent the incurring of unnecessary costs and expenses of any such adjourned meetings.
While the extension which is sought is a lengthy one, it will serve the best interests of the creditors. Those adversely affected by the grant of the extension are not prevented from making applications to protect their positions. Where the expression “creditors” appears in paragraph 4 of my orders, it is to be taken to include any secured creditor of the company.
The order made in paragraph 2 is made in order to enable a meeting to be convened earlier than the extended period if events dictates that this should occur. As Judd J observes in Colorado, such orders are sometimes described as “Daisytek” orders having first been made by Lindgren J in the Federal Court decision of Re Daisytek Australia Pty Ltd.[5]
[5](2003) 45 ACSR 446.
For convenience, I recite the orders that I made on 7 September 2011.
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the period fixed by section 439A(5)(b) of the Act within which the plaintiffs must convene the second meeting of the creditors of AED Oil Limited (Administrators Appointed) (ACN 110 393 292) (“the Company”) be extended until midnight on 29 February 2012.
2.Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the administration of the Company as if the second meeting of creditors of the Company required to be convened by section 439A of the Act may be convened and held at any time during the period comprising the convening period as extended by the Court under order 1 above and the period of 5 business days thereafter, notwithstanding the provisions of section 439A(2) of the Act.
3.Exhibit NM-4 to the affidavit of Nicholas John Martin sworn 6 September 2011 is to be treated as confidential and kept in a sealed envelope which is to be marked as confidential, and is not to be made available for inspection by any person without the leave of a judge or associate judge of the Court.
4.The plaintiffs (or their solicitors) inform the creditors of the Company and any landlord of premises leased by the Company of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of these orders.
5.Liberty to apply is granted to any person who can demonstrate sufficient interest to vary or discharge order 1 or order 2 above on not less than 72 hours notice to the plaintiffs.
6.The plaintiffs have liberty to apply for any purpose connected with the administration of the Company including but not limited to seeking a further extension of the convening period prior to 29 February 2012.
7.The costs of and incidental to this application be costs and expenses in the administration of and be paid out of the assets of the Company.
8.This order be signed by an Associate Judge pursuant to Rule 60.02(2) of the Supreme Court (General Civil Procedure) Rules 2005.
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