Martin and ors; re AED Oil Limited (administrators appointed) (No 2)

[2012] VSC 54

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

S CI 2011 4716

AED OIL LIMITED (ADMINISTRATORS APPOINTED) (ACN 110 393 292)	Plaintiff
v
NICHOLAS JOHN MARTIN, DANIEL MATTHEW BRYANT AND IAN MENZIES CARSON in their capacity as joint and several administrators of AED OIL LIMITED (ADMINISTRATORS APPOINTED) (ACN 110 393 292)	Defendants

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	24 February 2012
DATE OF JUDGMENT:	27 February 2012
CASE MAY BE CITED AS:	Martin and ors; re AED Oil Limited (administrators appointed) (No 2)
MEDIUM NEUTRAL CITATION:	[2012] VSC 54

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CORPORATIONS – Administration under Part 5.3A of the Corporations Act 2001 – Application for further extension of time to convene second meeting of creditors pursuant to s 447A(1) of the Act.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Rosewarne	Blake Dawson

HIS HONOUR:

1. The plaintiffs, who are the joint and several administrators of AED Oil Limited (“the company”) make application under s 447A(1) of the Corporations Act 2001 (Cth) (“Act”) for a further extension of the period within which they must convene the second meeting of creditors of the company.[1] 

   [1]On 24 February 2012, Ferguson J referred this matter for hearing and determination by an Associate Judge 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.

1. On 7 September 2011, I made an order under s 439A(6) of the Act that the period within which the plaintiffs must convene the second meetings of creditors be extended to 29 February 2012 together with certain ancillary orders under s 447A(1) of the Act. My reasons for making those orders are reported in the decision of Martin and ors; re AED Oil Limited (administrators appointed).[2] 

   [2][2011] VSC 460.

1. The Court is empowered to grant further extensions of the convening period under s 447A(1) of the Act.[3]

   [3]Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110.

1. This application is made pursuant to liberty to apply granted in the orders I made in that earlier application on 7 September 2011.  The application is supported by an affidavit of one of the plaintiffs, Nicholas John Martin sworn 22 February 2012.  The plaintiffs also rely on the two affidavits of Mr Martin of 6 September 2011 filed in support of the earlier application.

1. The general background to the matter is set out in my earlier reasons.  As those reasons reveal, the appointment of the administrators to the company followed the making of an adverse arbitral award for the amount of $72 million against a Singaporean subsidiary of the company in favour of Puffin FSPO Limited (“Puffin”).  The company was the guarantor of certain liabilities of the Singaporean subsidiary, including the arbitral award.

1. Shortly after the orders granting the first extension of the convening period were made, Craig Peter Shepard and Leanne Kylie Chessar of KordaMentha were appointed by Puffin as joint receivers and managers of the company on 16 September 2011.  Puffin holds a registered fixed and floating charge over the property of the company. 

1. Since that appointment, Puffin and other parties have been involved in negotiations relating to the arbitral award and as part of that process the company has been requested through the receivers to enter into certain agreements.  The receivers have had the carriage of such negotiations which are confidential and the substance of them has not been disclosed to the plaintiffs.  The plaintiffs have been informed that if the negotiations are successful, the receivers appointed by Puffin will retire and the charge that Puffin holds over the company’s assets will be released. 

1. The Court has been asked to keep certain matters raised in paragraphs 9 to 14 of Mr Martin’s affidavit of 22 February 2012 confidential as they relate to negotiations which are commercially sensitive.  Mr Martin is concerned that disclosure of the matters contained in those paragraphs will jeopardise the negotiations which are continuing between certain parties. The Court is prepared to abide by that request.  To that end, an unredacted copy of the affidavit, including the paragraphs which are requested to be kept confidential, will be ordered to be kept in a sealed envelope on the court file and not to be opened without a further order of the Court.  So as  not to frustrate the operation of the order for confidentiality, I will not canvass the contents of those paragraphs in these reasons, save to say that their contents support and justify the making of the orders which the plaintiffs seek in this application. 

1. The company’s only remaining assets are:

(a)its “shell” which, because the company is listed on the Australian Stock Exchange has some value;

(b)some plant and equipment relating to the joint venture activities undertaken between the company and Sinopec , a Chinese state owned company which is located in Darwin; and

(c)the company’s 40% interest in the joint venture with Sinopec.

1. The plaintiffs say that on the information currently available to them there appears to be a number of possibilities for dealing with the company’s assets including:

(a)re-listing the company’s shell on the Australian Stock Exchange pursuant to a deed of company arrangement, coupled with a creditor’s trust arrangement.  In that way the plaintiffs could proceed to attempt a sale of the listed shell through the mechanism of a deed of company arrangement;

(b)a deed of company arrangement to restructure the company or its assets which may include a sale of the joint venture interest;

(c)a sale of the company’s interest in the plant and equipment; or

(d)a transfer by the company of its joint venture interest for an agreed sum.

1. Mr Martin says that the plaintiffs require further time to consider the viability of these proposals, as well as considering whether there is any further means of dealing with the company’s assets to maximise a return to its creditors.  In this regard, the plaintiffs have not had time to conduct any formal valuation of the shell of the company, the joint venture interest or the plant and equipment.  They require the opportunity to test the market for potential purchasers for these assets, including Sinopec. 

1. An extension of six months of the convening period is sought for these events to occur.  Mr Martin, based on his experience in conducting similar tasks as part of administrations or liquidations, says that it is likely to take the plaintiffs this period of time to complete the outstanding tasks. Given the nature, complexity and commercial sensitivity of the exercise which the plaintiffs are required to conduct, I consider that the time sought is reasonable

1. Upon completion of the transaction which is currently being negotiated, there will be three remaining primary creditors being:

(a)Sinopec, which could be owed in the vicinity of $30 million;

(b)ARF Amber Pte Limited, which is owed $34 million;

(c)Corrs Chambers Westgarth for legal costs of approximately $1.3 million; and

(d)Lajolla Cove Investors whose debt amounts to approximately $776,000.

1. In addition to these creditors, there is also approximately $1.6 million owed in respect of employee entitlements to former employees of the company.  If the shell of the company were to be sold, it is possible that this may enable some payment of  employee entitlements, depending upon the quantum of costs and expenses of the administration.  If the company were to go into liquidation as a result of the convening period not being extended, it is likely that the only recourse for the employees would be the GEARS scheme. It is Mr Martin’s view that a restructuring would bring about a better result for employee creditors. 

1. Mr Martin states that on the information available to the plaintiffs it appears unlikely that the unsecured creditors of the company will receive any dividend if the company goes into liquidation at the conclusion of the current convening period, rather than continue in administration. He deposes that it is his belief that the further extension of the convening period and the continuation of the administration will not adversely affect the position of unsecured creditors as there is no material advantage for these creditors in the company going into liquidation at the end of the first extension of the convening period. He states that there are negligible accruing claims of landlords. The premises which the company leased and which the receivers have continued to occupy and pay rent will shortly be vacated. The plaintiffs will seek to disclaim that lease. As such, no issue arises in respect of the landlord being prevented from regaining possession of the premises by an application under s 440C of the Act.

1. In addition to these matters, Mr Martin is of the opinion that the administrators do not have sufficient information to enable them to prepare and circulate a report to creditors that would comply with the requirements of s 439A(4) of the Act. There remains significant which is work which is required to be done in order to complete a proposal for a deed of company arrangement, including the seeking of expressions of interest for the sale of plant and equipment and transfer of the joint venture interest. In addition, further due diligence would be required as part of any recapitalisation, including time to assess the company’s management personnel, as well as the setting up of a physical data room to review documents relevant to the company.

1. In addition, the plaintiffs will not be in a position to form a view as to the merits of a deed of company arrangement or liquidation without forming a view as to all available recoveries and it will take some time for them to be in a position to comprehend the position in this regard.  These matters are delayed until the outcome of the present negotiations result in a completed transaction.  Mr Martin says that any report completed in the meantime would be inadequate for the creditors’ needs. 

1. As my earlier reasons reveal, at the first creditors’ meeting of the company, a committee of creditors was established comprising of Puffin, ARF, La Jolla Cove and Mr Richard Little, who is a former employee of the company.  On 9 February 2012, Mr Martin convened and chaired a meeting of the committee of creditors of the company during which he advised them of the possibility of this application. 

1. On 21 February 2012, Mr Martin’s firm emailed the committee of creditors enquiring as to whether they had any objection to the application.  ARF, La Jolla Cove and Puffin have all written back through their respective representatives indicating that they support this application.  No response has yet been received from Mr Little.  In addition, Sinopec does not object to the application.

1. In the circumstance, I regard it as appropriate to further extend the convening period on the basis of the following orders:  

·     Until further order, paragraphs 9 to 14 of the affidavit of Nicholas John Martin sworn 22 February 2012, together with exhibit NM-2 to that affidavit, be kept confidential.

·     The affidavit of Nicholas John Martin sworn 22 February 2012, redacted for confidentiality in accordance with paragraph 1, be filed forthwith.

·     The unredacted affidavit of Nicholas John Martin sworn 22 February 2012 together with exhibit NM-2 to that affidavit to it be marked confidential, filed forthwith and kept in a sealed envelope on the Court file and not be opened without further order of the Court, no such further order to be made without first giving the Plaintiffs a reasonable opportunity to object.

· Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (the “Act”), the period within which the plaintiffs must convene the second meeting of the creditors of AED Oil Limited (Administrators Appointed) (Receivers and Managers Appointed) (ACN 110 393 292) (the “company”) be further extended until midnight on 31 August 2012.

· Pursuant to s 447A(1) of the Act, the second meeting of creditors of the Company may be convened and held at any time, or within 5 business days after the end of the convening period as extended by the Court under order 1 above, notwithstanding the provisions of s 439A(2) of the Act.

·     The plaintiffs (or their solicitors) inform the creditors of 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.

·     Liberty to apply is granted to any person who can demonstrate sufficient interest to vary or discharge order 4 or order 5 above on not less than 72 hours notice to the plaintiffs.

·     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 31 August 2012.

·     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.

· This Order be signed by an Associate Judge pursuant to r 60.02(2) of the Supreme Court (General Civil Procedure) Rules 2005.