McCallum, in the Matter of Re Holdco Pty Ltd (Administrators Appointed) (No 2)
[2021] FCA 377
•21 April 2021
FEDERAL COURT OF AUSTRALIA
McCallum, in the Matter of Re Holdco Pty Ltd (Administrators Appointed) (No 2) [2021] FCA 377
File number: VID 285 of 2020 Judgment of: O'BRYAN J Date of judgment: 21 April 2021 Catchwords: BANKRUPTCY AND INSOLVENCY – where administrators have disposed of property used or in the possession of companies under administration by way of sale pursuant to orders of the Court made under s 44C(2)(c) of the Corporations Act 2010 (Cth) – where the proceeds of sale have been retained to meet the claims of persons who assert ownership or security interests in the property sold – where the administrators claim their costs out of the retained proceeds of sale – where a number of interested parties have made claims to ownership or security interests in the property sold – determination of the relative value of the property sold by administrators – consideration of different valuation methodologies proposed by expert valuers – proper approach to valuation – whether unaccepted offers to purchase an asset are admissible as direct evidence of market value of that asset
INTELLECTUAL PROPERTY – whether works done pursuant to technology and marketing services agreements created copyright works – whether the copyright works were sold as part of the property used or in the possession of companies under administration so as to generate some of the sale proceeds – whether relevant services agreements contained a retention of title clause which was a security interest within the meaning of section 12 of the Personal Property Securities Act 2009 (Cth) – whether ownership of copyright works, the subject of the retention of title clause, vested in grantor of the interest
EQUITY – whether a vendor’s equitable lien arose under a share purchase agreement which provided for the payment of an initial purchase price and the remainder of the purchase price was deferred to a later date – where the share purchase agreement was subsequently varied – whether variations to the share purchase agreement evince an intention to exclude, abandon or waive the lien
Legislation: Copyright Act 1958 (Cth) ss 10, 32(2), 35(2), 35(6), 36(1), 47AB, 196, 197
Corporations Act 2010 (Cth) ss 429(2), 442C, 436A, 436C, 446A, 447A, 513C, 556(1), 1305
Corporations Act 2010 (Cth) Schedule 2 (Insolvency Practice Schedule (Corporations) para 60-10(1)(c)
Evidence Act 1995 (Cth) ss 59, 69
Goods Act 1958 (Vic) s 6
Personal Property Securities Act 2009 (Cth) ss 3, 12, 19(5), 21, 267
Federal Court Rules 2011 (Cth) r 40.02(b)
Cases cited: 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSA (d) 43; 263 DLR (4th) 290
Albert Life Assurance Co, Ex parte Western Life Assurance Society (1870) LR 11 Eq 164
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676
Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339
Auxil Pty Ltd v Terranova [2009] WASCA 163; 260 ALR 164
Baiyai Pty Ltd v Guy [2009] NSWCA 65
Barclays Bank v Estates & Commercial Ltd [1997] 1 WLR 415
Barker v Cox (1876) 4 Ch D 464
Beale v Trinkler [2008] NSWSC 347
Benzlaw & Associates Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] QSC 233
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1994) 180 CLR 266
Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109; 210 LGERA 1
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48
Crawley v Short [2009] NSWCA 410; 262 ALR 654
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86
Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210
ET-China.com International Holdings v Cheung [2019] NSWSC 1874; 142 ACSR 121
Evans v McLean (No 2) [1987] WAR 110; (1985) 9 ACLR 796
Goold v Commonwealth (1993) 42 FCR 51
Hannam v Lamney (1926) 43 WN (NSW) 68
Hewett v Court (1983) 149 CLR 639
Jafari v 23 Developments Pty Ltd [2018] VSC 404
Langen & Wind Ltd v Bell [1972] Ch 685
Mackreth v Symmons (1808) 33 ER 778
McCallum, in the Matter of Re Holdco Pty Ltd (Administrators Appointed) [2020] FCA 666; 145 ACSR 243
McDonald v Federal Commissioner of Land Tax (1915) 20 CLR 231
MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167
Re Maiden Civil (P&E) Pty Ltd; Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852; 277 FLR 337
Reliance Finance Corporation Pty Ltd v Heid [1982] 1 NSWLR 466
Rodney Jane Racing Pty Ltd v Monster Energy Company [2019] FCA 923; 370 ALR 140
State Government Insurance Office (Qld) v Rees (1979) 144 CLR 549
Wossidlo v Catt (1934) 52 CLR 301
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 325 Date of hearing: 27-29 January; 1, 4 February 2021 Counsel for the Plaintiff: D F McAloon Solicitor for the Plaintiff: Gilbert + Tobin Counsel for the First Interested Party: J Slattery QC with L Currie Solicitor for the First Interested Party: Clayton Utz Counsel for the Second and Third Interested Parties: H N G Austin QC with A C Roe Solicitor for the Second and Third Interested Parties: Ashurst Counsel for the Fourth Interested Party: O Bigos QC Solicitor for the Fourth Interested Party: Minter Ellison Counsel for the Fifth and Sixth Interested Parties: P Crutchfield QC with B McLachlan Solicitor for the Fifth and Sixth Interested Parties: Arnold Bloch Leibler ORDERS
VID 285 of 2020 IN THE MATTER OF RE HOLDCO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 612 592 471), RSE HOLDCO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 612 586 893), SARGON CT HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 628 621 321), SC INTERNATIONAL HOLDINGS 2 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 630 632 343), SARGON SUPERANNUATION HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 630 648 225), SARGON SERVICES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 163 522 058) AND SARGON SUPERANNUATION HOLDINGS SPV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 633 509 494) BETWEEN: STEWART MCCALLUM and ADAM NIKITINS IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RE HOLDCO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 612 592 471), RSE HOLDCO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 612 586 893), SARGON CT HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 628 621 321), SC INTERNATIONAL HOLDINGS 2 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 630 632 343), SARGON SUPERANNUATION HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 630 648 225), SARGON SERVICES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 163 522 058) AND SARGON SUPERANNUATION HOLDINGS SPV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 633 509 494)
Plaintiffs
ORDER MADE BY:
O'BRYAN J
DATE OF ORDER:
21 APRIL 2021
THE COURT ORDERS THAT:
1.The claim made by the plaintiffs in respect of items 11 and 12 of the plaintiffs' amended notice of claim is dismissed.
2.The claim made by the first interested party (Westpac) in the proceeding is upheld to the extent determined in the accompanying reasons of the Court, namely that Westpac is entitled to a proportionate share of the balance of the Retained Proceeds (after payment of all other amounts pursuant to previous orders of the Court) of 65.5%.
3.The claim made by the second and third interested parties (Sargon Capital and Taiping) in the proceeding is upheld to the extent determined in the accompanying reasons of the Court, namely that Sargon Capital is entitled to a proportionate share of the balance of the Retained Proceeds (after payment of all other amounts pursuant to previous orders of the Court) of 13.1%.
4.The claims made by the fourth interested party (GrowthOps) and the fifth and sixth interested parties (Diversa and OneVue) in the proceeding are dismissed.
5.The plaintiffs, Westpac, and Sargon Capital and Taiping have liberty to apply to the Court for:
(a)a final order that gives effect to orders 1 to 4 herein by specifying the dollar amounts to be paid to each of them from the Retained Proceeds;
(b)any other order consequential upon the accompanying reasons of the Court.
6.By 19 May 2021, any party (costs applicant) that seeks an order for the payment of the whole or part of its costs of the proceeding by another party (costs respondent) is to file and serve any evidence relied on and a written submission of no more than 5 pages which specifies the amount claimed in a lump sum.
7.By 16 June 2021, any costs respondent is to file and serve any evidence relied on and a written submission of no more than 5 pages in response.
8.Subject to further order, any costs awarded in the proceeding will be awarded in a lump sum pursuant to rule 40.02(b) of the Federal Court Rules 2011 (Cth).
9.The Court will determine the award of costs on the papers unless any party gives notice in its written submission that it seeks a hearing on the question of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
SCHEDULE OF INTERESTED PARTIES
First Interested Party
Westpac Banking Corporation (ACN 007 457 141)
Second Interested Party
Sargon Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 608 799 873)
Third Interested Party
Taiping Trustees Limited
Fourth Interested Party
GrowthOps Services Pty Ltd (ACN 626 208 777)
Fifth Interested Party
Diversa Pty Ltd (ACN 079 201 835)
Sixth Interested Party
OneVue Holdings Limited (ACN 108 221 870)
A. INTRODUCTION
[1]
B. NOTIFIED CLAIMS
[22]
C. QUESTIONS TO BE DETERMINED
[27]
D. OVERVIEW OF THE EVIDENCE
[30]
E. JOINT STATEMENT OF AGREED FACTS
[49]
F. QUESTION 2: VALUATION DATE AND BASIS OF VALUATION
[51]
G. QUESTION 3: OWNERSHIP OF ASSETS
[54]
G.1 The claims to ownership of intellectual property assets made by or on behalf of Sargon Capital and Sargon Services
[54]
Overview
[54]
Findings of fact
[60]
Submissions of the parties
[74]
Consideration
[80]
G.2 GrowthOps’ claims to the Developed IP
[84]
Overview
[84]
Findings of fact
[85]
Was the Developed IP sold as part of the Cloverhill Sale (including as part of the Sargon software systems) so as to generate part of the Retained Proceeds?
[107]
Was GrowthOps the owner of the Developed IP at the time of sale such that it is entitled to a proportion of the Retained Proceeds?
[112]
G.3 Diversa’s claim to an equitable lien
[140]
Findings of fact
[141]
Submissions of the parties
[154]
Consideration
[158]
H. QUESTION 4: VALUATION AND ALLOCATION
[181]
H.1 Introduction
[181]
H.2 Purchase price allocation by the plaintiffs
[190]
H.3 The valuation methodologies of the expert valuers
[197]
Mr Hall’s methodology
[198]
Mr Jaski’s methodology
[210]
Mr Samuel’s valuation methodology
[219]
H.4 Consideration of the valuation methodologies
[226]
The Cloverhill Sale was a distressed sale
[230]
Reduction in value should be applied proportionately
[233]
Conclusion
[253]
H.5 Fair market value of the BSA Assets
[254]
Intellectual property
[257]
Plant and equipment
[277]
Conclusion with respect to the fair market value of the BSA assets
[279]
GrowthOps’ claim
[281]
H.6 Fair market value of the Sale Subsidiaries
[284]
Calculation of expenses and the resulting EBIT
[287]
The choice of EBIT multiple to be applied
[303]
The use of a revenue multiple
[309]
Surplus assets
[312]
Allocation of value between subgroups
[313]
Value of Sargon NZ
[316]
Conclusion on the fair market value of the Sale Subsidiaries
[318]
H.7 Relative values of the Sale Subsidiaries and BSA assets
[320]
I. CONCLUSIONS AND ORDERS
[321]
REASONS FOR JUDGMENT
O’BRYAN J:
A. INTRODUCTION
The Sargon Group was a corporate group consisting of approximately 39 companies which conducted a series of financial planning, corporate trustee, responsible entity, superannuation and related financial services businesses. Sargon Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ACN 608 799 873 (Sargon Capital) was at all relevant times the ultimate holding company of the Sargon Group. The corporate structure of the Sargon Group as at 4 May 2020, as relevant to these proceedings, is set out in Appendix A to these reasons (which has been extracted from Annexure A to the Joint Statement of Agreed Facts tendered by the parties and which is reproduced below).
External administration of Sargon Group entities commenced on 29 January 2020 with the appointment of Mr Shaun Fraser and Mr Jason Preston of McGrathNicol as joint and several receivers and managers of Sargon Capital by secured creditor Taiping Trustees Limited (Taiping). Subsequently, on 8 March 2020, Joseph Hayes and Andrew McCabe of Wexted Advisors were appointed to act as administrators of Sargon Capital pursuant to s 436C of the Corporations Act 2001 (Cth) (Corporations Act) and, on 8 April 2020, Messrs Hayes and McCabe were appointed joint and several liquidators of Sargon Capital.
The plaintiffs in this proceeding, Stewart McCallum and Adam Nikitins of Ernst & Young, were appointed as joint and several voluntary administrators of the following Sargon Group entities on 4 February 2020:
(a)Re Holdco Pty Ltd ACN 612 592 471 (Re Holdco);
(b)RSE Holdco Pty Ltd ACN 612 586 893 (RSE Holdco);
(c)Sargon Services Pty Ltd ACN 163 522 058 (Sargon Services);
(d)Sargon CT Holdings Pty Ltd ACN 628 621 321 (Sargon CT Holdings);
(e)SC International Holdings 2 Pty Ltd ACN 630 632 343 (SCIH2);
(f)Sargon Superannuation Holdings Pty Ltd ACN 630 648 225 (Sargon SH); and
(g)Sargon Superannuation Holdings SPV Pty Ltd ACN 633 509 494 (Sargon SPV),
(which I will refer to collectively as the Sargon VA Entities).
The plaintiffs were also appointed as joint and several voluntary administrators of SC Australian Holdings 1 Pty Ltd (SCAH1). However, on 4 February 2020, Mr Daniel Walley and Mr Christopher Hill of PricewaterhouseCoopers were appointed as joint and several receivers and managers of SCAH1. As a result, the plaintiffs did not seek to deal with SCAH1 and it is not directly relevant to this proceeding.
Subsequently, on 14 May 2020, the plaintiffs were appointed as liquidators of the Sargon VA Entities.
Between the date of their appointment as administrators and the end of April 2020, the plaintiffs negotiated a sale of certain of the businesses and assets of the Sargon VA Entities to the Cloverhill Group (Cloverhill Sale). The sale was complicated by disputes over the ownership of, and security interests held over, certain of the assets to be sold. As a result of those disputes, on 30 April 2020 the plaintiffs sought urgent relief from the Court under ss 442C and 447A of the Corporations Act. Specifically, under s 442C(2)(c), the plaintiffs sought leave of the Court to dispose of:
(a)all intellectual property used or in the possession of Sargon Services (including, but not limited to, intellectual property in relation to the software systems known as "Arcadia", "Sentinel", "Metropolis", "API Impact" and "Sargon Pay", and in relation to the trademarks and domain names set out in the annexure to the originating process); and
(b)such property of the Sargon VA Entities as is (or may be) subject to a security interest (including under the Personal Property Securities Act 2009 (Cth)),
in connection with, and as part of, the sale of the property of the Sargon VA Entities pursuant to the Cloverhill Sale. The plaintiffs also sought orders as to the treatment of the proceeds of the sale for the purposes of satisfying the requirement in s 442C(3) to make arrangements for the adequate protection of the interests of the owners of the intellectual property and the security interest holders. Under s 447A of the Corporations Act, the plaintiffs sought orders as to how Part 5.3A of the Corporations Act was to operate in relation to the proceeds of sale so as to preserve the rights of the owners of the intellectual property and the security interest holders as between themselves.
On 1 May 2020, I made orders under ss 442C and 447A to facilitate the Cloverhill Sale as sought by the plaintiffs. On 19 May 2020, I published reasons for making those orders: McCallum, in the Matter of Re Holdco Pty Ltd (Administrators Appointed) [2020] FCA 666; 145 ACSR 243 (Re Holdco).
One of the orders made at that time was an order that, upon the completion of the Cloverhill Sale, all proceeds of the Cloverhill Sale (excluding the sum of $400,000 representing consideration for the sale of ancillary assets belonging to the "Decimal Entities") (Retained Proceeds) were to be deposited into a separate controlled, interest-bearing monies account to be maintained by the plaintiffs and which could only be accessed or disbursed by the plaintiffs in accordance with an order or direction of the Court. The Retained Proceeds were to be retained for the purpose of meeting claims that any party had in respect of the property of the Sargon VA Entities directly or indirectly sold pursuant to the Cloverhill Sale including (but not limited to):
(a)any claim by the plaintiffs to recover from the Retained Proceeds amounts in respect of remuneration, fees and expenses properly incurred in their capacity as voluntary administrators of the Sargon VA Entities;
(b)claims of the first interested party, Westpac Banking Corporation (Westpac), including its rights under security interests registered on the Personal Property Securities Register prior to completion of the Cloverhill Sale;
(c)any claim that the second and third interested parties, Sargon Capital and Taiping, and/or the fourth interested party, GrowthOps Services Pty Ltd (GrowthOps), may have to recover from the Retained Proceeds amounts by reference to a claimed interest in, or in respect of, the intellectual property that was sold; and
(d)any claim that the fifth and sixth interested parties, Diversa Pty Ltd (Diversa) and its parent company OneVue Holdings Limited (OneVue), may have pursuant to any equitable lien or other security interest over the shares held by Sargon SH and Sargon SPV in Diversa Trustees Limited ACN 006 421 638 (DTL) and CCSL Limited ACN 104 967 964 (CCSL).
This proceeding concerns the resolution of the above claims. The task being undertaken by the Court is a task required by the orders made on 1 May 2020 pursuant to s 442C of the Corporations Act, which is to apply the Retained Proceeds for the purpose of meeting claims that any party has as owners of, or security holders in, the property that was sold. In meeting claims, the Court is carrying into effect the requirement of s 442C(3) to protect adequately the interests of such parties (to the extent the Court has found that they are owners or security holders in respect of the property that was sold).
The method of apportioning the sale proceeds across the various claims of the plaintiffs and interested parties was described in Re Holdco as follows (at [67]):
Under the proposed arrangements, the retained sale proceeds would not simply be apportioned across claimants according to the amount of their respective claims. Rather, the retained proceeds would be apportioned across the different asset classes in respect of which parties claim interests by reference to the relative value of each asset class to the sale proceeds. Once that allocation has been done, all persons who have claims in respect of each asset class will have that claim determined and receive their entitlement to the apportioned sale proceeds. The properly incurred expenses of the administrators will be deducted rateably across the asset classes, and the reasonableness of the expenses will also need to be established.
In this proceeding, no party sought to contradict or vary that method of apportioning the sale proceeds. The relative values of different asset classes will ultimately be expressed as a percentage, so that the monetary entitlements of successful claimants can be calculated by applying the relevant percentage to the balance of the Retained Proceeds after deducting the plaintiffs’ properly incurred expenses. The parties agreed that that method would give effect to the requirement stipulated in s 442C(3) to protect adequately the interests of each secured party. The dispute between the interested parties concerned the existence of ownership or security interests in different asset classes and the method by which the relative value of different asset classes should be determined.
The Cloverhill Sale was effected by the execution of a Business Sale Agreement dated 4 May 2020 (Business Sale Agreement) and separate Share Sale Agreements dated 4 May 2020 for the sale of all the shares in the following subsidiaries of the Sargon VA Entities:
(a)Responsible Entity Partners Ltd (REP);
(b)Tidswell Financial Services Ltd (Tidswell);
(c)Mammatus Pty Ltd (Mammatus);
(d)Sargon CT Pty Ltd (Sargon CT);
(e)Sargon CT (NSW) Pty Ltd (Sargon CT NSW);
(f)Sargon Limited (NZ) (Sargon NZ);
(g)CCSL; and
(h)DTL,
(which I will refer to collectively as the Sale Subsidiaries).
The purchasers were Pacific Infrastructure Services Pty Ltd and Pacific Infrastructure Holdings Pty Ltd (collectively, Pacific Infrastructure). The overall total consideration for the Cloverhill Sale (paid pursuant to the Business Sale Agreement and the Share Sale Agreements) was $29,600,000 (being the $30,000,000 gross proceeds less $400,000 payable to the Decimal entities).
On 15 May 2020, the plaintiffs and each of the interested parties filed and served notices of their claims to the Retained Proceeds in accordance with the orders of the Court made on 1 May 2020. On 18 December 2020 (as an annexure to their written submissions), the plaintiffs served an amended notice of claim.
In accordance with the orders made on 1 May 2020, various deductions have been made from the Retained Proceeds from time to time, including:
(a)$351,884 paid to the Australian Taxation Office pursuant to orders dated 4 August 2020;
(b)$19,470 paid to the mediator for conducting the mediation of the proceeding pursuant to orders dated 4 August 2020;
(c)$120,653.25 paid to the Victorian and New South Wales State Revenue Offices pursuant to orders dated 15 September 2020; and
(d)$38,219.79 paid to Intralinks, Inc pursuant to orders dated 16 December 2020;
(e)$14,492.84 paid to Gilbert + Tobin, solicitors to the plaintiffs, on account of disbursements pursuant to orders dated 16 March 2021;
(f)$8,205.00 paid to the Federal Court of Australia on account of setting down and hearing fees pursuant to orders dated 16 March 2021; and
(g)$3,625.57 paid to Gilbert + Tobin, solicitors to the plaintiffs, on account of disbursements pursuant to orders dated 19 April 2021.
On 27 August 2020, the plaintiffs filed an interlocutory application under paragraph 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act) seeking determination of the remuneration that the plaintiffs are entitled to receive for work performed in the voluntary administrations and liquidations of the Sargon VA Entities. That application was referred to a Registrar of the Federal Court for determination.
On 20 January 2021, I made an order by consent concerning the plaintiffs’ notice of claim in this proceeding, which resolved almost the entirety of the plaintiffs’ claim (other than items 11 and 12 of the plaintiffs' amended notice of claim). That order was as follows:
The following amounts may be withdrawn by the Plaintiffs from the Retained Proceeds (as defined in the orders made in this proceeding on 1 May 2020 (1 May 2020 Orders)) and applied in full and final satisfaction of any claim by the Plaintiffs to the Retained Proceeds for reimbursement of the Plaintiffs’ remuneration, costs and expenses including counsel fees (excluding any other costs and expenses, including counsel fees, of the Plaintiffs as agreed between the parties by consent or as approved by order of the Court to be paid from the Retained Proceeds):
(a) such amount, up to a maximum of $1,259,721.80, as is determined by the Federal Court of Australia pursuant to the interlocutory process filed by the Plaintiffs on 27 August 2020 on account of the Plaintiffs’ remuneration incurred in the voluntary administrations and liquidations of the Sargon VA Entities (as defined in the 1 May 2020 Orders);
(b) the amount of $336,904.70 on account of the remuneration incurred in connection with the voluntary administration of Sargon Services Pty Ltd (In Liquidation) as approved by the creditors at the reconvened second meeting of creditors on 14 May 2020 (Reconvened Second Meeting);
(c) the amount of $536,825.69 on account of the remuneration incurred in connection with the voluntary administration of Sargon CT Holdings Pty Ltd (In Liquidation) as approved by the creditors at the Reconvened Second Meeting; and
(d) the amount of $2,653,570.97 on account of the Plaintiffs’ reasonable costs and expenses incurred in the voluntary administrations and liquidations of the Sargon VA Entities.
The above consent order gives priority to the majority of the plaintiffs’ claim out of the Retained Proceeds. As stated above, after deducting the plaintiffs’ claim, the balance of the Retained Proceeds will be apportioned between the interested parties which are able to establish a claim to particular asset classes (by reason of an ownership or security interest) by reference to the relative value of that asset class (expressed as a percentage).
The conclusions I have reached are as follows:
(a)the claim made by the plaintiffs in respect of items 11 and 12 of the plaintiffs' amended notice of claim is dismissed;
(b)the claim made by Westpac is upheld and it is entitled to a proportionate share of the balance of the Retained Proceeds reflecting the relative value of the assets of Sargon Services sold pursuant to the Business Sale Agreement and the shares in REP, Tidswell, Mammatus, Sargon CT and Sargon CT NSW, which I have determined to be 65.5%;
(c)the claim made by Sargon Capital and Taiping is upheld and they are entitled to a proportionate share of the balance of the Retained Proceeds reflecting the relative value of the assets of Sargon Capital sold pursuant to the Business Sale Agreement which I have determined to be 13.1%; and
(d)the claims made by GrowthOps, and Diversa and OneVue, in the proceeding are dismissed.
For completeness, I have determined that the relative value of DTL and CCSL is 21.4% and the relative value of Sargon NZ is nil.
For the avoidance of doubt, the amounts payable to Westpac and Sargon Capital from the Retained Proceeds are to be calculated and paid only after the amounts due to the plaintiff have been paid in accordance with the order of the Court made on 20 January 2021 (including the final determination of amounts due in respect of paragraph 1(a) of that order).
B. NOTIFIED CLAIMS
The plaintiffs filed a claim on 15 May 2020 and served an amended notice of claim on 18 December 2020. As stated above, almost the entirety of the plaintiffs’ claim was resolved by the consent order made on 20 January 2021, including the plaintiffs’ claim for their reasonable remuneration, costs and expenses. The unresolved claim, being items 11 and 12 of the amended notice of claim, is a claim for pre-appointment priority employee entitlements owing by Sargon Services under ss 556(1)(e)-(h) of the Corporations Act. The plaintiffs contend that, by reason of s 561 of the Corporations Act, those entitlements are required to be met from that proportion of the Retained Proceeds that reflects the value of Sargon Services’ circulating assets that were sold pursuant to the Business Sale Agreement (and must be paid in priority to Westpac’s security interests over those circulating assets).
Westpac filed a claim on 15 May 2020. Westpac claims to be owed some $32,000,000 under loan facilities granted to Re Holdco, RSE Holdco and Sargon CT Holdings and facilities for bank guarantees to Sargon Services. Those facilities were secured by general security agreements over the assets of those entities and Mammatus. The Mammatus general security agreement was released on 4 May 2020, but the rights of Westpac as against the Retained Proceeds were preserved in relation to security over the assets of Mammatus due to paragraph 6 of the orders made on 1 May 2020. Westpac therefore claims that proportion of the Retained Proceeds that reflects the value of:
(a)the assets of Sargon Services sold pursuant to the Business Sale Agreement; and
(b)the shares in REP, Tidswell, Mammatus, Sargon CT and Sargon CT NSW,
up to the amounts owing to Westpac under each relevant facility.
Sargon Capital and Taiping filed a notice of claim on 15 May 2020. Sargon Capital claims an ownership interest in certain assets which were sold pursuant to the Business Sale Agreement comprising software, website, trade marks and domain names. Taiping has a registered security interest against Sargon Capital on the Personal Property Securities Register comprising a general security deed. Under that deed, Taiping holds a security interest over all of the present and after-acquired property of Sargon Capital including a charge over intellectual property. Sargon Capital and Taiping therefore claim that proportion of the Retained Proceeds that reflects the value of the intellectual property owned by Sargon Capital and sold pursuant to the Business Sale Agreement. As the interests of Sargon Capital and Taiping are aligned, references in these reasons to the interests and submissions of Sargon Capital should be understood as including Taiping.
GrowthOps filed a notice of claim on 15 May 2020. In the notice, GrowthOps claimed an interest in two categories of assets sold pursuant to the Business Sale Agreement. The first was an ownership interest in intellectual property created by GrowthOps under the Technology Master Services Agreement (having a commencement date of 1 July 2019) (Technology MSA) and the Master Services Agreement (Creative, Marketing, Coaching & Leadership) (having a commencement date of 2 September 2019) (Marketing MSA) and provided to Sargon Capital, but for which GrowthOps had not been paid (being an amount of $1,854,621.11 as at 13 May 2020 with costs and interest continuing to accrue in accordance with the terms of the Technology MSA and Marketing MSA). Such intellectual property is referred to in those agreements as the “Developed IP”. The second category was an interest, as licensor, of the royalty free licence of “GrowthOps Background IP” granted to Sargon Capital pursuant to the Technology MSA. The claim for the second category of asset was not pressed by GrowthOps at the hearing. GrowthOps therefore claims that proportion of the Retained Proceeds that reflects the value of the Developed IP sold pursuant to the Business Sale Agreement (up to the total amount owing under the Technology MSA and Marketing MSA).
Diversa filed a notice of claim on 15 May 2020. In the notice, Diversa claims a vendor's equitable lien over the shares in CCSL and DTL to the extent that it has not been paid the purchase price for its sale of those shares to Sargon SH and Sargon SPV pursuant to a Share Purchase Agreement dated 20 December 2018. The total purchase price under the Share Purchase Agreement (as varied) was $43 million, to be paid by way of an initial purchase price of $12 million and then a deferred purchase price of $31 million. The initial purchase price has been paid. The deferred purchase price, which became immediately payable on 3 February 2020 when administrators were appointed to Sargon SH and Sargon SPV, remains largely unpaid. Diversa has undertaken to limit its claim as a secured creditor to no more than $8 million of the proceeds of the Cloverhill Sale. Diversa therefore claims that proportion of the Retained Proceeds that reflects the value of the shares in CCSL and DTL up to $8 million. As the interests of Diversa and OneVue are aligned, references in these reasons to the interests and submissions of Diversa should be understood as including OneVue.
C. QUESTIONS TO BE DETERMINED
In accordance with orders made on 31 August 2020, the parties filed a joint statement of the questions to be determined by the Court on the notified claims. As these reasons address each of the questions as framed by the parties, it is appropriate to set out that statement in full:
JOINT STATEMENT OF QUESTIONS TO BE DETERMINED BY THE COURT
1.INTRODUCTION
1.1On 4 May 2020, certain property of the Sargon Group (but some of which is claimed to have been owned by GrowthOps), was sold to Pacific Infrastructure Services Pty Ltd and Pacific Infrastructure Holdings Pty Ltd (Cloverhill Sale) pursuant to orders made under section 442C of the Corporations Act 2001 (Cth).
1.2This document is filed in respect of paragraph 2(b) of the orders of the Federal Court of Australia made on 31 August 2020 which provided that the parties confer and seek to agree and file with the Court a joint statement of the questions to be determined on the Claims as defined in those orders.
1.3In this document:
(a)Developed IP has the meaning in paragraphs 15 and 19 of the McMenamin Affidavit.
(b)McMenamin Affidavit means the affidavit of Craig McMenamin filed in this proceeding and dated 12 June 2020.
(c)Marketing MSA, Quarterly Growth Plans, Statements of Work, Systems and Technology MSA all have the same meaning as in the McMenamin Affidavit.
2.VALUATION DATE AND BASIS OF VALUATION
2.1On what basis should:
(a)the shares; and
(b)the assets
sold under the Cloverhill Sale be valued; for example, a fair market value basis?
2.2On what date should:
(a)the shares; and
(b)assets
sold under the Cloverhill Sale be valued?
3.OWNERSHIP OF ASSETS
Sargon Capital and Sargon Services
3.1As at the date of the Cloverhill Sale (being 4 May 2020), did Sargon Capital Pty Ltd (Sargon Capital) or Sargon Services Pty Ltd (Sargon Services) own:
(a)the domain name, business name, Good Super;
(c)the trademarks listed in items 1 to 7 of part A of schedule 8 of the Business Sale Agreement [being the agreement dated 4 May 2020 between Sargon Services, Pacific Infrastructure Services Pty Ltd, Stewart McCallum, Adam Nikitins and the entities listed in schedule 2 of that agreement];
(d)the domain names listed in items 8 to 14 and 17 to 32 of part B of schedule 8 of the Business Sale Agreement; and
(e)the domain names listed in items 15 and 16 and 33 to 35 of part B of schedule 8 of the Business Sale Agreement?
Other intellectual property
3.2How should any value attributed to the "Sargon Trustee Cloud Software", as referred to in the expert reports of Jeff Hall, be divided between Sargon Capital, Sargon Services and GrowthOps?
3.3How should any value attributed to the "Software technology", as referred to in the expert reports of Antony Samuel, be divided between Sargon Capital, Sargon Services and GrowthOps?
3.4What part, if any, of the Additional IP comprises intellectual property rights in software that GrowthOps developed in relation to the following systems:
(a)Arcadia;
(b)Pay;
(c)Impact;
(d)Sentinel; and
(e)Metropolis,
and which it describes as Developed IP?
3.5As at the date of the Cloverhill Sale (being 4 May 2020), was the Developed IP (or any part of it) owned by Sargon Capital, Sargon Services or GrowthOps?
3.6Was the Developed IP sold as part of the Cloverhill Sale so as to generate part of the Retained Proceeds?
3.7To the extent (if any) to which GrowthOps does not own the Developed IP, is it entitled to any compensation with respect to its claim that it has granted a licence in favour of Pacific Infrastructure Services Pty Ltd for the Background IP, as referred to in paragraph 35 of the McMenamin Affidavit?
3.8If the answer to question 3.7 is yes, is GrowthOps' claim to compensation for the Background IP secured by any asset that was sold as part of the Cloverhill Sale?
Diversa
3.9Does Diversa Pty Ltd have a vendor's equitable lien over the shares of CCSL Limited and Diversa Trustees Limited to the extent that it has not been paid the purchase price for the sale of those shares to Sargon Superannuation Holdings Pty Ltd and Sargon Superannuation Holdings SPV Pty Ltd?
4.VALUATION AND ATTRIBUTION
4.1What is the proportion of the Retained Proceeds that should be attributed to each of:
(a)the shares in each of:
(i)the Responsible Entity Partners Limited;
(ii)Tidswell Financial Services Ltd;
(iii)Mammatus Pty Ltd;
(iv)Sargon CT (NSW) Pty Ltd;
(v)Sargon CT Pty Ltd;
(vi)Sargon Limited (a company registered in New Zealand);
(vii)Diversa Trustees Limited; and
(viii)CCSL Limited; and
(b)the assets sold under the Business Sale Agreement and, in particular:
(i)the domain name intellectual property comprising the computer programs Arcadia, Pay, Impact, Sentinel and Metropolis;
(iii)intellectual property rights in software that GrowthOps claims to have developed in relation to the following systems: (a) Arcadia, (b) Pay, (c) Impact, (d) Sentinel and (e) Metropolis, and which it describes as Developed IP,
(iv)the following two alternatives:
(A) "Sargon Trustee Cloud Software", as referred to in the expert reports of Jeff Hall, including what proportion of this asset, if any, comprises Developed IP; or
(B) the "Website" and "Software technology", as referred to in the expert reports of Antony Samuel, including what proportion of this asset, if any, comprises Developed IP;
(v)the plant and equipment of Sargon Services;
(vi)the business name, Good Super;
(vii)the trademarks listed in items 1 to 7 of part A of schedule 8 of the Business Sale Agreement;
(viii)the domain names listed in items 8 to 14 and 17 to 32 of part B of schedule 8 of the Business Sale Agreement;
(ix)the domain names listed in items 15 and 16 and 33 to 35 of part B of schedule 8 of the Business Sale Agreement; and
(x)any licence in respect of the Background IP with respect to which GrowthOps claims an entitlement to the Retained Proceeds?
4.2What amount should be allocated to the Plaintiffs from the Retained Proceeds for their reasonable remuneration, costs and expenses, including in accordance with the principles set out in Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171 and how should that be allocated to the shares and assets referred to in paragraph 4.1 above?
4.3In light of the matters in paragraphs 4.1 and 4.2, what amounts should be allocated to each of the Interested Parties from the Retained Proceeds?
5.COSTS
5.1What orders should be made in relation to costs?
For the reasons expressed earlier in respect of the notified claims, questions 3.7, 3.8, 4.1(b)(x) and 4.2 do not require answers in this proceeding.
In relation to the unresolved aspect of the plaintiffs’ claim, being items 11 and 12 of the plaintiffs’ amended notice of claim, the plaintiffs seek the Court to determine, in connection with question 4.1(b), the proportion of the Retained Proceeds that should be attributed to Sargon Services’ receivables sold pursuant to the Business Sale Agreement.
D. OVERVIEW OF THE EVIDENCE
Joint Statement of Agreed Facts
The parties have filed and tendered a Joint Statement of Agreed Facts which sets out the background to the issues to be resolved in this proceeding. The Joint Statement of Agreed Facts is reproduced in full in Section E below.
Plaintiffs’ witness
The plaintiffs read the affidavits of Stewart Alexander McCallum dated 30 April 2020, 1 May 2020 and 29 May 2020. Mr McCallum is one of the plaintiffs. He is a partner of Ernst & Young (EY) and is a chartered accountant and a Registered Liquidator of the Supreme Court of Victoria and the Federal Court of Australia. He has in excess of 20 years’ experience in corporate insolvency, restructuring and forensic accounting. Mr McCallum gave evidence about the administration of the Sargon VA Entities and the Cloverhill Sale, including the claims that have been made by the plaintiffs and the respondents to the proceeds of the sale. Mr McCallum was cross-examined. There was no challenge to his credit and I accept his evidence.
Westpac’s witnesses
Westpac read an affidavit of Peter Gage Sise dated 12 June 2020. Mr Sise is a solicitor employed by the solicitors for Westpac in this proceeding, Clayton Utz. Mr Sise was not cross‑examined.
Westpac also read an affidavit of John Gregory McKillop dated 12 June 2020. Mr McKillop is employed by Westpac as a Senior Account Manager—Credit Restructuring. Mr McKillop gave evidence about the loan facilities provided by Westpac to certain of the Sargon VA Entities and the securities given in respect of those loans. Mr McKillop was not cross-examined.
Westpac also read an affidavit of Sophia Alice Griffiths-Mark dated 24 July 2020. At the time of swearing her affidavit, Ms Griffiths-Mark was a graduate-at-law employed by the solicitors for Westpac in this proceeding, Clayton Utz. Ms Griffiths-Mark gave evidence about internet searches conducted by her to seek to identify the registrant of certain domain names relevant to the proceeding. Ms Griffiths-Mark was not cross examined.
Sargon Capital / Taiping witness
Sargon Capital and Taiping read two affidavits of Shaun Fraser dated 12 June 2020 and 14 August 2020. Mr Fraser is a Registered Liquidator and a partner in McGrathNicol, a firm of chartered accountants who provide restructuring and advisory services. Mr Fraser is one of the receivers and managers appointed to Sargon Capital (together with Mr Jason Preston). Mr Fraser gave evidence concerning Sargon Capital and its business and Taiping’s loan to, and security interest over, Sargon Capital. Mr Fraser was not cross-examined.
GrowthOps’ witness
GrowthOps read two affidavits of Craig McMenamin dated 12 June 2020 and 24 July 2020. Mr McMenamin is the Chief Financial Officer and Company Secretary of the parent company of GrowthOps and is also the company secretary of GrowthOps. Mr McMenamin was not cross-examined.
Diversa witness
Diversa read an affidavit of Ashley Mark Fenton dated 24 July 2020. Mr Fenton is the Chief Financial Officer of OneVue and a Company Secretary of Diversa. Mr Fenton was not cross‑examined.
Expert valuation reports
Expert valuation reports were tendered on behalf of each of Westpac, Sargon Capital and Taiping, and Diversa.
Westpac tendered a report dated 24 July 2020 and a supplementary report dated 14 August 2020 of Jeffrey Lewis Hall. Mr Hall holds a B.Sc. (Summa Cum Laude) in Accounting from Kansas State University and a Master of Commerce in Finance from the University of New South Wales. He is a Chartered Financial Analyst and a member of the CFA Society, a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and a Chartered Accountant and member of the Australian Institute of Chartered Accountants. Mr Hall was a founder of Sumner Hall Associates Pty Ltd and has been a director since 2002 and is currently the Managing Director. Sumner Hall Associates is a specialist advisory firm providing corporate advisory services in relation to mergers and acquisitions, divestments, capital raisings, corporate restructuring and financial matters generally. One of the principal activities of the firm is the preparation of corporate and business valuations. Between 1989 and 2001, Mr Hall was Executive Director and shareholder of Grant Samuel & Associates Pty Limited, an investment banking firm.
Sargon Capital and Taiping tendered a report dated 24 July 2020 and a supplementary report dated 14 August 2020 of Antony Bryn Samuel. Mr Samuel holds a Bachelor of Commerce degree from the University of Western Australia and is a Chartered Accountant (Australia). He is Managing Director of Sapere Research Group Limited, leading Sapere’s forensic accounting and valuation team, and is a former partner of PwC in London and Sydney with over 20 years of experience as an accountant.
Diversa tendered a report dated 24 July prepared by Campbell Jaski, a Partner in the Corporate Value Advisory practice at PwC. Mr Jaski has over 25 years of experience in corporate finance, valuation and business management. He studied corporate finance and valuation theory at the Stern School of Business, New York University and Melbourne Business School, Melbourne University. He is an accredited Business Valuation Specialist with Chartered Accountants Australia and New Zealand and is a Fellow of the Financial Services Institute of Australasia. He is also a Fellow of the Chartered Institute of Arbitrators. For the past 12 years, Mr Jaski has specialised in the valuation of businesses, shares, intangible assets, projects and financial instruments. Prior to this, Mr Jaski worked for Rio Tinto Limited.
In accordance with orders of the Court, the parties prepared a Joint Statement of Questions for Expert Valuers which was filed on 5 November 2020. The valuation experts conferred before trial and prepared a joint report dated 1 December 2020 (Joint Expert Report). The Joint Expert Report summarises the experts’ areas of agreement and disagreement in relation to the Joint Statement of Questions for Expert Valuers and the basis of those opinions.
The expert valuers were cross-examined concurrently. None of the witnesses changed their opinions in the course of cross-examination, but the cross-examination helped to distil and explain the differences in approach that had been taken by each of the experts.
In my view, each of the experts is suitably qualified to express opinions on the relative values of the shares and assets sold as part of the Cloverhill Sale. Further, I consider that each of the experts had a reasoned basis for the opinions they expressed. While the conclusions reached by each expert as to relative value generally favoured the party that had called the expert, that circumstance did not cause me to doubt the sincerity with which the opinions were advanced. Many of the issues debated between the experts involved matters of judgment for which no answer could be said to be right or wrong in an absolute sense. Ultimately, though, I have formed the judgment that certain approaches to the issues in dispute are preferable, which I explain below.
Business records
Various business records were tendered by the parties. I made rulings on evidentiary objections during the hearing. Only one objection was the subject of substantive argument, being the admissibility of an announcement published on the Sargon website following the Cloverhill Sale (Sale Announcement). The relevant parts of the Sale Announcement were as follows:
Pacific Infrastructure Partners (‘PIP’), a new entity formed for the purpose of investing in technology-enabled financial services, today announces the completion of the acquisition of key operating entities and assets of the Sargon Capital group of companies (‘Sargon’).
New York-based financiers Teddy Wasserman and Australian Matthew Kibble led the transaction through Cloverhill Group LLC and Kibble Holdings LLC respectively. They are joined as equity shareholders in PIP by Vista Credit Partners (‘VCP’), who also provided financing for the transaction. VCP is a strategic credit investor and financing partner offering a variety of capital solutions to the enterprise software, data and technology market. VCP is the credit-lending arm of Vista Equity Partners (‘Vista’), a leading global technology investor.
Cloverhill Group Managing Partner, Teddy Wasserman said, “We believe the proprietary next-generation trustee infrastructure that Sargon has developed to be world-class technology. …”
The cloud-based platform developed by Sargon delivers clients greater transparency over funds and reduces costs and complexity, while at the same time providing more scalable and reliable operations.
David Flannery, President of Vista Credit Partners, said, “This is a tremendous asset class and Australia is recognised as having one of the best models of superannuation and retirement savings in the world. Vista and VCP have a long and proud track-record of backing companies like Pacific Infrastructure Partners, which are at the forefront of digital transformation and have the intellectual property capable of winning on a global stage.
…
Pacific Infrastructure Partners (PIP) is a new entity formed for the purpose of investing in the financial services industry to support the delivery of strong, independent, technology-enabled trustee solutions. In May 2020, PIP completed the acquisition of the key operating entities and assets of financial technology and infrastructure company, Sargon, including Sargon’s trustee, corporate trust and responsible entity operations, and its proprietary technology infrastructure. …
Sargon Capital and Taiping sought to tender the Sale Announcement as evidence relevant to the assessment of the value of the intellectual property sold as part of the sale. The relevant facts asserted in the announcement include that the new owners of the Sargon business that was sold held the opinion that the trustee infrastructure (software) developed by Sargon is “world‑class technology”.
The evidence is hearsay under s 59 of the Evidence Act 1995 (Cth) (Evidence Act) and is inadmissible unless an exception applies. I allowed the evidence as a business record within s 69 of the Evidence Act. As I stated in Rodney Jane Racing Pty Ltd v Monster Energy Company [2019] FCA 923; 370 ALR 140 at [178], whether a webpage can be shown to be a business record within the meaning of s 69 depends upon the content of the webpage and what is able to be established (whether directly or by inference) about the content of the page. In the present case, I am satisfied that the Sale Announcement:
(a)forms part of the records belonging to that part of the business of the Sargon Group that was sold (the sale included the Sargon website);
(b)was made for the purposes of that business, to inform (amongst others) present and prospective customers of the sale; and
(c)was made by a person who might reasonably be supposed to have had personal knowledge of the relevant facts asserted in the announcement because the statements were made by the representatives of the purchasers about their opinions of the assets that were purchased.
While the Sale Announcement is admissible evidence, I do not place significant weight on the evidence. The opinions expressed in the announcement are stated at a high level of generality and do not greatly assist in seeking to attribute a value to the software relative to the other assets sold in the Cloverhill Sale. The opinions must also be discounted to some extent in recognition that a purchaser of a business will likely wish to promote the acquisition that has been made.
E. JOINT STATEMENT OF AGREED FACTS
The parties tendered a Joint Statement of Agreed Facts. It is convenient to reproduce that statement in full because it sets out the primary background facts which were not controversial. Annexures A and B to the Joint Statement of Agreed Facts, which contain diagrams of the corporate structure of the Sargon Group and security interests held or claimed by the parties, are reproduced at the end of these reasons.
PROPOSED JOINT STATEMENT OF AGREED FACTS
1.INTRODUCTION
1.1This document is filed in respect of paragraph 2(a) of the Orders of the Federal Court of Australia made on 31 August 2020 which provided that the parties confer and seek to agree and file with the Court a statement of agreed facts in relation to the Claims as defined in those orders.
2.THE SARGON GROUP
2.1The Sargon Group was a corporate group consisting of approximately 39 companies which conducted a series of financial planning, corporate trustee, responsible entity, superannuation and related financial services businesses (Sargon Group).
2.2Sargon Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ACN 608 799 873 (Sargon Capital) was at all relevant times, the ultimate holding company of the Sargon Group, but did not itself engage in any trading activities.
2.3Sargon Capital was at all relevant times the sole shareholder of each of the following ten Intermediate Holding Companies:
(a)RE Holdco Pty Ltd ACN 612 592 471 (RE Holdco);
(b)RSE Holdco Pty Ltd ACN 612 586 893 (RSE Holdco);
(c)Sargon Services Pty Ltd ACN 163 522 058 (Sargon Services);
(d)Safewealth Realty Pty Ltd ACN 100 933 980 (Safewealth);
(e)SC International Holdings 1 Pty Ltd ACN 621 160 101 (SCIH1);
(f)SC Australian Holdings 1 Pty Ltd ACN 624 531 237 (SCAH1);
(g)Sargon CT Holdings Pty Ltd ACN 628 621 321 (Sargon CT);
(h)Sargon International Holdings 2 Pty Ltd ACN 630 632 343 (SIH2);
(i)Sargon Superannuation Holdings Pty Ltd ACN 630 648 225 (SSH), which in turn was the sole shareholder of Sargon Superannuation Holdings SPV Pty Ltd ACN 633 509 494 (Sargon SPV); and
(j)Decimal Software Pty Ltd ACN 009 235 956 (Decimal).
2.4Each of the above Intermediate Holding Companies (with the exception of Safewealth) was in turn a parent company of at least one subsidiary entity. These subsidiary entities along with Sargon Services were the operating business entities of the Sargon Group (Operating Subsidiaries).
2.5The diagram below provides an overview of the Relevant Operating Subsidiaries (as defined at 2.6 below) within the Sargon Group (shaded in blue). A larger and more detailed structure diagram of the Sargon Group is provided at Annexure A.
2.6The Operating Subsidiaries that are the subject of the Cloverhill Proceedings and the Cloverhill Sale (defined below) are:
(a)CCSL Ltd ACN 104 967 964 (CCSL) (a subsidiary of SSH );
(b)Diversa Trustees Ltd ACN 006 421 638 (DTL) (3,142,333 shares in which were owned by SSH and 2,000,000 shares in which were owned by Sargon SPV);
(c)Mammatus Pty Ltd ACN 101 393 435 (Mammatus) (a subsidiary of Sargon Services);
(d)Responsible Entity Partners Limited ACN 119 757 596 (a subsidiary of RE Holdco);
(e)Sargon CT (NSW) Pty Ltd ACN 000 329 706 (Sargon CT (NSW)) (a subsidiary of Sargon CT);
(f)Sargon CT Pty Ltd ACN 106 424 088 (a subsidiary of Sargon CT);
(g)Sargon Ltd NZBN 9429047195639 (a subsidiary of SIH2); and
(h)Tidswell Financial Services Ltd ACN 010 810 607 (a subsidiary of RSE Holdco).
(Collectively, Relevant Operating Subsidiaries).
2.7Sargon Services provided a number of the Operating Subsidiaries (save for SSH and its Relevant Operating Subsidiaries, CCSL and DTL, up until 1 January 2020) with labour and administrative services under various services agreements. Sargon Services provided labour and administrative services for SSH and its Relevant Operating Subsidiaries, CCSL and DTL, from 1 January 2020 onwards.
3.PROPERTY OF THE SARGON GROUP
3.1The assets of each of the Sargon Group's operating businesses were held by the various Operating Subsidiaries or by Sargon Capital itself.
3.2The property of the Sargon Group that is the subject of the Cloverhill Proceedings is as follows:
(a)much of the business and general assets of the Sargon Group, including all of the assets of each of the Relevant Sargon Entities (defined at 7.2 below);
(b)the share capital of the Relevant Operating Subsidiaries; and
(c)the intellectual property associated with the Sargon Group (noting that GrowthOps claims an interest in a subset of the intellectual property).
3.3As described in more detail in section 9 below, the above property was sold by a number of the Intermediate Holding Companies to Pacific Infrastructure Services Pty Ltd ACN 640 130 712 (Pacific Services) and Pacific Infrastructure Holdings Pty Ltd ACN 640 129 479 (Pacific Holdings) as part of a complete sale of the business to the Cloverhill Group (Cloverhill Sale).
4.THE PARTIES TO THE CLOVERHILL PROCEEDINGS
4.1There are seven active parties in proceeding VID 285/2020 (Cloverhill Proceedings), being:
(a)the Plaintiffs (Stewart McCallum and Adam Nikitins of Ernst & Young) (Administrators);
(b)Westpac Banking Corporation ACN 007 457 141 (Westpac) (the First Interested Party);
(c)Sargon Capital (the Second Interested Party);
(d)Taiping Trustees Limited (A company registered in Hong Kong) (Trade Register number 0821942) (Taiping) (the Third Interested Party);
(e)GrowthOps Services Pty Ltd ACN 626 208 777 (GrowthOps) (the Fourth Interested Party);
(f)Diversa Pty Ltd ACN 079 201 835 (Diversa) (the Fifth Interested Party); and
(g)OneVue Holdings Limited ACN 108 221 870 (OneVue) (the Sixth Interested Party).
4.2The interests of the Second and Third Interested Parties are aligned such that there is no need to distinguish between them. The same applies to the Fifth and Six Interested Parties.
5.SECURITY INTERESTS
5.1In this section, the facts relevant to the circumstances in which each of the parties came to have interests in the Cloverhill Proceedings are set out, in as close to a chronological order as is possible, except in the case of Westpac's loan facilities and security interests where they are set out according to the Operating Subsidiary, which is more convenient given Westpac had numerous lending arrangements with several entities.
5.2An overview of the claimed security interests of the parties over the relevant entities to the Cloverhill Proceedings is set out in the following diagram. A larger and more detailed structure diagram of the structure of the Sargon Group is provided at Annexure B.
Taiping's Secured Promissory Note, Guarantee and Indemnity and GSD
5.3Taiping was incorporated on 15 November 2002 under the laws of Hong Kong. Taiping is a subsidiary of the China Taiping Group, of which China Taiping Insurance Group Limited is the ultimate holding company. China Taiping Insurance Group Limited is a Chinese state-owned financial and insurance group that is headquartered in Hong Kong and has been listed on the Hong Kong Stock Exchange since 2000.
5.4Phillip Kingston was both a managing director of Sargon Capital and the sole director of Trimantium Investment Management Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ACN 624 073 196 (TTIM).
5.5On 9 February 2018, Taiping and TTIM entered into a Secured Promissory Note, under which Taiping agreed to advance to TTIM a total of HKD $500,000,000 (approximately AUD $81,000,000) (Secured Promissory Note).
5.6The Secured Promissory Note was also executed by Sargon Capital as obligor.
5.7To further secure the performance of the obligations of TTIM, Sargon Capital provided the following security documents in favour of Taiping:
(a)a Guarantee and Indemnity dated 27 April 2018 (Sargon Capital Guarantee); and
(b)a General Security Deed dated 27 April 2018 (Sargon Capital GSD).
5.8The Sargon Capital GSD was registered on the Personal Property Securities Register (PPSR) (Registration Number 201804090021528) on 9 April 2018.
5.9Under the terms of the Sargon Capital GSD, Taiping was granted a security interest over all of the present and after-acquired property of Sargon Capital. In particular, Taiping was granted a charge over any intellectual property, including:
(a)a patent, trademark or service mark, copyright, registered design, trade secret or confidential information; or
(b)a licence or other right to use or to grant the use of any of the above, or to be the registered proprietor or user of any of the above.
Westpac
RE Holdco
5.10On or about 15 October 2018, Westpac provided a loan facility to RE Holdco with a limit of $5,000,000. The loan facility is secured by:
(a)an unlimited guarantee and indemnity granted by Sargon Services in favour of Westpac dated 30 October 2018;
(b)an unlimited interlocking guarantee and indemnity granted by RSE Holdco, RE Holdco and Sargon CT in favour of Westpac dated 30 October 2018 (Interlocking Guarantee and Indemnity);
(c)an unlimited guarantee and indemnity granted by Mammatus in favour of Westpac dated 30 October 2018 which was released on 4 May 2020;
(d)a general security agreement granted by Sargon Services in favour of Westpac dated 30 October 2018 with PPSR registration number 201811010064791 (Sargon Services GSA);
(e)a general security agreement granted by RSE Holdco in favour of Westpac dated 4 July 2016 with PPSR registration number 201607080019959 (RSE Holdco GSA);
(f)a general security agreement granted by RE Holdco in favour of Westpac dated 4 July 2016 with PPSR registration number 201607080019786 (RE Holdco GSA);
(g)a general security agreement granted by Sargon CT in favour of Westpac dated 30 October 2018 with PPSR registration number 201811010067224 (Sargon CT GSA); and
(h)a general security agreement granted by Mammatus in favour of Westpac dated 30 October 2018 formerly with PPSR registration number 201811010064988 (Mammatus GSA). The Mammatus GSA was released on 4 May 2020.
RSE Holdco
5.11On or about 15 October 2018, Westpac provided a loan facility to RSE Holdco with a limit of $600,000. The loan facility is secured by:
(a)an unlimited guarantee and indemnity granted by Sargon Services in favour of Westpac dated 30 October 2018;
(b)the Interlocking Guarantee and Indemnity;
(c)an unlimited guarantee and indemnity granted by Mammatus in favour of Westpac dated 30 October 2018 which was released on 4 May 2020;
(d)the Sargon Services GSA;
(e)the RSE Holdco GSA;
(f)the RE Holdco GSA;
(g)the Sargon CT GSA; and
(h)the Mammatus GSA. The Mammatus GSA was released on 4 May 2020.
Sargon CT
5.12On or about 15 October 2018, Westpac provided two loan facilities to Sargon CT with limits of $12,000,000 and $10,000,000 respectively.
5.13On or about 24 December 2019, Westpac provided another loan facility to Sargon CT with a limit of $6,000,000.
5.14The loan facilities provided to Sargon CT are secured by:
(a)an unlimited guarantee and indemnity granted by Sargon Services in favour of Westpac dated 30 October 2018;
(b)the Interlocking Guarantee and Indemnity;
(c)an unlimited guarantee and indemnity granted by Mammatus in favour of Westpac dated 30 October 2018 which was released on 4 May 2020;
(d)the Sargon Services GSA;
(e)the RSE Holdco GSA;
(f)the RE Holdco GSA;
(g)the Sargon CT GSA; and
(h)the Mammatus GSA. The Mammatus GSA was released on 4 May 2020.
Sargon Services
5.15Westpac provided the following facilities for bank guarantees in respect of Sargon Services:
(a)on or about 7 June 2018, a bank guarantee in favour of Circuit Recruitment Group (Vic) Pty Ltd ACN 141 687 747 for the amount of $60,942.04;
(b)on or about 5 July 2019, a bank guarantee in favour of BGH (287 Collins) Pty Ltd ACN 623 369 899 for the amount of $111,839.00; and
(c)on or about 20 August 2019, a bank guarantee in favour of IPAR Rehabilitation Pty Ltd ACN 104 234 317 for the amount of $59,417.88.
5.16The bank guarantees remain outstanding and therefore the full amounts (as specified above) were contingently owing.
5.17These facilities are each secured by the Sargon Services GSA.
Diversa Share Purchase Agreement
5.18Diversa was incorporated in New South Wales on 3 July 1997 and provides superannuation trustee services. It is a wholly owned subsidiary of OneVue, an ASX listed company (ASX:OVH) that is a wholesale service provider to the wealth management industry.
5.19Pursuant to a Share Purchase Agreement dated 20 December 2018 and its subsequent variations (Diversa SPA), Diversa sold:
(a)all of the shares it held in CCSL to SSH;
(b)3,142,333 of the shares it held in DTL to SSH; and
(c)2,000,000 of the shares it held in DTL to Sargon SPV.
5.20Pursuant to the Diversa SPA, the total consideration payable was $43 million to be paid by way of an Initial Purchase Price of $12 million and then a Deferred Purchase Price of $31 million, with the Deferred Purchase Price payable by SSH and Sargon SPV in proportion to the number of CCSL and DTL shares each received under the Diversa SPA.
5.21Sargon Capital guaranteed to Diversa performance of the obligations of SSH and SPV under the Diversa SPA.
5.22The Initial Purchase Price component of the consideration for the DTL and CCSL shares has been paid. However, taking into account realisations to date, $28,365,386.31 of the Deferred Purchase Price component of the consideration (and accrued interest owing under the Diversa SPA) remains outstanding.
GrowthOps Technology MSA, Marketing MSA and invoices issued 30 July 2019 – 31 January 2020
5.23GrowthOps was incorporated in Victoria on 17 May 2018. GrowthOps is a wholly owned subsidiary of the ASX listed company Trimantium GrowthOps Limited ACN 621 067 678 (ASX:TGO) (TGO). Both GrowthOps and TGO provide management consulting, technology, advertising, creative, coaching and leadership services.
5.24On or around 30 August 2019, GrowthOps and Sargon Capital entered into a Technology Master Services Agreement, with a commencement date of 1 July 2019 (Technology MSA). Significant clauses include 7.1(a), (c) and (d). Clause 7.1(a) provided that "all Intellectual Property Rights in the Services and Deliverables (Developed IP), except any GrowthOps Background IP or its service methodology and knowledge, vests in Sargon immediately upon payment to GrowthOps for same, and GrowthOps hereby assigns, and must procure that its personnel assign, all Intellectual Property Rights in the Developed IP To Sargon. GrowthOps agrees to do all things which may be necessary for these ownership rights to pass to Sargon. At Sargon's request, GrowthOps must provide, and ensure that its personnel or sub-contractors provide consents to or waivers of any moral rights in specific Developed IP. This clause does not in any way derogate from the ability for GrowthOps to utilise the same service methodology for other clients"
5.25On or around 2 September 2019, GrowthOps and Sargon Capital entered into a Master Services Agreement (Creative, Marketing, Coaching & Leadership), with a commencement date of 2 September 2019 (Marketing MSA). Significant clauses include 7.1(a), (c) and (d). Clause 7.1(a) provided that "all Intellectual Property Rights in the Services and Deliverables (Developed IP), except any GrowthOps Background IP or its service methodology and knowledge, vests in Sargon immediately upon payment to GrowthOps for same, and GrowthOps hereby assigns, and must procure that its personnel assign, all Intellectual Property Rights in the Developed IP To Sargon. GrowthOps agrees to do all things which may be necessary for these ownership rights to pass to Sargon. At Sargon’s request, GrowthOps must provide, and ensure that its personnel or sub-contractors provide consents to or waivers of any moral rights in specific Developed IP. This clause does not in any way derogate from the ability for GrowthOps to utilise the same service methodology for other clients."
5.26Between 30 July 2019 and 31 January 2020, GrowthOps issued 24 invoices to Sargon Capital totalling $1,649,402.85 (excluding GST). The invoices were described to relate to various technology, creative, marketing, coaching and leadership services to Sargon Capital under the Technology MSA and the Marketing MSA spanning the period 1 July 2019 to 31 January 2020.
5.27To date, Sargon Capital has only paid two of those invoices, which amount to the sum of $314,128.50 (excluding GST). The balance of the invoices ($1,335,274.35) remains unpaid.
Letters of demand and appointment of the Administrators
5.28On 2 December 2019, Taiping's solicitors Ashurst issued a letter to TTIM and Sargon Capital stating that TTIM had committed an Event of Default (as defined in the Secured Promissory Note).
5.29On 19 December 2019, Ashurst sent a further letter on behalf of Taiping to Mr Kingston in his capacity as the sole director of TTIM and as a director of Sargon Capital. The letter notified Mr Kingston that TTIM had failed to pay the interest that was due and payable to Taiping.
5.30On 20 January 2020, Taiping's solicitors Ashurst issued letters of demand to TTIM and Sargon Capital stating that as at 20 January 2020, the amount of HKD $512,964,934.61 was immediately due and payable, pursuant to the terms of the Sargon Capital Guarantee and Sargon Capital GSD. Both TTIM and Sargon Capital failed to comply with the demands made by Taiping.
5.31On 3 February 2020, the Administrators were appointed as voluntary administrators to eight of the Intermediate Holding Companies.
5.32Between 3 February 2020 and 14 May 2020, the Administrators conducted the voluntary administration of the Relevant Sargon Entities (defined at 7.2 below), which culminated in the complete sale of the business to the Cloverhill Group (Cloverhill Sale).
5.33Further detail about the Administrators' appointment and the Cloverhill Sale is set out in paragraphs 7.2 and 9.1 - 9.21 respectively.
5.34On 23 April 2020, Clayton Utz (acting on behalf of Westpac) issued notices of demand to (i) Sargon CT for $20,492,044.83, (ii) RSE Holdco for $605,366.68 and (iii) Sargon Services for $20,492,044.83. On 28 May 2020, Clayton Utz issued further notices of demand to (iv) Sargon CT for $6,146,653.62, (v) RE Holdco for $5,074,393.95, (vi) Sargon Services for $60,942.04 and (vii) $111,839. Some of the amounts claimed overlap.
6.NOTICES OF CLAIM
6.1On 15 May 2020, the active parties in this matter filed notices of claim. Each of the amounts claimed below are “as at” that date.
6.2In its notice of claim, Taiping claims that the total amount owing to it is no less than $4,000,000. There is no dispute that this amount is owing.
6.3In its notice of claim, GrowthOps claims compensation for the sale of intellectual property in which it claims an interest, in an amount equal at least to the unpaid invoices referred to at paragraphs 5.26 - 5.27, together with compensation for the perpetual, irrevocable and royalty free licence in respect of the GrowthOps Background IP (as defined in each of the Technology MSA and the Marketing MSA). GrowthOps claims $1,854,621.11 as at 13 May 2020, including GST, and interest and costs which continue to accrue. There is no dispute that this amount is owing.
6.4In its notice of claim, Westpac claims that the amount owing to it in respect of the facilities referred to at paragraphs 5.10 - 5.17 is $32,019,961.81 (plus recovery costs and interest accruing after 30 April 2020). There is no dispute that this amount is owing.
6.5In its notice of claim, Diversa claims that the total amount owing to it in respect of the Diversa SPA is $28,365,386.31. There is no dispute that this amount is owing.
6.6In their notice of claim, the Administrators claim that the total amount owing to them is $4,255,562.67 (plus further amounts that are subject to quantification and Court approval), pursuant to remuneration, costs, expenses (both current and prospective) and pre-appointment priority employee entitlements owing by Sargon Services. The Administrators’ notice of claim was revised in the third affidavit of Stewart McCallum dated 29 May 2020 and the Administrators’, now Liquidators’ remuneration, costs and expenses in connection with the liquidations of the Relevant Operating Subsidiaries, including in connection with the Cloverhill Proceedings, continues to accrue.
7.EXTERNAL ADMINISTRATION OF THE SARGON GROUP
7.1On 29 January 2020, Shaun Fraser and Jason Preston were appointed by Taiping as joint and several receivers and managers of Sargon Capital (Sargon Capital Receivers), and a further two other related companies (Trimantium Capital Funds Management Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ACN 602 329 902 (TCFM) and TTIM.
7.2On 3 February 2020, Phillip Kingston in his capacity as the sole director of nine of the Intermediate Holding Companies passed resolutions pursuant to section 436A of the Corporations Act 2001 (Cth) (Corporations Act) appointing the Administrators as the voluntary administrators of the following seven Intermediate Holding Companies (plus an eighth Intermediate Holding Company, SCAH1, the assets of which were not sold as part of the Cloverhill Sale):
(a)Re Holdco;
(b)RSE Holdco;
(c)Sargon Services;
(d)SCIH1;
(e)Sargon CT;
(f)SIH2; and
(g)SSH.
(Collectively, Relevant Sargon Entities).
7.3Safewealth was not placed into administration.
7.4As a result of their appointment, the Administrators took control of all of the shares owned by the Sargon Group in the Operating Subsidiaries and all of the employees and documents of the Sargon Group.
7.5On 3 and 4 February 2020, Matthew Byrnes and David Hodgson of Grant Thornton were appointed as joint and several voluntary administrators of:
(a)Decimal;
(b)Decimal Technology and Systems Pty Ltd ACN 118 370 291;
(c)Decimal Pty Ltd ACN 135 979 743; and
(d)Simpla Pty Ltd ACN 159 982 671.
(Collectively, Decimal Entities).
7.6On 4 February 2020, Daniel Walley and Christopher Hill of PricewaterhouseCoopers were appointed as joint and several receivers and managers of SCAH1 by Diversa. SCAH1 and its assets do not form part of the Cloverhill Proceedings.
7.7On 8 March 2020, Joseph Hayes and Andrew McCabe of Wexted Advisors were appointed as joint and several administrators of Sargon Capital, TTIM and TCFM pursuant to section 436C of the Corporations Act.
7.8On 10 March 2020, Mr Byrnes and Mr Hodgson were appointed as the liquidators of the Decimal Entities.
7.9On 8 April 2020, at the second meeting of the creditors of Sargon Capital, it was resolved to wind up Sargon Capital, and Mr Hayes and Mr McCabe were appointed as liquidators pursuant to section 446A of the Corporations Act.
7.10On 14 May 2020, at the second meeting of creditors of the Sargon Entities, it was resolved to wind up the Relevant Sargon Entities and Mr McCallum and Mr Nikitins were appointed as liquidators (defined in this document as the Administrators: see paragraph 4.1(a) above) pursuant to section 446A of the Corporations Act.
8.SARGON SERVICES
8.1Sargon Services employed many of the employees who worked for the Sargon Group, including employees who provided services to the Intermediate Holding Companies and the Operating Subsidiaries. Sargon Services also rented offices that were used by other entities in the Sargon Group.
8.2The services provided by Sargon Services to Responsible Entity Partners Limited, Tidswell Financial Services Ltd, Sargon CT and Sargon CT (NSW) (for the period of five years starting on 8 May 2019) were in the following categories:
(a)governance, risk and compliance;
(b)human resources;
(c)finance;
(d)information technology;
(e)legal;
(f)product; and
(g)corporate trustee.
8.3The services provided by Sargon Services to DTL and CCSL (for the period of one year starting on 19 January 2020, subject to a three-month extension) were in the following categories:
(a)governance, risk and compliance;
(b)human resources;
(c)finance;
(d)information technology;
(e)legal; and
(f)product.
8.4From 28 June 2019 to 31 December 2019, DTL and CCSL received services of the following kind from OneVue Services Pty Ltd (OneVue Services) pursuant to a Transitional Services Agreement dated 28 June 2019 instead of Sargon Services. DTL and CCSL paid a monthly fee to OneVue Services for those services. The services provided under the Transitional Services Agreement included:
(a)accounting and financial management (for which DTL and CCSL paid $20,000 per month);
(b)human resources;
(c)information technology and cyber security (for which DTL and CCSL paid $20,000 per month);
(d)legal and litigation support; and
(e)product development and marketing.
8.5DTL and CCSL paid $20,000 per month under the Transitional Services Agreement for the services provided by OneVue Services other than accounting and financial management services and information technology and cyber security services (for which the separate monthly fees identified above were paid).
8.6The total monthly fee paid by DTL and CCSL from July to September was $60,000 (ex GST) per month. In October, November and December 2019, OneVue Services did not provide information technology and cyber security services to DTL and CCSL, so DTL and CCSL paid $40,000 (ex GST) for each of those months.
8.7After and before the Administrators were appointed:
(a)on 18 February 2020, Sargon Services entered into an agreement with DTL and CCSL, pursuant to which Sargon Services agreed to provide services to DTL and CCSL in exchange for a fee of $92,000 per month for one year from 19 January 2020 subject to a three-month extension; and
(b)on 8 May 2019, Sargon Services, Tidswell, Sargon CT (NSW), Sargon CT and REP entered into an agreement pursuant to which Sargon Services agreed to provide each other party to that agreement with services in exchange for a fee fixed at the cost incurred by Sargon Services in providing those services plus a margin of 10% for a period of 5 years, subject to early termination.
8.8For the period July 2018 to December 2019, Sargon Services incurred the following expenses (as recorded on its profit and loss statement):
(a)$14,267,649.36 in salary package costs;
(b)$2,187,131.05 in staff expenses;
(c)$793,794.11 in professional services expenses; and
(d)$962,937.72 in occupancy costs;
totalling $18,211,512.24. The total of all of Sargon Services’ expenses for that period was $20,215,913.87.
9.CLOVERHILL SALE
9.1Following their appointment on 3 February 2020, the Administrators commenced a sale process in which they advertised all of the shares owned by the Intermediate Holding Companies in the Operating Subsidiaries (other than SCAH1's shares).
9.2On 10 February 2020, the Administrators provided the Sargon Capital Receivers with a copy of Sargon Capital's balance sheet as at the end of December 2019, which stated that Sargon Capital held, amongst other things, the following assets:
(a)intercompany loans (with a book value of AUD$115,991,605.11);
(b)"Intangible tech - Sargon" (with a book value of AUD$5,797,293.90); and
(c)domain name (with a book value of AUD$237,696.49).
9.3The balance sheet for Sargon Services as at the end of December 2019 recorded $1,037,554.95 for "Intangible tech - Sargon" which comprised $549,583 for Sargon Technology, $1,053,694.39 for "Website" and -$565,722.44 for "Amortisation of Website".
9.4Between 17 February 2020 and 10 March 2020, substantial correspondence was exchanged and various conversations occurred between the Sargon Capital Receivers and the Administrators concerning the sale process.
9.5Between 4 February 2020 and 25 March 2020, the Sargon Capital Receivers made several requests of the Administrators to provide access to Sargon Capital’s books and records, and information relevant to the proposed Cloverhill Sale. The majority of the information requested was not provided to the Sargon Capital Receivers, in part, due to a confidentiality agreement between the Administrators and the Cloverhill Group.
9.6On or around 18 February 2020, the Cloverhill Group made an offer to the Administrators to purchase all of the assets of some of the Relevant Sargon Entities (among other entities), including the share capital in the Relevant Operating Subsidiaries (among other entities).
9.7On or about 4 March 2020, a written offer dated 4 March 2020 was made by the Cloverhill Group to purchase all of the assets of each of the Relevant Sargon Entities (among other entities), including the share capital in the Relevant Operating Subsidiaries (among other entities), subject to the fulfilment of various conditions precedent.
9.8On 10 March 2020, the Sargon Capital Receivers sought confirmation from the Administrators that the proposed sale did not include any assets or property of Sargon Capital, in particular, any intellectual property.
9.9On 28 March 2020, GrowthOps and the Administrators reached an in-principle agreement that GrowthOps would transfer any rights that it had in the Developed IP (as that term is defined in the Technology MSA and Marketing MSA) to the Cloverhill Group for an agreed payment contingent on the completion of the Cloverhill Sale (Administrators' Proposed Agreement).
9.10On 29 March 2020, the Administrators informed the Sargon Capital Receivers by letter that at that point in time, Cloverhill Group did intend for the "Sargon Cloud (Software)" to be included in the Cloverhill Sale.
9.11Between 1 April 2020 and 21 April 2020, the Sargon Capital Receivers and the Administrators engaged in negotiations in relation to the sale of the assets to the Cloverhill Group including the relevant intellectual property.
9.12On 22 April 2020, Diversa/OneVue and the Administrators reached an in-principle agreement, conditioned on the agreement of Sargon Capital being procured, that Diversa/OneVue would settle its claims in respect of SSH and Sargon SPV for the sum of $2,500,000, to be paid from the purchase price upon completion of the Cloverhill Sale (Diversa Agreement).
9.13On 22 April 2020, the Administrators sent a letter to the Sargon Capital Receivers that outlined each of the Administrators' Proposed Agreement and Diversa Agreement, and set out what was described to be the final terms upon which Sargon Capital could participate in the sale to the Cloverhill Group. Under the terms of that offer, Sargon Capital would receive approximately $5.1 million for the following assets (of the approximately $30 million being paid by the Cloverhill Group in connection with the Cloverhill Sale):
(a)$4 million for the IP assets;
(b)$400,000 for the Intercompany Loans; and
(c)$722,000 for the estimated dividends payable from the Intermediate Holding Companies' estates
(the Sargon Capital Offer).
9.14As part of the Sargon Capital Offer, the balance of $30 million (less an amount of $400,000 payable to Decimal) was to be distributed to the other creditors, namely the remaining Interested Parties and the Administrators (for their remuneration and expenses).
9.15An explanation for the proposed commercial settlement of $4 million for the intellectual property given by the Administrators and contained within the Sargon Capital Offer is given within the 22 April 2020 letter. In particular, annexure A to that letter provided for six estimated outcome scenarios that estimated the total amount of return to Sargon Capital, which ranged from approximately $4.4 million to $5.9 million with "IP and other assets" having the proposed commercial settlement amount of $4 million in each scenario.
9.16On and from 22 April 2020, there was further communication between the Sargon Capital Receivers and the Administrators.
9.17On 24 April 2020, negotiations between the Sargon Capital Receivers and the Cloverhill Group resulted in a proposed agreement by which Sargon Capital would assign any rights that it had in the intellectual property rights used in Sargon Services' business, free of Taiping's security interest, to Cloverhill for a sum of $4 million.
9.18On 28 April 2020, the Sargon Capital Receivers advised the Administrators that it may no longer be possible to secure the release of Taiping's security interest, and that the Sargon Capital Receivers were no longer prepared to agree to an assignment of the interests in the intellectual property that may be held by Sargon Capital.
9.19On 29 April 2020, the solicitors for the Administrators sent a letter to Ashurst. In this letter, the Administrators encouraged Taiping to accept "the very generous [Sargon Capital Offer] of $4 million to transfer its rights (whatever they may be) in the Sale IP to Cloverhill", and provided views as to the value of the intellectual property.
9.20Taiping did not accept the Sargon Capital Offer. Neither the Administrators' Proposed Agreement or the Diversa Agreement were ultimately executed.
9.21On 30 April 2020, the further communications between the Sargon Capital Receivers and the Administrators with respect to the Cloverhill Sale concluded, in conjunction with the commencement of proceedings in the Federal Court (as described in the following section).
10.CLOVERHILL PROCEEDINGS
10.1On 30 April 2020, the Administrators filed an application in the Federal Court of Australia pursuant to sections 442C and 447A of the Corporations Act, seeking leave of the Court to complete the Cloverhill Sale.
10.2On 1 May 2020, Justice O'Bryan made orders approving the completion of the Cloverhill Sale. However, in order to protect the secured parties, the Court ordered that the proceeds of the sale be retained in a separate account (Retained Proceeds), and provided a mechanism for the various claims over the assets of the Sargon Group to be determined by the Court.
10.3On or about 4 May 2020, the Cloverhill Sale was effected by the execution of:
(a)the Business Sale Agreement in respect of Sargon dated 4 May 2020 (Business Sale Agreement);
(b)the following Share Sale Agreements (Share Sale Agreements):
(i) Share Sale Agreement in respect of Responsible Entity Partners Ltd dated 4 May 2020;
(ii) Share Sale Agreement in respect of Tidswell Financial Services Ltd dated 4 May 2020;
(iii) Share Sale Agreement in respect of Mammatus Pty Ltd dated 4 May 2020;
(iv) Share Sale Agreement in respect of Sargon CT (NSW) Pty Ltd dated 4 May 2020;
(v) Share Sale Agreement in respect of Sargon CT Pty Ltd dated 4 May 2020;
(vi) Share Sale Agreement in respect of Sargon Limited (NZ) dated 4 May 2020;
(vii) Share Sale Agreement in respect of CCSL Limited dated 4 May 2020;
(viii) Share Sale Agreement in respect of Diversa Trustees Limited to Pacific Infrastructure Holdings Pty Ltd dated 4 May 2020; and
(ix) Share Sale Agreement in respect of Diversa Trustees Limited to Diversa Holdco Pty Ltd dated 4 May 2020.
10.4The overall total consideration for the Cloverhill Sale was $29,600,000 (being the $30,000,000 gross proceeds less $400,000 payable to Decimal). That amount comprised:
(a)$5,463,836 consideration under the Business Sale Agreement; and
(b)$24,136,164 consideration under the Share Sale Agreements.
10.5In the Business Sale Agreement, the intellectual property of the Sargon Group is defined and addressed by way of the following:
(a)Pursuant to Schedule 1:
(i) "Assets" is defined to include Additional IP and the Business Intellectual Property;
(ii) "Additional IP" refers to the Sale IP as defined in Order 1 of the orders made on 1 May 2020 and includes the Intellectual Property Rights (including those set out in Schedule 8 to the Business Sale Agreement) but Excludes Business Intellectual Property;
(iii) "Business Intellectual Property" means all Intellectual Property Rights owned by the Seller and used in the Business, including as set out in Schedule 5, but excludes any rights in or relating to the Sargon name or trademark (other than the Domain Name);
(iv) "Intellectual Property Rights" means all industrial and intellectual property rights and interests of whatever nature throughout the world conferred under statute, common law or equity, whether existing now or at any time in the future, and includes rights in respect of or in connection with copyright, inventions (including patents), formulae, databases, business processes and methods, circuit layouts, plant varieties, trademarks, service marks, business names, trade names, domain names, designs, confidential information, trade secrets and know-how and similar industrial and intellectual property rights, whether or not registered or registrable, and includes the right to apply for or renew the registration of such rights;
(b)Pursuant to Schedule 5, the Business Intellectual Property includes the Domain Name ( registered by Sargon Services;
(c)Pursuant to Schedule 8:
(i) Part A sets out seven trademarks, including the trademark "SARGON" with IP Australia registration number 1927649; and
(ii) Part B sets out 28 domain names, all registered to Sargon Capital.
(d)There was no specific attribution of the value of the "Additional IP" or "Business Intellectual Property" in the Business Sale Agreement.
10.6Following the completion of the Cloverhill Sale, an announcement was released on the Sargon website, which stated (amongst other things):
Cloverhill Group Managing Partners, Teddy Wasserman said, "We believe the proprietary next-generation trustee infrastructure that Sargon has developed to be world-class technology". … The cloud-based platform developed by Sargon delivers clients greater transparency over funds and reduces costs and complexity, while at the same time providing more scalable and reliable operations.
The parties agree that this announcement was released but do not agree that any of its contents is necessarily correct.
10.7On 15 May 2020, pursuant to the orders of Justice O'Bryan dated 1 May 2020, the Interested Parties and the Administrators each filed Notices of Claim with respect to the Retained Proceeds, as addressed in section 6 above.
10.8On 19 May 2020, Justice O'Bryan delivered written reasons for the orders made on 1 May 2020.
10.9Various deductions have been made from the Retained Proceeds from time to time, being:
(a)$351,884 paid to the Australian Taxation Office pursuant to the Orders of Justice O'Bryan dated 4 August 2020;
(b)$19,470 paid to the mediator, Manny Garantziotis QC, in respect of fees charged for conducting the mediation of the Cloverhill Proceedings on 19 August 2020; and
(c)$120,653.25 paid to the Victorian and New South Wales State Revenue Offices pursuant to the Orders of Justice O'Bryan dated 15 September 2020.
10.10As at 21 October 2020, the balance of the Retained Proceeds was $29,093,527.40.
10.11On 27 August 2020, the Administrators made an application under paragraph 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Corporations Act) to have the certain remuneration, referred to in paragraph 6.6 above be determined by the Court.
During the hearing, the parties confirmed that, in paragraph 2.3(h), the reference to “Sargon International Holdings 2 Pty Ltd” should be a reference to “SC International Holdings 2 Pty Ltd” (and that change should also be made to the corporate diagrams in the Annexures to these reasons) and that, in paragraph 7.2(d), the reference to “SCIH1” should be a reference to “Sargon SPV”.
F. QUESTION 2: VALUATION DATE AND BASIS OF VALUATION
The first questions for determination (being question 2 in the Joint Statement of Questions) are on what basis, and on what date, should the shares and assets sold under the Cloverhill Sale be valued.
The parties were agreed that, for the purposes of this proceeding and the resolution of the competing claims to the Retained Proceeds, the shares and assets sold under the Cloverhill Sale should be valued as at the date of sale, being 4 May 2020.
In relation to the basis of value, each of the expert valuers expressed the opinion that, for the purposes of this proceeding and the resolution of the competing claims to the Retained Proceeds, the shares and assets sold under the Cloverhill Sale should be valued at market value or fair market value in order to determine their relative values. However, the methodologies used by each of the experts to determine those values differed considerably. It is convenient to consider the differing methodologies, and state my conclusions in relation to those methodologies, when addressing question 4.
G. QUESTION 3: OWNERSHIP OF ASSETS
G.1 The claims to ownership of intellectual property assets made by or on behalf of Sargon Capital and Sargon Services
Overview
Questions 3.1 to 3.6 concern the intellectual property assets that were sold pursuant to the Business Sale Agreement. Westpac claims that part of those assets were owned by Sargon Services (over which Westpac holds security interests). Sargon Capital and Taiping claim that part of those assets were owned by Sargon Capital. GrowthOps claims that part of those assets were owned by it by reason that it developed software and other materials which are the subject of copyright and retained ownership of the copyright pending payment for its development.
The intellectual property assets sold pursuant to the Business Sale Agreement are defined in that agreement. Those definitions are referred to below. By way of overview, the assets can be divided into three broad categories:
Sargon software systems (known as “Arcadia”, “Sentinel”, “Metropolis”, “API Impact”, and “Sargon Pay”);
the Sargon website (which was treated by the parties as a separate species of software); and
numerous trading and domain names.
Those assets were the subject of the order of the Court made on 1 May 2020 empowering the plaintiffs (as administrators of Sargon Services) to dispose of the assets (as part of the Cloverhill Sale) notwithstanding that the interested parties may have held ownership or security interests in the assets. Those assets were defined as the “Sale IP” in the Court’s order.
Question 3.1 concerns the trading and domain names and asks whether Sargon Services or Sargon Capital was the owner of those assets as at the date of the Cloverhill Sale. Questions 3.2 and 3.3 concern the Sargon software systems and the Sargon website and asks how the value of those software assets should be divided between Sargon Services, Sargon Capital and GrowthOps.
Questions 3.4 to 3.6 focus specifically on GrowthOps’ claims to ownership of the Developed IP (being intellectual property developed pursuant to the Technology MSA and the Marketing MSA). In effect, the questions ask whether the Developed IP was sold as part of the Cloverhill Sale (including as part of the Sargon software systems) so as to generate part of the Retained Proceeds and whether GrowthOps was the owner of the Developed IP at the time of sale such that it is entitled to a proportion of the Retained Proceeds.
It is convenient to consider the competing claims by Sargon Services and Sargon Capital to ownership of the intellectual property assets sold pursuant to the Business Sale Agreement before considering the claims of GrowthOps. The remainder of this section G.1 addresses that question.
Findings of fact
The evidence concerning the ownership of the intellectual property assets (as between Sargon Services and Sargon Capital) was sparse. It primarily consisted of the Business Sale Agreement (to which Sargon Services, but not Sargon Capital, was a party) and the financial accounts of Sargon Services and Sargon Capital. The financial accounts are admissible in evidence and are prima facie evidence of the matters stated or recorded in the accounts: Corporations Act s 1305.
Under the Business Sale Agreement, Sargon Services (as Seller) sold the Assets (as defined) to the purchaser. It did so with the authority given to the plaintiffs (as administrators) by the Court on 1 May 2020. Relevantly, the Assets are defined to include the Additional IP (as defined) and the Business Intellectual Property (as defined).
The Additional IP is defined as the Sale IP (as defined in the Court’s order of 1 May 2020), including the rights set out in Schedule 8 to the agreement but excluding the Business Intellectual Property. Schedule 8 contains a list of 7 trade marks (including the registered mark SARGON and applications for registration in respect of arcadia, Impact, Sentinel and Metropolis) and 28 domain names (each of which is stated to be registered in the name of Sargon Capital).
The Business Intellectual Property is defined as follows:
Business Intellectual Property means all Intellectual Property Rights owned by the Seller and used in the Business, including as set out in Schedule 5 (Business Intellectual Property) but excluding any rights in or relating to the Sargon name or trade mark (other than the Domain Names).
The term Intellectual Property Rights is defined in broad terms as follows:
Intellectual Property Rights means all industrial and intellectual property rights and interests of whatever nature throughout the world conferred under statute, common law or equity, whether existing now or at any time in the future, and includes rights in respect of or in connection with copyright, inventions (including patents), formulae, databases, business processes and methods, circuit layouts, plant varieties, trade marks, service marks, business names, trade names, domain names, designs, confidential information, trade secrets and know-how and similar industrial and intellectual property rights, whether or not registered or registrable, and includes the right to apply for or renew the registration of such rights.
The object of separating the definition of intellectual property assets into Additional IP and Business Intellectual Property appears to be to ensure that all intellectual property assets owned by Sargon Services (which may include assets outside those defined by the Court’s order of 1 May 2020) were sold pursuant to the Business Sale Agreement.
As can be seen, the definition of Business Intellectual Property makes express reference to the rights listed in Schedule 5 to the Business Sale Agreement. The assumption appears to be that those rights are owned by Sargon Services. Schedule 5 lists two items only: the domain name and the Australian Business Name “Good Super”. The Schedule states that both are registered in the name of Sargon Services.
The latest balance sheet for Sargon Capital in evidence was dated 31 December 2019. The intangible asset account 1-2300 included two subsidiary accounts: 1-2305 (Intangible tech – Sargon) and 1-2375 (Intangible Other).
Subsidiary account 1-2305 (Intangible tech – Sargon) had a balance of $5,797,293.90 and included the following accounts:
1-2350 Software API 0.1 $301,747.94 1-2355 Amortisation of API 0.1 -$151,465.61 1-2360 Software API 1.0 $215,761.64 1-2380 Sargon Technology $6,663,030.82 1-2385 Amortisation of Sargon Technology -$1,231,780.89
Subsidiary account 1-2375 (Intangible Other) had a balance of $237,696.49 which was wholly made up of account 1-2320 (Domain Name).
The latest balance sheet for Sargon Services in evidence was also dated 31 December 2019. The intangible asset account 1-2300 included two subsidiary accounts: 1-2305 (Intangible tech - Sargon) and 1-2375 (Intangible Other).
Subsidiary account 1-2305 (Intangible tech – Sargon) had a balance of $1,037,554.95 and included the following accounts:
1-2310 Website $1,053,694.39 1-2315 Amortisation of Website -$565,722.44 1-2380 Sargon Technology $549,583.00
Subsidiary account 1-2375 (Intangible Other) had a balance of $11,695.72 which was wholly made up of account 1-2320 (Domain Name).
On 21 February 2020, Sargon Capital’s Managing Director, Mr Kingston, signed a Report on Company Activities and Property (ROCAP) of Sargon Capital as required by s 429(2) of the Corporations Act. The ROCAP contains a list of assets owned by Sargon Capital, and an estimated value of the assets, prepared by Mr Kingston. The list includes “Sargon Trustee Cloud (Software)” with an estimated value of $10 million and the domain name, with an estimated value of $237,696.49.
Submissions of the parties
Sargon Capital submitted that it is the owner of the trading and domain names listed in Schedule 8 of the Business Sale Agreement because it is the holder of the registration. While Sargon Services is the registrant of the Sargon domain name ( Sargon Capital submitted that it was the beneficial owner. In support of that submission, it relied on:
(a)the fact that, of the 28 domain names registered within the Sargon Group, 27 are registered to Sargon Capital;
(b)the fact that Mr Kingston’s ROCAP also indicates that Sargon Capital held that domain name; and
(c)an assertion that the asset is listed on Sargon Capital’s balance sheet.
Sargon Capital also submitted that, while Sargon Services is the registrant of the “Good Super” business name, Sargon Capital is the beneficial owner. In support, it asserted that the asset was listed on Sargon Capital’s balance sheet.
In respect of the software assets, Sargon Capital submitted that ownership should be recognised in accordance with the balance sheet accounts of Sargon Capital and Sargon Services.
Westpac acknowledged that Sargon Capital is the owner of the trading and domain names listed in Schedule 8 of the Business Sale Agreement (other than items 15, 16 and 33 to 35) because it is the holder of the registration. In relation to items 15, 16 and 33 to 35 (being various “Hong Kong trustee company” domain names), Westpac submitted that the evidence shows that no‑one is recorded as the registrant of those domain names.
Westpac submitted that Sargon Services is the owner of the Sargon domain name ( and the “Good Super” business name because it is the registrant. Westpac disputed that Sargon Capital’s balance sheet affords contrary evidence (as the balance sheet does not identify those specific assets).
In respect of the software assets, Westpac also submitted that ownership should be recognised in accordance with the balance sheet accounts of Sargon Capital and Sargon Services.
Consideration
Ultimately, there was no real dispute between the parties that ownership of the software assets should be recognised as being held by both Sargon Capital and Sargon Services, reflecting the fact that the balance sheets of both companies record (as an asset) capitalised expenditure on the software. While the relevant balance sheet accounts contain only a broad description of the software assets, they are the best evidence available to the Court as to the ownership of those assets. Based on those balance sheet accounts, as reproduced above, in my view the Sargon software systems (known as “Arcadia”, “Sentinel”, “Metropolis”, “API Impact”, and “Sargon Pay”) are owned in part by Sargon Capital and in part by Sargon Services, as reflected in:
(a)the Sargon Capital account 1-2305 (Intangible tech – Sargon) and its subsidiary accounts: 1-2350 (Software API 0.1), 1-2355 (Amortisation of API 1.0), 1-2360 (Software API 1.0), 1-2380 (Sargon Technology) and 1-2385 (Amortisation of Sargon Technology); and
(b)the Sargon Services subsidiary account 1-2380 (Sargon Technology).
The Sargon website software is owned by Sargon Services, as reflected in its balance sheet subsidiary accounts 1-2310 (Website) and 1-2315 (Amortisation of Website).
I find that the trade marks and domain names listed in Schedule 8 to the Business Sale Agreement are owned by Sargon Capital, as the available evidence suggests that it is the registrant of those trade marks and domain names. As to items 15, 16 and 33 to 35, the evidence relied on by Westpac does not establish that Sargon Capital was not the registrant of those names; the evidence only established that searches had failed to reveal the registrant of those names. In circumstances where Sargon Services executed the Business Sale Agreement implicitly recognising Sargon Capital as the owner of those names, and there being no contrary evidence, I find that Sargon Capital is the owner.
As to the domain name and the business name “Good Super”, the parties acknowledge that they are registered in the name of Sargon Services. The matters relied on by Sargon Capital to establish that it is the beneficial owner of those names are not persuasive. The fact that other trading and domain names are registered to Sargon Capital is entirely neutral. The balance sheets of Sargon Capital and Sargon Services do not provide a definitive answer because each has an asset account designated 1-2320 (Domain Names), and there is no evidence as to the domain names included within the account. While Mr Kingston’s ROCAP lists the Sargon domain name as an asset of Sargon Capital, I do not regard the ROCAP as a reliable source of information. Mr Kingston did not give evidence and accordingly there is no evidence as to the basis on which Mr Kingston included that asset as an asset of Sargon Capital. The value attributed to the asset in the ROCAP is the same as the value recorded in the Sargon Capital balance sheet in respect of the account 1-2320 (Domain Names), which suggests that Mr Kingston assumed that that account related to the Sargon domain name. In the absence of other evidence, I find that Sargon Services, as registrant, is the owner of the domain name and the business name “Good Super”.
G.2 GrowthOps’ claims to the Developed IP
Overview
As already noted, questions 3.4 to 3.6 focus on GrowthOps’ claims to ownership of the Developed IP. The questions can be paraphrased as whether the Developed IP was sold as part of the Cloverhill Sale (including as part of the Sargon software systems) so as to generate part of the Retained Proceeds and whether GrowthOps was the owner of the Developed IP at the time of sale such that it is entitled to a proportion of the Retained Proceeds. The latter question requires consideration of whether clause 7.1 of each of the Technology MSA and the Marketing MSA is a security interest within the meaning of s 12 of the Personal Property Securities Act 2009 (Cth) (PPSA) and whether the interest (being unperfected) vested in Sargon Capital under s 267 of the PPSA upon the appointment of external administrators to Sargon Capital pursuant to s 436C of the Corporations Act on 8 March 2020.
Findings of fact
Mr McMenamin deposed that, between around 2018 and January 2020, GrowthOps and Sargon Capital entered into various contractual arrangements in which GrowthOps provided services (including software development services) to Sargon Capital. Those agreements included the Technology MSA and the Marketing MSA, the subject of GrowthOps’ claims.
The Technology MSA
GrowthOps and Sargon Capital were parties to the Technology MSA which commenced 1 July 2019.
Clause 3 of the agreement governed the services to be provided by GrowthOps pursuant to the agreement. Under that clause, GrowthOps agreed to provide Planning Services (as defined) in order to prepare a suitable Quarterly Growth Plan (as defined) for Sargon. The template Quarterly Growth Plan attached to the agreement indicated that the plans would define the scope of services to be provided and the fees payable. Sargon Capital could elect to proceed with a Quarterly Growth Plan or not proceed. If it proceeded with a Quarterly Growth Plan, Sargon Capital agreed to pay fees to GrowthOps for the services performed by the successful delivery of each agreed Scope (as defined). Clause 1.1 defined “Scope” as “each and any subset of agreed services to be performed by GrowthOps for Sargon pursuant to a Quarterly Growth Plan, detailing certain outcomes, Deliverables and Fees payable as against (draw down against) the Quarterly Growth Budget in accordance with Schedule B”. “Deliverables” were defined as the deliverables provided to Sargon Capital by GrowthOps as set out in accordance with a Scope and/or Quarterly Growth Plan, which may include software.
Clause 7.1 of the Technology MSA relevantly provided as follows:
7.1 Intellectual Property Rights
(a) All Intellectual Property Rights in the Services and Deliverables (Developed IP), except any GrowthOps Background IP or its service methodology and knowledge, vests in Sargon immediately upon payment to GrowthOps for same, and GrowthOps hereby assigns, and must procure that its personnel assign, all Intellectual Property Rights in the Developed IP To [sic] Sargon. GrowthOps agrees to do all things which may be necessary for these ownership rights to pass to Sargon. At Sargon’s request, GrowthOps must provide, and ensure that its personnel or sub-contractors provide consents to or waivers of any moral rights in specific Developed IP. This clause does not in any way derogate from the ability for GrowthOps to utilise the same service methodology for other clients.
(b)GrowthOps agrees to provide Sargon with a statement of account on a quarterly basis demonstrating invoices paid and outstanding to date, whilst reflecting the vesting of ownership of Developed IP contemplated by 7.1(a).
…
Intellectual Property Rights was defined as:
…any rights in or to any patent, copyright (including rights in computer software), database rights, registered design or other design right, utility model, trade mark (whether registered or not and including any rights in get up or trade dress), brand name, logo, service mark, trade or business name, domain name, eligible layout right, chip topography right and any other rights of a proprietary nature in or to the results of intellectual activity in the industrial, commercial, scientific, literary or artistic fields, whether registrable or not and wherever existing in the world, including all registrations, applications, renewals, extensions, continuations, divisions and reissuances associated with, and all rights to apply for, any such rights.
Mr McMenamin deposed that GrowthOps prepared two Quarterly Growth Plans under the Technology MSA. The first was for the quarter commencing 1 July 2019 and the second was for the quarter commencing 1 October 2019. Copies were in evidence. Each was a detailed document describing the “Scopes”, being software improvements or modifications to Sargon’s software systems. Each Scope specified a timeframe for delivery and the fee payable. GrowthOps provided the Court with an aide memoire linking each item in the Scopes with particular Sargon software systems (Arcadia, Sentinel, Metropolis, API Impact and Pay). The aide memoire was not the subject of dispute by any party.
Mr McMenamin deposed that the following invoices were issued by GrowthOps to Sargon Capital under the Technology MSA:
Invoice date Invoice number Amount excl GST 30/07/2019 INV/GOS/00112 $107,000.00 31/07/2019 INV/GOS/00072 $157,723.27 30/08/2019 INV/GOS/000113 $107,000.00 30/08/2019 INV/GOS/00094 $156,405.23 30/09/2019 INV/GOS/00110 $321,957.00 31/10/2019 INV/GOS/00129 $372,637.30 30/11/2019 INV/GOS/00142 $ 286,361.05 Total $1,509,083.85
The monetary difference between the two values is not material in the context of the case. Nevertheless, I consider that Mr Hall’s value should be adopted. While Mr Samuel’s methodology is theoretically appropriate, it suffers the disadvantage that it required Mr Samuel to estimate the cost of each item of plant and equipment if purchased new at the date of the valuation. The evidentiary basis for that estimate was not provided in Mr Samuel’s report and I consider that the accuracy of the estimate is likely to be undermined by the limited information that was available to Mr Samuel concerning the items of plant and equipment that were sold.
Conclusion with respect to the fair market value of the BSA assets
In conclusion, I find that the fair market value to be attributed to the BSA assets owned by Sargon Capital is as set out in the following table:
Table 1: Fair Market Value of BSA assets owned by Sargon Capital
Asset Valuation Sargon software $7,180,540.40 Trade marks and domain names $237,696.49 Total $7,418,236.89
I also find that the fair market value to be attributed to the BSA assets owned by Sargon Services is as set out in the following table:
Table 2: Fair Market Value of BSA assets owned by Sargon Services
Asset Valuation Sargon software $549,583.00 Sargon website $1,053,694.39 Business and domain name $11,695.72 Plant & Equipment $318,552.77 Total $1,933,525.88 GrowthOps’ claim
As already noted, I have concluded earlier that the Developed IP is deemed to be owned by Sargon Capital by virtue of s 267 of the PPSA and, accordingly, GrowthOps has no entitlement to receive any part of the Retained Proceeds that represents the value of the Sargon software sold under the Business Sale Agreement. If I had reached the conclusion that GrowthOps owned the Developed IP, I would have found that the fair market value of the Developed IP was the GST exclusive value of unpaid invoices issued by GrowthOps to Sargon Capital for work done pursuant to the Technology MSA, being $980,955.35, and I would have reduced the fair market value of the Sargon software owned by Sargon Capital by a corresponding amount. The reasons for that conclusion can be briefly stated as follows.
It is not disputed that GrowthOps supplied services to Sargon Capital under the Technology MSA between July and December 2019, and under the Marketing MSA between September 2019 and January 2020 and has issued many invoices for those services which remain unpaid. For the reasons expressed earlier, I have found that the services supplied under the Marketing MSA did not relate to the development of the Sargon software and did not create assets (whether intellectual property or otherwise) that were recognised as having value in the Cloverhill Sale. For that reason, I would not allocate any part of the Retained Proceeds that relates to the BSA assets to anything created pursuant to the Marketing MSA.
Each of the expert valuers supported the apportionment of the fair market value of the Sargon software between Sargon Capital and GrowthOps based on the costs incurred by each of them in developing the software. Accordingly, if I had found that GrowthOps was the owner of the Developed IP, I would have attributed a fair market value to the Developed IP of $980,955.35 and I would have reduced the fair market value of the Sargon software owned by Sargon Capital (being the book value as recorded in its balance sheet) by the same amount.
H.6 Fair market value of the Sale Subsidiaries
Earlier in these reasons, I rejected the methodology applied by Mr Samuel to determine the relative value of the Sale Subsidiaries. The remaining questions to determine are whether the methodology of Mr Hall or Mr Jaski is to be preferred and whether all aspects of the preferable methodology should be accepted.
Each of Mr Hall and Mr Jaski applied a capitalisation of earnings methodology as their primary approach to determine the fair market value of the Sale Subsidiaries. While a capitalisation of earnings methodology would usually be based on an estimate of future maintainable earnings, the experts did not have any forecast financial information available to them. Accordingly, their methodology was based on the capitalisation of CY19 earnings. The principal differences in their respective approaches were:
(a)the calculation of expenses to be attributed to each of the Sale Subsidiaries for the purpose of calculating earnings (EBIT) in CY19;
(b)the choice of EBIT multiple to be applied; and
(c)if the calculated EBIT was negative, whether to use a capitalisation of revenue methodology or a net asset methodology.
The resolution of those issues involved judgments. I consider that both Mr Hall and Mr Jaski had a reasoned basis for the judgments they formed. It is necessary, though, to assess which approach was more reasonable having regard to the evidence before the Court.
Calculation of expenses and the resulting EBIT
As noted earlier, the Sale Subsidiaries used services and facilities provided by other members of the Sargon Group, particularly Sargon Services and Sargon Capital, but the costs associated with the provision of such services and facilities were not fully charged as expenses in the accounts of the Sale Subsidiaries. The two principal categories of such expenses were (a) the staff and administration costs incurred by Sargon Services on a centralised basis on behalf of Sargon Group companies and (b) the costs of the intellectual property used by the Sargon Group (software, website, trade marks and domain names), which costs were capitalised on the balance sheets of Sargon Capital and Sargon Services. It was necessary for the valuers to determine the earnings (EBIT) of the Sale Subsidiaries having regard to those shared costs.
As noted earlier, Mr Jaski used two different methodologies to determine the earnings of the Sale Subsidiaries to be capitalised for the purposes of his valuation. While the first method was based on an allocation of the shared services costs incurred by Sargon Services, the second method was based on the historically achieved cost structure of the Sale Subsidiaries prior to their acquisition by the Sargon Group. I do not consider that the second method is reasonable in the circumstances of this case. The method substitutes the costs that were actually incurred in CY19 with an historical costs figure from a time before the relevant company was acquired by the Sargon Group. Mr Jaski acknowledged in oral testimony that this method assumed that there had been no change in the structure of the businesses and the state of the industry in which they were operating since their acquisition by Sargon Group, but Mr Jaski had not undertaken any analysis to determine whether that assumption was correct.
I therefore consider that the more reasonable approach, adopted by Mr Hall and by Mr Jaski in his first method, is to allocate the shared services costs incurred by Sargon Services between the Sale Subsidiaries. This too presents difficulties due to the absence of reliable information as to the use of the shared services by each of the Sale Subsidiaries.
As a preliminary point, Mr Hall examined the costs incurred by Sargon Services and formed the view that the costs that should be allocated to the Sale Subsidiaries was $10,136,341 and not $14,764,003 as assessed by Ernst & Young. Mr Hall explained the reason for the exclusion of certain costs as follows:
(a)a reduction of $3,467 for an interest expense that should not be included in an EBIT calculation;
(b)a reduction of $813,727 was made to adjust for abnormally high expenses in November and December 2019 that appeared to be due, at least in large part, to non-recurring redundancy costs;
(c)a reduction of $1,573,878 to reclassify a portion of the staffing costs to Sargon CT (that, in Mr Hall’s view, should have been allocated to Sargon CT as a direct expense rather than as part of a centralised cost allocation; and
(d)a reduction of $2,236,590 to account for shared expense amounts that had already been allocated from Sargon Services to particular individual entities through intercompany accounting entries.
Neither Mr Samuel nor Mr Jaski took issue with items (a) or (b). In relation to items (c) and (d), Mr Samuel stated that he was not persuaded of the errors identified by Mr Hall while Mr Jaski stated that Mr Hall’s adjustments were one method to allocate the shared services costs. In both written and oral testimony, Mr Hall provided a detailed explanation of the adjustments by reference to the underlying accounting records that were available. I am satisfied that Mr Hall’s adjustments have a reasonable basis and I accept them for the purposes of this proceeding.
Recognising the difficulties in allocating the shared services costs between the Sale Subsidiaries, Mr Hall adopted two methods to the allocation. The two methods were (i) pro rata based on revenue and (ii) a fixed allocation of 25% to each of REP, Tidswell/Mammatus, Sargon CT and DTL/CCSL. Mr Hall reasoned that allocating costs pro rata based on revenue assumes that those costs are variable based on revenue, whereas allocating costs as a fixed allocation assumes that those costs are fixed. Mr Hall concluded as follows:
In the absence of an objective, detailed assessment of the proportion of time that individual staff members devoted to each business and an objective, detailed assessment of the administrative and overhead costs other than staffing that were expended specifically on behalf of each business, I have no reason to regard one of these methods or the other as superior or to be preferred to the exclusion of the other and I regard both cost allocation methods as appropriate to consider for valuation purposes.
…
The practical effect of my approach, in terms of the choice of cost allocation methods, is that the combined percentage of costs that is allocated to each business is neither pro rata to revenue nor “4x25” but is instead:
i) 15% for REP;
ii) 28% for Tidswell/Mammatus;
iii) 31% for Sargon CT/Sargon CT-NSW; and
iv) 26% for [DTL]/CCSL.
I regard these implied cost allocations to be reasonable and I have adopted them in the absence of an objective, detailed assessment of the specific fixed and variable cost categories that make up the shared services costs.
Having calculated EBIT for the Sale Subsidiaries on the basis of the two cost allocation methods stated above, it might have been expected that Mr Hall would then calculate an average of the resulting EBIT. Adopting such an approach would have been consistent with Mr Hall’s statement, quoted above, that the practical effect of his approach is to derive a “combined percentage of costs that is allocated”. However, Mr Hall did not do that. Instead, he calculated the value of the Sale Subsidiaries using the alternative EBIT figures, and then calculated the average of the resulting values. There is a material difference in the two approaches. The difference is caused by the fact that Mr Hall did not calculate the value of the Sale Subsidiaries simply by applying a multiple to the EBIT. If he had, the value derived from capitalising an average of the EBIT figures would have been arithmetically the same as the value derived from averaging the capitalised EBIT figures. Rather, Mr Hall applied a four step capitalisation approach:
(a)first, he capitalised each EBIT figure using a multiple of 10;
(b)second, if the value in (a) (using each EBIT figure) was less than 1.5 times revenue, he applied the latter value;
(c)third, if the value in (a) (using each EBIT figure) was negative (i.e. there was negative EBIT), he applied a value of 1 times revenue; and
(d)fourth, Mr Hall calculated an average of the two valuations arrived at from each EBIT figure.
Both Mr Samuel and Mr Jaski considered that Mr Hall’s second method of allocation for the shared services costs (fixed allocation) is arbitrary. In response, Mr Hall argued that both the revenue allocation method and the fixed allocation method have an element that is arbitrary because it is not known to what extent each Sale Subsidiary used the shared services (and thereby incurred the underlying costs) and to what extent the shared services costs are fixed or variable. While I accept that, in one sense, both the revenue allocation method and the fixed allocation method have an arbitrary element, I prefer the views of Mr Samuel and Mr Jaski that the revenue allocation method has a more reasonable basis in the circumstances of this case, where costs are assumed to vary with revenue.
Mr Samuel made the further criticism that Mr Hall’s valuation methodology, using two EBIT figures, exacerbates the arbitrariness of his approach by reason of the “rules” that he applied to determine value (being a mixture of EBIT and revenue multiples). As explained above, Mr Hall did not calculate an average of the resulting EBIT figures from his two cost allocation methods to achieve the result, using Mr Hall’s words, of a combined percentage of costs that is allocated. Rather, he calculated two different EBIT figures to which his valuation rules (including the use of revenue multiples) were then applied. As discussed further below, I accept the view of Mr Samuel and Mr Jaski that revenue multiples are not a reliable basis on which to determine value for the Sale Subsidiaries and that, if an entity has a negative EBIT, it is preferable to use a net asset methodology for valuation.
Accordingly, I accept Mr Hall’s approach to the calculation of the total shared services costs and the allocation of those costs on a revenue basis, but I do not accept the allocation of those costs on a fixed basis.
I also consider that Mr Hall’s approach using a revenue allocation is preferable to Mr Jaski’s alternative approach, being his first method of allocation. That is for two reasons. First, Mr Jaski’s calculations assume that the shared services costs to be allocated for CY19 were $14,764,003, whereas I have accepted Mr Hall’s opinion that the figure should be $10,136,341. Second, I consider that the adjustments to the revenue allocation made by Mr Jaski are less likely to produce a reasonable allocation of the shared costs.
Mr Jaski’s first method of allocation was to estimate the actual consumption of Sargon Services costs by the Sale Subsidiaries where those could be identified, followed by the allocation of the remaining Sargon Services costs pro rata based on revenue other than in respect of DTL and CCSL (which were only allocated a fixed component). Mr Jaski explained his approach as follows:
I have reviewed certain information from the Administrators, which shows that a number of staff within Sargon Services appear to have a role dedicated to a specific entity (eg REPL, TFSL, Sargon CT and DTL), while other staff have a more general role belonging to more general shared services (refer Appendix C8)
I have also sighted an agreement between Sargon Services, DTL and CCSL which outlines the actual contracted amount of the Sargon Services Costs that are required to be paid as set out in Schedule 2 Fees and Expense Recovery:
For the provision of the services under this Agreement, SS will charge the Trustees $92,000 (including GST) per month, or such further or other amount for any particular period of time as the Trustees and SS may (each acting in their sole and absolute discretion) agree in writing.
This information is very helpful to determine an appropriate allocation of the Sargon Services Costs for DTL and CCSL as it appears to represent an arm’s length agreement between the parties. Although the document is dated 12 days after the Valuation Date of 6 February 2020, I cannot see any reason why it should be ignored, given the material impact on the valuation outcome.
In estimating the actual consumption of Sargon Services costs by the Sale Subsidiaries, Mr Jaski relied on work undertaken by the plaintiffs and Ernst & Young in February 2020, in connection with seeking further funding for Sargon Services (in order to continue to provide services to the entities in administration). While that work involved consultation with senior management of the Sale Subsidiaries in relation to the employment costs that could be allocated to the Sale Subsidiaries, Mr McCallum’s evidence (on which Mr Jaski’s estimate was based) did not go so far as to suggest that the work done provided a reliable basis on which to identify the actual consumption of costs by the Sale Subsidiaries. In relation to DTL and CCSL, Mr Jaski relied on a services agreement entered into between those companies and Sargon Services on 18 February 2020 for the supply of services (including governance, human resources, finance information technology, legal and product) from 19 January 2020 at a charge of $1,104,000 per annum. I consider that it is not reasonable to rely on that agreement to determine the shared services cost incurred by DTL and CCSL in CY19 for the reason that the agreement relates to the next calendar year (CY20).
Mr Hall makes one further adjustment to his calculation of EBIT, which is to allocate a charge for the use of the intellectual property assets owned by Sargon Capital and Sargon Services. Consistently with his valuation of the intellectual property, Mr Hall considered that a charge of 2.5% of revenue was appropriate. Each of Mr Samuel and Mr Jaski agreed that, if the Sale Subsidiaries were to be valued on the basis of a capitalisation of earnings, it was appropriate to charge as an expense an amount in respect of the use of the intellectual property owned by Sargon Capital and Sargon Services.
Mr Hall’s notional licensing fee of 2.5% of revenue results in a valuation of the intellectual property assets of $3,770,508, which I have concluded under-values those assets. I have accepted the book values of the intellectual property assets which total $9,033,213. Mr Samuel gave evidence that a licensing fee of 6.25% of revenue results in a valuation of the intellectual property assets of $9,426,270 (using a DCF valuation methodology), which exceeds the valuation I have accepted by a modest amount. Having regard to those figures, I consider that it is reasonable to allocate a charge for the use of the intellectual property assets owned by Sargon Capital and Sargon Services to the Sale Subsidiaries calculated as 6% of revenue.
Accordingly, the calculation of CY19 EBIT using:
(a)revenue and operating expenses from the financial statements of each entity for CY19 (taken from paragraph 25 of Mr Hall’s first report);
(b)Mr Hall’s revenue approach to the allocation of shared service costs (taken from paragraph 29 of Mr Hall’s first report); and
(c)an intellectual property licence fee of 6% of revenue,
is shown in the following table (in thousand dollars):
Table 3: EBIT Estimate
REP Tidswell/ Mammatus Sargon CT/ CT NSW DTL/ CCSL Sargon NZ Revenue 1,390 8,430 9,357 6,768 310 Operating expenses 502 3,893 2,621 2,504 3,321 Shared costs allocation 543 3,293 3,656 2,644 0 IP licence fee 83 506 561 406 19 EBIT 262 738 2,519 1,214 (3,030)
The choice of EBIT multiple to be applied
Mr Hall and Mr Jaski both acknowledged that reasonable minds can differ on the selection of an appropriate EBIT multiple. Mr Hall calculated an EBIT multiple of 10 based on market evidence at the valuation date. In contrast, Mr Jaski calculated EBIT multiples for each Sale Subsidiary based on the implicit EBIT multiple paid by the Sargon Group when it acquired the Sale Subsidiary.
In my view, Mr Hall's calculation of an EBIT multiple is preferable because it is based on market evidence from a broader range of companies and market evidence that is more proximate to the relevant valuation date. In contrast, Mr Jaski's approach has the following deficiencies.
First, Mr Jaski used six transactions to determine an EBIT multiple and was only able to derive an EBIT multiple from three, whereas Mr Hall relied on 10 companies listed on the ASX, whose principal activities included responsible entity and corporate trustee services as well as 11 selected acquisitions in those same sectors.
Second, Mr Jaski used historic transactions dated February 2016, November 2018 and June 2019. Mr Jaski accepted in oral testimony that one of the benefits of using multiples implied by trading prices of comparable listed companies is that they are current at the valuation date and therefore reflect current industry, market, financial and general economic conditions.
Third, Mr Jaski used multiples implied from transactions which all had the same purchaser, being the Sargon Group. Mr Jaski acknowledged in oral testimony that this carried the risk that the multiple might be affected by issues specific to that purchaser, such as a propensity to overpay.
For those reasons, I consider that a reasonable EBIT multiple to be applied to value the Sale Subsidiaries is 10.
The use of a revenue multiple
As already noted, Mr Hall placed some reliance on revenue multiples in his valuation methodology.
In the Joint Report, each of the experts agreed that revenue multiples should not be used as a primary valuation approach in the circumstances of the present matter. Mr Samuel and Mr Jaski further agreed that valuing entities in this matter by reference to revenue multiples is not appropriate as a secondary valuation approach, as value is a product of cash flows (for which EBIT is a proxy in this instance) and not a product of revenues. Mr Jaski expressed the opinion, with which Mr Samuel agreed, that a revenue multiple methodology may be used appropriately in some situations, having regard to the nature of the business and the availability of sufficiently comparable company information. However, Mr Jaski considered that there is a distinct lack of information available concerning the Sale Subsidiaries and comparable companies. For that reason, Mr Jaski considered that the use of a revenue multiples methodology is not particularly suitable or insightful, even as a cross check. I accept the opinions of Mr Samuel and Mr Jaski.
Mr Hall demonstrated in the Joint Report that his use of revenue multiples did not have a large effect on the relative values of the Sale Subsidiaries. The impact would be even less on the adjustments I have made to Mr Hall’s methodology as noted above.
Surplus assets
Mr Jaski formed the opinion that Sargon CT held surplus assets of $18,364,322 and DTL/CCSL held surplus assets of $2,105,000, which ought to be added to the values of those entities. It is not clear from Mr Jaski’s report how he formed that conclusion. In the Joint Report, neither Mr Samuel nor Mr Hall accepted Mr Jaski’s conclusion. Mr Samuel expressed the view that the assets referred to by Mr Jaski were intercompany receivables and that, in the circumstances that existed at the valuation date, those receivables were not recoverable in full. I am not persuaded that those amounts should be added to the valuations of those entities.
Allocation of value between subgroups
As noted earlier, Mr Hall undertook his valuations on the basis that certain of the Sale Subsidiaries should be grouped together because the companies formed part of a single business operation rather than being individual and separable business operations. The companies that he grouped together were (i) Tidswell and Mammatus, (ii) Sargon CT and Sargon CT-NSW and (iii) DTL and CCSL. Mr Hall then allocated the valuations he arrived at for each grouping between the companies on the basis of revenue. For that purpose, the revenues of each of those entities in CY19 (taken from paragraphs 75, 79, 96, 98, 115 and 118 of Mr Hall’s first report), and the resulting revenue shares, are as follows:
Table 4: Revenue Shares
Entity Revenue CY19 Revenue share Tidswell 7,850 93% Mammatus 580 7% Sargon CT 9,123 97% Sargon CT NSW 234 3% DTL 6,405 95% CCSL 363 5%
Mr Samuel and Mr Jaski agreed with Mr Hall’s theoretical approach; that is, if the companies formed part of a single business operation then it was appropriate that they be grouped together for valuation purposes. Indeed, Mr Jaski valued DTL and CCSL as part of a single business operation. However, Mr Samuel and Mr Jaski were not persuaded on the information available that Tidswell and Mammatus formed part of a single business operation.
I consider that Mr Hall has provided a reasonable basis for his opinion that the companies formed part of a single business operation, and that approach is supported by Mr Jaski in respect of DTL and CCSL. Further and in any event, I do not consider that the adoption of Mr Hall’s approach, as opposed to valuing each company separately, has a material impact on the result of this proceeding. There would be no material difference in result for Sargon CT and Sargon CT NSW because both entities had positive EBIT. A different result might be obtained in respect of Tidswell and Mammatus. Mr Samuel valued Mammatus at nil because it was loss making. However, if that approach were to be adopted by Mr Hall, but otherwise Mr Hall’s approach followed, there would be a corresponding increase in the valuation of Tidswell. As Westpac has a secured interest in both Tidswell and Mammatus, there would be no material effect on the overall outcome in the proceeding.
Value of Sargon NZ
Mr Jaski concluded that Sargon NZ held net tangible assets of $188,995 and that it should be valued accordingly. In contrast, both Mr Samuel and Mr Hall valued Sargon NZ at nil. Mr Samuel concluded that Sargon NZ was loss making and had net liabilities of $685,453. Mr Hall expressed the following opinion:
I have adopted a nil value for Sargon NZ even though the second tier of my secondary revenue multiple approach (ie, a multiple of 1.0 times revenue for loss making companies) provides a figure of $309,671. My reason for doing this is that Sargon NZ is not just marginally unprofitable but is instead in need of significant restructuring before it could be profitable. The employment costs for Sargon NZ (before any cost allocations) are in the order of $2.0 million against revenue of approximately $300,000. In my view, a potential purchaser might be willing to pay 1.0 times revenue for the business but only on the basis that the seller would undertake to arrange for significant staff reductions and take responsibility for the related redundancy payments that would be likely to be at least equal to the notional purchase price.
I accept the opinions expressed by Mr Samuel and Mr Hall.
Conclusion on the fair market value of the Sale Subsidiaries
In conclusion, I consider that a reasonable estimate of the fair market value of the Sale Subsidiaries is as set out in the following table (in thousand dollars):
Table 5: Fair Market Value of Sale Subsidiaries
Entity Fair market value REP 2,620 Tidswell 6,863 Mammatus 517 Sargon CT 24,434 Sargon CT NSW 756 DTL 11,533 CCSL 607 Sargon NZ 0 Total 47,330
The figures in Table 5 have been calculated from the EBIT estimate in Table 3 above, capitalised by a multiple of 10, and apportioned between relevant entity pairs using the revenue shares in Table 4 above.
H.7 Relative values of the Sale Subsidiaries and BSA assets
It follows from the foregoing that a reasonable estimate of the relative value of the Sale Subsidiaries and the BSA assets is as shown in Table 6 below. The relative values expressed as a percentage have been rounded to the second decimal point:
Table 6: Relative Values of the Cloverhill Sale Assets
Asset Fair market value Relative value as a proportion of total sale proceeds Percentage relative value REP 2,620 1,368 4.62% Tidswell 6,863 3,584 12.11% Mammatus 517 270 0.91% Sargon CT 24,434 12,760 43.11% Sargon CT NSW 756 395 1.33% DTL 11,533 6,023 20.35% CCSL 607 317 1.07% Sargon NZ 0 0 0% BSA assets - Sargon Capital 7,418 3,874 13.09% BSA assets - Sargon Services 1,934 1,010 3.41% Total 56,682 29,600 100% I. CONCLUSIONS AND ORDERS
The matter to be determined in this proceeding is the distribution of the balance of the Retained Proceeds, after deduction of the amounts payable to the plaintiffs and other persons in accordance with previous orders of the Court, to the interested parties who have established that they held relevant ownership or security interests in respect of the property that was sold pursuant to the Cloverhill Sale.
The conclusions I have reached are as follows:
(a)The claim made by the plaintiffs in respect of items 11 and 12 of the plaintiffs’ amended notice of claim is dismissed.
(b)The claim made by Westpac is upheld to the extent determined in these reasons, namely that it is entitled to a proportionate share of the balance of the Retained Proceeds reflecting the relative value of the assets of Sargon Services sold pursuant to the Business Sale Agreement and the shares in REP, Tidswell, Mammatus, Sargon CT and Sargon CT NSW, up to the amounts owing to Westpac under each relevant facility. I have determined that the relative value of that property is 65.5%.
(c)The claim made by Sargon Capital and Taiping is upheld to the extent determined in these reasons, namely that Sargon Capital is entitled to a proportionate share of the balance of the Retained Proceeds reflecting the relative value of the assets of Sargon Capital sold pursuant to the Business Sale Agreement. I have determined that the relative value of that property is 13.1%.
(d)The claims made by GrowthOps and Diversa and OneVue in the proceeding are dismissed.
For completeness, I note that I have determined that the relative value of DTL and CCSL is 21.4% and the relative value of Sargon NZ is nil.
Following from those conclusions, it will be necessary for the Court to approve the distribution of the Retained Proceeds to the persons and in the amounts that reflect the conclusions reached. As the amounts payable to the plaintiffs must be determined first, the parties have leave to seek final orders from the Court once that has occurred, including any order consequential upon these reasons.
Each of the parties asked the Court to reserve the question of costs until after this judgment. I will therefore make orders for the filing of evidence and submissions on the issue of costs. However, I will make two initial observations. First, the majority of time in the proceeding concerned the determination of the relative value of the property sold pursuant to the Cloverhill Sale, including the consideration of expert evidence. On that issue, the parties had mixed success. Barring other considerations, that would suggest that each party should bear their own costs on that issue. Second, a much smaller part of the proceeding was taken up on the determination of ownership and security interests over the property. It may be accepted that, on those issues, GrowthOps and Diversa failed. Any party seeking payment of their costs should keep those observations in mind. The approach I intend to take on the issue of costs is to make a lump sum award pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth). Accordingly, any party seeking payment of their costs should adduce sufficient evidence to enable an order in a lump sum to be made.
I certify that the preceding three hundred and twenty-five (325) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan. Associate:
Dated: 21 April 2021
ANNEXURE A:
Structure Diagram of Operating Subsidiaries subject to the Cloverhill Proceeding
ANNEXURE B:
Structure diagram of the Sargon Group and each parties' claimed securities
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