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Mighty River International Ltd v Hughes

Mighty River International Ltd v Hughes

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HIGH COURT OF AUSTRALIA
KIEFEL CJ,
GAGELER, NETTLE, GORDON AND EDELMAN JJ
Matter No P7/2018
MIGHTY RIVER INTERNATIONAL LIMITED  APPELLANT
AND
BRYAN HUGHES AND DANIEL BREDENKAMP
AS DEED ADMINISTRATORS OF MESA
MINERALS LIMITED & ANOR   RESPONDENTS
Matter No P8/2018
MIGHTY RIVER INTERNATIONAL LIMITED  APPELLANT
AND
MINERAL RESOURCES LIMITED & ORS   RESPONDENTS
Mighty River International Limited v Hughes
Mighty River International Limited v Mineral Resources Limited
[2018] HCA 38
Date of Order: 19 June 2018
Date of Publication of Reasons: 12 September 2018
P7/2018 & P8/2018
ORDER
In each matter, the appeal is dismissed with costs.

On appeal from the Supreme Court of Western Australia
Representation
C R C Newlinds SC with D R Sulan and P R Gaffney for the appellant in both matters (instructed by Nova Legal)
N C Hutley SC with J K Taylor for the respondents in P7/2018 and the second and third respondents in P8/2018 (instructed by Clayton Utz)
J T Gleeson SC with B R Kremer for the first respondent in P8/2018 (instructed by Bennett + Co)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

Companies – Voluntary administration – Deed of company arrangement – Where administrator required to form opinion about certain matters as soon as practicable after administration begins – Where administrator required to convene meeting of creditors within convening period – Where convening period may be extended by court order – Where company executed deed which imposed moratorium on creditors' claims while administrators conducted further investigations – Where deed provided no property of company available for distribution to creditors – Whether deed impermissibly extended convening period – Whether administrators formed the requisite opinions – Whether deed should have specified some property available for distribution to creditors – Whether deed a valid deed of company arrangement – Whether deed should be declared void.
Words and phrases – "arrangement alternative to liquidation", "convening period", "deed of company arrangement", "DOCA", "holding DOCA", "in the interests of creditors", "moratorium on claims", "property of the company available for distribution to creditors", "to be available to pay creditors' claims", "voluntary administration".
Corporations Act 2001 (Cth), Pt 5.3A, ss 438A, 439A, 444A, 445G.

KIEFEL CJ AND EDELMAN J.
Introduction

Part 5.3A of the Corporations Act 2001 (Cth) is concerned with "[a]dministration of a company's affairs with a view to executing a deed of company arrangement". It aims to maximise the chance of survival of the business of an insolvent company, or, if that is not possible, to provide a better return to creditors than would result from an immediate winding up of the company. These appeals concern the validity of a deed of company arrangement that, amongst other things, provided for a moratorium on creditors' claims, and contained a requirement that the administrators conduct further investigations and report to creditors concerning possible variations to the deed within six months. The administrators considered the deed to be in the interests of creditors and a better alternative…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] HCA 38
Decision Date: 12 September 2018

CaseChat Overview and Summary

The High Court of Australia considered appeals brought by Mighty River International Ltd concerning the validity of a deed of company arrangement (DOCA). The dispute centred on whether the DOCA, which imposed a moratorium on creditors' claims while administrators conducted further investigations and stipulated that no company property was available for distribution, was a valid deed under Part 5.3A of the *Corporations Act 2001* (Cth).

The Court was required to determine several legal issues, including whether the DOCA impermissibly extended the statutory convening period for creditors' meetings, whether the administrators had formed the requisite opinions as mandated by the Act, and whether the deed should have specified some property available for distribution to creditors. Ultimately, the Court had to decide whether the DOCA was a valid deed of company arrangement or if it should be declared void.

The Court reasoned that the DOCA was a valid deed of company arrangement. It interpreted a recital within the deed, which stated the administrators' objective was to form an opinion on whether a deed or liquidation was in the best interests of creditors, not as negating their previously expressed opinions, but as referring to an opinion about proposing a variation to the deed. This interpretation was supported by other clauses in the deed that acknowledged the possibility of variation following further creditor meetings. The Court rejected arguments that the deed contravened procedural requirements of Part 5.3A, including allegations of failure to form and communicate the requisite opinions or impermissibly circumventing the convening period.

The High Court dismissed all appeals with costs, upholding the validity of the deed of company arrangement.

Orders

Orders of the court

In each matter, the appeal is dismissed with costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

KIEFEL CJ GAGELER J NETTLE AND GORDON JJ

In oral submissions, Mighty River referred to a recital to the Deed, which explained that the objective of the Deed was for the Administrators to "form an opinion as to whether a deed of company arrangement or liquidation is in the best interests of creditors of the Company". This recital does not have the effect that the Administrators' previously expressed opinions in their report were not genuine. The recital is not expressed in the clearest language. For the reasons explained above, the Deed was a deed of company arrangement. In that context, properly construed the opinion described in the recital must be an opinion about whether to propose a variation of the Deed, which, at the relevant time, would have occurred pursuant to s 445A after a duly convened meeting under s 445F. This construction is consistent with cl 8 of the Deed, by which the absence of property available to creditors was expressed to be subject to any variation of the Deed. It is also consistent with cll 9.3, 15(c), and 17 of the Deed, which recognise the possibility of a variation following a proposal by the Administrators at a further meeting of creditors.Conclusion The respondents' primary case was that the Deed was consistent with the object of Pt 5.3A and did not contravene any of the provisions of that Part as alleged. Alternatively, the respondents submitted that if any provision of Pt 5.3A was contravened then, as became common ground in oral submissions, the matter should be remitted to the Court of Appeal for consideration of whether to exercise the power under s 445G(3) to declare the Deed to be valid. For the reasons above, we accepted the respondents' primary case and joined in the orders of this Court dismissing the appeals with costs. My reasons for joining in orders dismissing these appeals at the conclusion of oral argument are substantially reflected in what Kiefel CJ and Edelman J have written, with which I completely agree and the terminology of which I am content to adopt. I write separately to explain in addition my rejection at the level of principle of the argument that the Deed was non-compliant with procedural requirements of Pt 5.3A. The argument that the Deed was non-compliant with procedural requirements of Pt 5.3A had two strands. One was that there was non-observance of s 438A(b) and s 439A(4)(b), constituted by a failure of the Administrators to form and to communicate to creditors an opinion of the requisite character. The other was that there was impermissible circumvention of s 439A(6), constituted by a failure of the Administrators to seek from the Court an extension of the convening period for the second meeting of creditors so as to allow time for the Administrators to complete the investigations required of them by s 438A(a). The two strands of the argument were interwoven to the extent that the opinion required to be formed and communicated to creditors in order for the second meeting of creditors to proceed was suggested to be one which needed to amount to a firm conclusion as to what course was ultimately in the best interests of the creditors. The scheme of Pt 5.3A was said to require such an opinion one way or the other within the convening period set by s 439A(5) or such an extension of the convening period as the Court was satisfied was in the interests of creditors to allow under s 439A(7) on an application under s 439A(6). As a "holding DOCA" which did no more than allow the Administrators further time to conduct further investigations and come back with a firm proposal, so the argument went, the Deed was an attempt to "side-step or outflank" the statutory process by which the Administrators were required by s 438A(a) to complete their investigations under the supervision of the Court.

Ratio Decidendi

Legal Principle Established

Established by: KIEFEL CJ, GAGELER J, NETTLE AND GORDON JJ

On 19 June 2018, at the conclusion of oral submissions, the Court ordered that each of the appeals be dismissed with costs. These are our reasons for joining in that order.Part 5.3A of the Corporations Act Prior to 1992, there were four methods available to a company with solvency issues to deal with its affairs on a voluntary basis: (i) a scheme of arrangement; (ii) official management; (iii) creditors' voluntary winding up; and (iv) Court winding up[1]. In 1988, the Australian Law Reform Commission's General Insolvency Inquiry ("the Harmer Report") identified two unsatisfactory aspects of the creditors' voluntary winding up process. First, there was an absence of ordered administration between the time of calling meetings and the appointment of a liquidator. Secondly, there was a lack of independent information about the financial affairs and conduct of the business of the company at the meeting of creditors[2].[1]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 25 [45].[2]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 27 [49]. The Harmer Report recommended that the existing form of creditors' voluntary winding up should be abandoned[3]. It recommended a new voluntary procedure that would have the benefit of speed and flexibility for creditors[4]. The Harmer Report recommended that the Court should not be required to sanction any part of the new procedure although it should have a general supervisory power, principally to remove an administrator, to give directions on meetings, and to avoid or terminate a deed[5]. The essence of the new procedure would be a short period of control by an administrator, followed by a meeting of creditors. One option at the meeting of creditors would be the entry into a deed of company arrangement[6].[3]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 32 [57].[4]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 29-30 [54]-[56].[5]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 32 [56].[6]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 30-31 [56]. The Harmer Report's recommendation was adopted in 1992 by the introduction of what is now Pt 5.3A of the Corporations Act[7]. Although Pt 5.3A implemented numerous changes to the creditors' voluntary winding up process, it continued the major underlying principle of existing legislation, namely, "orderly dealing with a company's affairs"[8]. Indeed, as the plurality of this Court observed in Lehman Bros Holdings Inc v City of Swan[9], the general premises of the administration process – including that the future of the company is committed to a body of all creditors as a whole – had "long underpinned statutory compositions and arrangements in individual bankruptcy". The chief difference between Pt 5.3A and earlier provisions for statutory composition and arrangements in corporate insolvency was "the role played by the Court. Earlier provisions required court approval before the scheme was effective; Pt 5.3A provides for disallowance by the Court after the deed has been made." (emphasis in original)[7]Australia, House of Representatives, Corporate Law Reform Bill 1992, Explanatory Memorandum at [21].[8]Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, (1988), vol 1 at 49 [97].[9](2010) 240 CLR 509 at 521 [31]-[32]; [2010] HCA 11.