Mighty River International Ltd v Hughes & Bredenkamp - [2017] WASC 69

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: MIGHTY RIVER INTERNATIONAL LTD -v- HUGHES & BREDENKAMP [2017] WASC 69

CORAM: MASTER SANDERSON

HEARD: 20 - 23 FEBRUARY 2017

DELIVERED : 16 MARCH 2017

FILE NO/S: COR 247 of 2016

BETWEEN: MIGHTY RIVER INTERNATIONAL LTD
Plaintiff
AND
BRYAN HUGHES & DANIEL BREDENKAMP as Administrators of MESA MINERALS LTD
First Defendants
MESA MINERALS LTD
Second Defendant

FILE NO/S :COR 13 of 2017

BETWEEN :MINERAL RESOURCES LTD
Plaintiff
AND
MESA MINERALS LTD (ADMINISTRATORS APPOINTED)
First Defendant
BRYAN HUGHES DANIEL BRENDENKAMP
Second Defendants
MIGHTY RIVER INTERNATIONAL LTD
Third Defendant

Catchwords:

Corporations law - Administrator - Whether pre-appointment contact such as to have deed of company arrangement set aside or administrator replaced - 'Holding DOCA' - Whether permitted under Act - Whether DOCA complied with requirement of Act

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Category: A

Representation:

COR 247 of 2016

Counsel:

Plaintiff:     Mr C R C Newlinds SC & Mr D Sulan
First Defendants           :     Mr J Stoljar SC & Ms J Taylor
Second Defendant        :     Mr J Stoljar SC & Ms J Taylor

Solicitors:

Plaintiff:     Nova Legal
First Defendants           :     Clayton Utz
Second Defendant        :     Clayton Utz

COR 13 of 2017

Counsel:

Plaintiff:     Mr J T Gleeson SC & Dr B R Kremer
First Defendant            :     Mr J Stoljar SC & Ms J Taylor
Second Defendants       :     Mr J Stoljar SC & Ms J Taylor
Third Defendant           :     Mr C R C Newlinds SC & Mr D Sulan

Solicitors:

Plaintiff:     Bennett + Co
First Defendant            :     Clayton Utz
Second Defendants       :     Clayton Utz
Third Defendant           :     Nova Legal

Case(s) referred to in judgment(s):

Nil

MASTER SANDERSON: These two actions were heard together. The relief claimed by the plaintiff in each action is different but both actions relate to the same factual matrix. Having said that, if the plaintiff in COR 247 fails then no order is necessary in the other action. However, given the rather complex interplay of the two claims I have reached a conclusion in relation to both.
For ease of reference I will refer to the parties as 'Mighty River', 'Mesa' and 'Mineral Resources'. Generally I will refer to the 'Administrators' save when it is necessary to refer to Mr Bryan Kevin Hughes who is the only witness cross‑examined in the proceedings. Unless necessary to do so, I will not differentiate between who said what in each particular action. As I said the facts are common to both and the issues are closely intertwined.
These cases involved a number of issues but in particular they raised two issues of importance in insolvency practice. First, it was alleged by Mighty River against the Administrators that their conduct gave rise to a perception of bias and on that basis they ought be removed. As part of that case, counsel for Mighty River paid close attention to the pre‑appointment contact between the Administrators and the board of Mesa. What was squarely raised by the action was the extent to which contact between prospective administrators and the board of a company contemplated appointing administrators is proper.
The second and perhaps more important question is whether or not a so‑called 'holding' deed of company arrangement (described throughout the hearing as a 'Holding DOCA') is permitted under pt 5.3A of the Corporations Act 2001 (Cth) (the Act). The Act itself does not refer to a Holding DOCA. In due course I will deal in greater detail with the Holding DOCA which was entered into in this case. But, for the present, I can best describe such a deed by quoting the Australian Securities and Investment Commission regulatory guide 82 titled 'External Administration: Deeds of company arrangement involving a creditors' Trust'. Clause 1.23 relevantly reads as follows:
These holding DCAs are typically used as a means of providing more time for a voluntary administrator (or the directors or third parties) to develop proposals for restructuring or otherwise resuscitating the company, thereby avoiding the need for the voluntary administrator to seek an extension from the court of the convening period for the second creditors' meeting under s439A. Typically, holding DCAs do not contain any concrete provisions on the future of the company or any immediate benefits for creditors.
On the evidence of Mr Hughes, it would seem these Holding DOCAs are widely used by insolvency practitioners particularly in large administrations. He frankly acknowledged during the course of cross‑examination that the purpose of using the Holding DOCA was to avoid the need for a court application to extend the convening period for the second creditation meeting. It was Mighty River's position such a use of the Holding DOCA was at odds with the Act. This question appears not to have been raised in any decided case in this or any other Australian jurisdiction. The only reference counsel were able to find in the decided cases to a Holding DOCA is found in the Sons of Gwalia Ltd litigation. But it is clear there was no issue in those cases as to whether a Holding DOCA complied with the requirements of the Act. All judges who were involved in the various cases were prepared to proceed on the basis that the Holding DOCA was valid. In the Full Court of the Federal Court, Finkelstein J did spend some time discussing the Holding DOCA but did not express any views as to whether such a deed complied with the provisions of the Act. So, this case raises an issue of some considerable practical importance.

The pleaded case in COR 247 of 2016

Although this was a matter commenced by originating process under the Corporations Law an order was made for the delivery of Points of Claim and Points of Defence. Reference to these documents sets out the issues between the parties.
The first four paragraphs of the Points of Claim identify the parties and plead that Mr Bruce Goulds was a director of Mesa. Mesa's key assets are said to be a 50% joint venture interest in two manganese projects. The other joint venture partner is Auvex Resources Ltd which is a subsidiary of Mineral Resources. Mesa also held a number of other mining tenements and a mining lease known as the Boodarie Lease. In addition to those mining interests, Mesa also had an interest in a facility agreement with the Pilbara Port Authority in respect of a berth at Utah Point. That was referred to as 'Lot 7'. Mineral Resources held just under 60% of the issued capital in Mesa and Mighty River held just over 13.5% of the capital. Mighty River has been at all material times a creditor of Mesa in an amount of just under $69,000.
Paragraphs 9 to 15 plead what is described as the 'Federal Court proceedings'. During 2014, Mighty River commenced proceedings against Mesa seeking access to Mesa's books under s 247A of the Act. Mighty River wanted to ascertain whether Mesa might have claims against its directors for the way in which Mesa's assets had been used which might in turn have given right to Mesa to proceed against Mineral Resources. Mighty River was successful in its inspection application and an appeal against that decision was dismissed. Between 4 March 2016 and 1 April 2016, Mighty River inspected certain documents held by Mesa. Mighty River was not satisfied the inspection order had been complied with and was intending to, but never did, re‑list the matter seeking compliance with the inspection orders.
With one or two minor qualifications all of these paragraphs of the Points of Claim are admitted in the Points of Defence.
Paragraphs 16 to 21 deal with what is described as 'Pre‑Appointment Communications'. The first contact between Mesa and the Administrators was initiated by Mr Goulds on 19 April 2016. A meeting between Mr Goulds and Mr Hughes was held on that same day. Thereafter emails passed between the Administrators' office and Mesa on various dates which are particularised in par 18 of the Points of Claim. Significantly, it is said meetings and discussions between the then prospective Administrators and Mesa led to a decision Mesa would obtain a valuation of its mining interests from PCF Capital Partners (PCF). That in turn led to meetings between the Administrators' representatives of Mesa and representatives of PCF. By par 21 of the Points of Claim, Mighty River says that when they completed their 'declaration of independence and relevant relationships and indemnities' (DIRRI) on 15 July 2016 the Administrators did not disclose these meetings and discussions. In their Points of Defence the Administrators say the meetings of 10 May 2016 and 21 June 2016 were disclosed in the DIRRI but otherwise there was nothing in the meetings or discussions which warranted disclosure. That was an issue between the parties.
The Administrators were appointed by the directors of Mesa on 13 July 2016. The appointment was made under s 436A of the Act.
Paragraphs 23 to 37 of the Points of Claim deal with the conduct of the administration between July and August of 2016. On 18 July 2016, an advertisement appeared in the West Australian newspaper seeking expressions of interest from parties who might want to acquire all or part of Mesa's assets. The first meeting of creditors was held on 25 July 2016. At that meeting the Administrators indicated they had only just begun their investigations and were not in a position to make any recommendations. They did say that it was likely they would recommend a Holding DOCA at the second meeting of creditors. The Administrators do not take any issue with these pleaded facts. It is of significance to note it was common ground between the parties that at the first creditors meeting the Administrators considered a Holding DOCA was 'likely'.
Mighty River says on 1 August 2016, it contacted the Administrators through its solicitors raising concerns about the manner in which Mesa's assets had been used prior to its entering administration. The solicitors also inquired whether or not the Administrators had decided to apply to the court for an extension of the period in which to convene the second creditors meeting. The Administrators through one of their employees, Mr Ben Green, responded by saying a Holding DOCA was anticipated. Mighty River inquired as to why that was a preferable course to liquidation. The response was somewhat equivocal.
On 2 August 2016 Mighty River's solicitors wrote again to the Administrators raising a number of questions including why a Holding DOCA was thought appropriate. The same day the Administrators responded saying in effect they were keeping options open. On 8 August 2016 Mighty River again wrote detailing their allegations against the directors of Mesa. On 10 August 2016 the Administrators issued their report to creditors. On 12 August 2016 representatives of Mighty River met with the Administrators to discuss claims Mighty River said Mesa had against its directors in Mineral Resources.
On or about 15 August 2016, Mighty River wrote to the Administrators providing further information they said was relevant to claims against Mesa's directors and complaining very little work had been done by the Administrators to investigate those claims. Complaint was made there had been no sufficient investigation of the claims against the directors before the first s 439A report was issued. Mighty River suggested that there was 'no sensible rationale' for continuing the proposed sale process until claims against the directors had been investigated.
On 16 August 2016 Mighty River wrote to the Administrators expressing the view the Administrators ought to apply to the court to extend the convening period rather than hold the second creditors meeting and enter into the Holding DOCA.
Save for some minor complaints, largely to do with emphasis and the interpretation of particular items of correspondence, the defendants admit all the factual matters contained in pars 23 through to 37.
Paragraphs 38 to 40 of the Points of Claim deal with the first s 439A report. Mighty River says the report contained a recommendation that creditors vote in favour of a deed of company arrangement which was referred to in the report as a 'Recapitalisation DOCA'. (In fact the DOCA that was signed and which was at the heart of this case was titled 'A Recapitalisation DOCA'. But all parties agreed it was in fact a Holding DOCA because its function was essentially to provide time to the Administrators to undertake a sale of Mesa's assets. There is no significance in the description of the DOCA and it produced no issue between the parties.)
Mighty River had two complaints about the first s 439A report. First, it said the report failed to deal adequately with claims Mesa might have against the directors of Mesa and Mineral Resources. (These claims were defined as the 'Potential Claims'). It was said the Potential Claims were not identified, no assessment was made of their value and the Administrators offered no opinion as to their merits. The second complaint was there was no financial analysis of the position of Mesa (and presumably by implication its creditors and shareholders) under the Holding DOCA in comparison with liquidation. Paragraphs 41 through to 55 of the Points of Claim deal essentially with the conduct of the administration between August and October 2016. During the course of his closing submissions, counsel for Mighty River indicated this aspect of the case was not pursued. So, those paragraphs can be put to one side.
Paragraphs 56 through to 62 deal with the terms of the Holding DOCA and its effect. I will deal later in these reasons with the Holding DOCA itself. For present purposes, Mighty River says the practical effect of the Holding DOCA is to delay commencement of claims against the directors of Mesa and against Mineral Resources thus possibly giving rise to limitation defences and consequently disadvantaging creditors. In fact, in detailing this disadvantaging of creditors they allege a positive advantage to the directors of Mesa and to Mineral Resources.
Paragraphs 63 through to 65 of the Points of Claim raise the question of the invalidity of the Holding DOCA. Beyond noting this was a matter raised in the Points of Claim, further consideration of the issues raised can be dealt with later in these reasons.
Paragraphs 66 to 73 of the Points of Claim raise a question as to the right of various parties to vote at the second creditors meeting. By par 73 Mighty River seeks an order setting aside the resolution which passed the Holding DOCA under s 600A(2). In his opening, counsel for Mighty River conceded there was nothing in this point and although it received some attention during the course of the hearing it was not really pursued. It can be put to one side.
By par 74 Mighty River alleges there was a reasonable apprehension the Administrators 'are not, or are not seen to be, independent and impartial'. Particulars are then provided. Because these are central to Mighty River's claims I will quote these particulars in full.
(a)the fact that the administrators were appointed by the directors of the Mesa Minerals;
(b)the communications and meetings which occurred prior to the appointment of the administrators;
(c)the lack of vigour applied by the administrators to the task of investigating the claims which Mighty River has identified;
(d)the very early indication by the administrators that the recapitalisation deed of arrangement was the best course - which indication was given a significant period of time before any serious investigation could possibly have been carried out;
(e)by reason of (d) the inability of the administrators to approach the investigation task with an open mind - including as to the possibility that liquidation may be the best course of action - particularly given the possibility of the expiry of limitation periods;
(f)the lack of analysis as to the value of the claims in either the First s 439A Report or the Second s 439A Report;
(g)the failure by the administrators to provide Mighty River with a list of creditors of the Company;
(h)the failure by the administrators to engage with Mighty River as to the value of Mineral Resources claim to being a creditor in an amount of around $8m;
(i)the failure to provide Mighty River with a draft of the deed of company arrangement;
(j)the failure to promptly serve a copy of the DOCA on Mighty River.
Given the way the matter is pleaded there can be added one further particular and that is the complaint about the DIRRI. Whether or not that fits in with an apprehension of a lack of independence or whether it stands alone as a breach of the Administrators' duties is not entirely clear. But it is a factor to be considered in determining whether or not the Administrators ought be removed.
Although it is nowhere pleaded, Mighty River alleged that the Administrators in their pre‑appointment negotiations were effectively talking to and advising Mineral Resources. This is because Mesa and Mineral Resources shared common directors - talking to the directors of Mesa was effectively talking to the directors of Mineral Resources. As I understand Mighty River's position, they maintain this put the Administrators in a conflict position which at the very least ought to have been acknowledged in the DIRRI. Mighty River says this emerges from the provisions of the Act which I will detail below.
By its originating process Mighty River sought relevantly for the following relief:
(1)Pursuant to s 444E(3)(c) of the Corporations Act 2001 (Cth), leave to proceed against the second defendant.
(2)A declaration that the deed of company arrangement entered into by the defendants on or about 3 November 2016 is of no force or effect.
(3)An order terminating, alternatively setting aside the deed of company arrangement entered into by the defendants on or about 3 November 2016.
(4)An order that the resolution passed by the creditors at the second creditors meeting of the second defendant held on 20 October 2016 be set aside.
(5)An order that the second defendant be wound up.
(6)An order that the first defendants be removed as deed administrators, administrators or liquidators (as the case may be) of the second defendant.
These orders require some comment. First, there is no need for an order granting leave to proceed against the second defendant. Perhaps it is a necessary party to the proceedings, but no relief is sought directly against the second defendant.
Second, orders (2), (3) and (4) raise the issue of the termination of the Holding DOCA. Two different issues are raised ‑ the validity of the Holding DOCA as a matter of law on the one hand, and the conduct of the Administrators leading to the creditors entering into the Holding DOCA on the other. On the second of these two issues, the argument seems to be that the conduct of the Administrators was such that as a matter of discretion the Holding DOCA ought be set aside.
Third, if the Holding DOCA is set aside, Mesa would automatically be wound up. No order is necessary.
Finally, if the Holding DOCA is not set aside Mighty River says the Administrators ought be replaced. Throughout the hearing this was referred to as the 'apprehended bias' argument.

Legislative framework

Part 5.3A of the Corporations Act is titled 'Administration of a company's affairs with a view to executing a deed of company arrangement'. Section 435A sets out the object of this part of the Act. It is in the following terms:
The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence--results in a better return for the company's creditors and members than would result from an immediate winding up of the company.

I will refer to these objects later in these reasons. However, I note in passing that subsection (b) is directed at the best possible return to the creditors and shareholders.
Section 435C deals with when an administration begins and ends. Relevantly in this case, the administration began on 13 July 2016: s 435C(1)(a). Section 435C(2) anticipates three possible 'normal' outcomes of administration. Either a deed is executed, the company's creditors resolve the administration should end or the company's creditors resolve the company should be wound up. Section 435C(3) details other ways in which an administration may end. None of these is presently relevant. Section 435C(3)(a) anticipates a court ordering the administration come to an end but that is only to happen if the company is solvent. That is not this case. Otherwise, the section is concerned with a failure to convene the requisite creditors meetings.
Section 436A deals with when a company may appoint an administrator. It is in the following terms:
(1)A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a)in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b)an administrator of the company should be appointed.
(2)Subsection (1) does not apply to a company if a person holds an appointment as liquidator, or provisional liquidator, of the company.
It is important to note subsection (a) anticipates two separate and distinct circumstances when an administrator may be appointed. First, if the company is insolvent. That is to say the directors are aware the company cannot pay its debts as and when they fall due. Second, an administrator can be appointed in anticipation of insolvency. The existence of the possibility of insolvency is a point of some slight significance in this case.
Section 436DA deals with the DIRRI. It is in the following terms:
Scope
(1)This section applies to an administrator appointed under section 436A, 436B or 436C.
Declaration of relationships and indemnities
(2)As soon as practicable after being appointed, the administrator must make:
(a)a declaration of relevant relationships; and
(b)a declaration of indemnities.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
Notification of creditors
(3)The administrator must:
(a)give a copy of each declaration under subsection (2) to as many of the company's creditors as reasonably practicable; and
(b)do so at the same time as the administrator gives those creditors notice of the meeting referred to in section 436E.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4)The administrator must table a copy of each declaration under subsection (2) at the meeting referred to in section 436E.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
Updating of declaration
(5)If:
(a)at a particular time, the administrator makes:
(i)a declaration of relevant relationships; or
(ii)a declaration of indemnities;
under subsection (2) or this subsection; and
(b)at a later time:
(i)the declaration has become out-of-date; or
(ii)the administrator becomes aware of an error in the declaration;
the administrator must, as soon as practicable, make:
(c)if subparagraph (a)(i) applies--a replacement declaration of relevant relationships; or
(d)if subparagraph (a)(ii) applies--a replacement declaration of indemnities.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(6)The administrator must table a copy of a replacement declaration under subsection (5):
(a)if:
(i)there is a committee of creditors; and
(ii)the next meeting of the committee of creditors occurs before the next meeting of the company's creditors;
at the next meeting of the committee of creditors; or
(b)in any other case--at the next meeting of the company's creditors.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
Defence
(7)In a prosecution for an offence constituted by a failure to include a particular matter in a declaration under this section, it is a defence if the defendant proves that:
(a)the defendant made reasonable enquiries; and
(b)after making these enquiries, the defendant had no reasonable grounds for believing that the matter should have been included in the declaration.
Section 436DA(2)(a) speaks of 'relevant relationships'. The meaning of relevant relationships is covered (with respect to an administrator) by s 60(1) of the Act. It is in the following terms:
Administrator
(1)In this Act, a declaration of relevant relationships , in relation to an administrator of a company under administration, means a written declaration:
(a)stating whether any of the following:
(i)the administrator;
(ii)if the administrator's firm (if any) is a partnership--a partner in that partnership;
(iii)if the administrator's firm (if any) is a body corporate--that body corporate or an associate of that body corporate;
has, or has had within the preceding 24 months, a relationship with:
(iv)the company; or
(v)an associate of the company; or
(vi)a former liquidator, or former provisional liquidator, of the company; or
(vii)a person who is entitled to enforce a security interest in the whole, or substantially the whole, of the company's property (including any PPSA retention of title property); and
(b)if so, stating the administrator's reasons for believing that none of the relevant relationships result in the administrator having a conflict of interest or duty.
Section 60(1)(v) refers to an associate of the company. A reference to the definition of 'associate' in s 9 refers to s 10 to s 17. Section 11 is in the following terms:
If the primary person is a body corporate, the associate reference includes a reference to:
(a)a director or secretary of the body; and
(b)a related body corporate; and
(c)a director or secretary of a related body corporate.
For a definition of 'a related body corporate' it is necessary to refer back to s 9. That definition refers to s 50. Section 50 reads as follows:
Where a body corporate is:
(a)a holding company of another body corporate; or
(b)a subsidiary of another body corporate; or
(c)a subsidiary of a holding company of another body corporate;
the first-mentioned body and the other body are related to each other.
To find out what a 'holding company' and a 'subsidiary' are it is necessary to refer again to s 9. The definition of 'holding company' leads to the definition of 'subsidiary'. The definition of subsidiary refers to div 6. Section 46 deals specifically with what is a subsidiary. It is in the following terms:
A body corporate (in this section called the first body ) is a subsidiary of another body corporate if, and only if:
(a)the other body:
(i)controls the composition of the first body's board; or
(ii)is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii)holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
(b)the first body is a subsidiary of a subsidiary of the other body.
The upshot of all of this is that Mesa was without question a subsidiary of Mineral Resources. So, under s 60 the Administrators were required to declare if they had any relationship with Mineral Resources. Section 438A sets out in broad terms how an administrator is to investigate the affairs of the company and consider possible courses of action. The section is in the following terms:
As soon as practicable after the administration of a company begins, the administrator must:
(a)investigate the company's business, property, affairs and financial circumstances; and
(b)form an opinion about each of the following matters:
(i)whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement;
(ii)whether it would be in the creditors' interests for the administration to end;
(iii)whether it would be in the creditors' interests for the company to be wound up.
Counsel for Mighty River placed particular emphasis on the requirement in subsection (b) that the administrator was to 'form an opinion'. For present purposes it is enough if I note that point at this stage.
Section 439A deals with the convening of a creditors meeting to determine the company's future. Subsections (2) to (5) deal with when such a meeting must be held. Subsections (6), (7) and (8) are relevant for present purposes and read as follows:
(6)The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires.
(7)If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.
(8)If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to:
(a)the fact that the application was made after that period; and
(b)any other conduct engaged in by the administrator; and
(c)any other relevant matters.
Section 444A deals with the effect of the creditors' resolution if it is decided a DOCA will be entered into. For present purposes s 444A(4) and (5) are relevant. They read as follows:
(4)The instrument must also specify the following:
(a)the administrator of the deed;
(b)the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims;
(c)the nature and duration of any moratorium period for which the deed provides;
(d)to what extent the company is to be released from its debts;
(e)the conditions (if any) for the deed to come into operation;
(f)the conditions (if any) for the deed to continue in operation;
(g)the circumstances in which the deed terminates;
(h)the order in which proceeds of realising the property referred to in paragraph (b) are to be distributed among creditors bound by the deed;
(i)the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed.
(5)The instrument is taken to include the prescribed provisions, except so far as it provides otherwise.
The next relevant provision is s 444GA(1). That section is in the following terms:
(1)The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:
(a)the written consent of the owner of the shares; or
(b)the leave of the Court.
The evidence shows that pre‑appointment there was some discussion between Mr Goulds and Mr Hughes about the possibility of shares in Mesa being transferred to Mineral Resources under the above section. That was only ever a possibility if the value of Mesa's assets was less than the amount Mineral Resources was owed. Around 21 June 2016, after an initial valuation of Mesa's assets by PCF, it became apparent the value of the assets was greater than Mesa's debts. That effectively put an end to any possibility of a share transfer under s 444GA. Mighty River was clearly suspicious the section would be used to effect a transfer of Mesa's assets to Mineral Resources to the disadvantage of Mighty River. But that option was quickly ruled out. It would seem Mighty River retains some residual suspicion which feeds into its other concerns about the relationship between the Administrators, Mesa and Mineral Resources. But really this possibility of a share transfer was still borne and has provided no issue between the parties.
Section 445D deals with termination of a DOCA by the court. Relevantly, s 445D(1) is in the following terms:
(1)The Court may make an order terminating a deed of company arrangement if satisfied that:
(a)information about the company's business, property, affairs or financial circumstances that:
(i)was false or misleading; and
(ii)can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;
was given to the administrator of the company or to such creditors; or
(b)such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or
(c)there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or
(d)there has been a material contravention of the deed by a person bound by the deed; or
(e)effect cannot be given to the deed without injustice or undue delay; or
(f)the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:
(i)oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or
(ii)contrary to the interests of the creditors of the company as a whole; or
(g)the deed should be terminated for some other reason.
Section 445F deals with a meeting of creditors to consider a proposed variation or termination of a DOCA. It is unnecessary for me to quote the section. It is sufficient to note the creditors can, at a properly convened meeting, either vary or terminate the deed.
Section 445G allows the court to void or validate a deed. This section is central to Mineral Resources' case but as I am dealing with the Act now, it is convenient to quote it at this point. It reads as follows:
(1)Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or ASIC, may apply to the Court for an order under this section.
(2)On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground.
(3)On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that:
(a)the provision was substantially complied with; and
(b)no injustice will result for anyone bound by the deed if the contravention is disregarded.
(4)Where the Court declares a provision of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator.
The only other relevant section is s 600A. As no real point was made in relation to this section, I will do nothing more than note in passing that it was referred to both in the Points of Claim and by counsel in his opening.

The evidence of Mr Hughes

The Administrators relied on two affidavits of Mr Hughes, the first sworn 23 December 2016 and the second sworn 13 February 2017. When these affidavits were read, objection was taken by counsel for Mighty River to pars 66 through to 71 of Mr Hughes' second affidavit. After hearing argument, I struck out these paragraphs and indicated to the parties I would set out in these reasons why I determined the paragraphs could not stand. For reasons set out below, in the end striking out the paragraph was of no consequence, however, I will give brief reasons for my decision.
Prior to the hearing of this action, there were numerous disputes between the parties as to what documents ought be produced on discovery. The Administrators took the view that documents dealing with the sale process ought be subject of a confidentiality regime. They further maintained discovery of these documents was not relevant to the matters at issue between the parties. That being so, to then attempt to advance the Administrators' case by referring to the status of the sale process was, in my view, both unreasonable and unfair.
As it turned out, during the course of the hearing counsel for the Administrators sought to tender documents which detailed not only the progress of the sale process but an indicator price for the assets.
Turning then to the evidence of Mr Hughes, he is a partner of an insolvency firm, Pitcher Partners, and has over 10 years' experience as an administrator and liquidator. There was no challenge to his qualifications or experience.
Mr Hughes says his main point of contact with Mesa was Mr Goulds. He was aware that Mr Goulds was the company secretary of Mineral Resources. He was also aware that a Mr Christopher Ellison was a director of both Mesa and Mineral Resources. Mr Goulds approached Mr Hughes on 19 April 2016 to discuss the possibility of appointing administrators to Mesa. In pars 10 and 11 of his first affidavit, Mr Hughes gives his version of what happened at this initial contact. These two paragraphs were the subject of extensive cross‑examination of Mr Hughes and I will quote them in full:
10.Most conversations I have with directors of companies who approach me in relation to a potential appointment of an administrator concern two matters. First, whether the company is solvent or insolvent, or could become insolvent. This requires an understanding of asset values, funding support, the circumstances in which shareholders, creditors or joint venture participants might contribute liquidity into a company and what opportunities exist to recapitalise the company, and which sort of timeframes might be needed to do so. Second, what options exist for the company in financial distress, including the appointment of a voluntary administrator, and the outcomes of this process, for example, loan‑to‑own. The conversations I had with the directors of the Second Defendant prior to my appointment also concerned these issues.
11.On or about 19 April 2016, I met with Mr Goulds in relation to the financial health of the Second Defendant. The meeting involved a conversation in words to the following effect:
Mr Goulds: The depressed manganese price is making Mesa's potential manganese projects uneconomic. The manganese project at Ant Hill has not been developed since the trial in 2009. It is not viable, and there are significant holding costs that Mineral Resources is now paying. The Mesa board wants to consider its options with Mesa, which is wholly dependent on Mineral Resources for funding. Mineral Resources is currently owed over $7 million by Mesa and is Mesa's largest creditor. Mineral Resources (through Auvex) has a pre‑emptive right over the Ant Hill and Sunday Hill projects under the joint venture agreement with Mesa.
Me: We would need more information to advise you, and we'd need to look at Mesa's financial position, however, if what you are saying is true, then administration may be the best course. If the only real asset of Mesa is the tenements, you should get a valuation of Mesa's tenement assets to see what the current sale price, as a sale of assets may be one option. Another option may be to do a debt‑for‑equity swap as it seems that the current value of the tenements may not reflect the real value and you may find a sale would not be the best option. It is best to be prepared for all possible outcomes.
Mr Goulds: Can you have a look at the options, and see if shareholders have any economic interest in the assets of Mesa.
Me: We will have a look at the options. You will need a valuation. I recommend PCF Capital as the specialist in valuing mining assets around the world.

After the meeting with Mr Goulds, Mr Hughes sent an email to Mr Daniel Bredenkamp and to Mr Green. Mr Green is an employee of Pitcher Partners and played a large role in this saga both pre‑appointment and post‑appointment of the Administrators. A copy of this email appears as attachment BKH3 to Mr Hughes' first affidavit. In the first part of the email, Mr Hughes details the respective shareholdings and the debts owed by Mesa to Mineral Resources. He then goes on:
Mesa has a problem shareholder, Mighty River Ltd (Eugene Xie) who have constantly caused them grief, see me about the history. They are at the end of their rope, without MR's support the company is insolvent, they want to take it over and want us to put an Administration plan together for their consideration. They don't care if they keep the listing.
On Friday, 22 April 2016, Mr Green sent an email to Mr Goulds advising preliminary research was underway. Mr Green followed that up on 28 April 2016 asking for copies of the current financial accounts and other corporate and financial information. On 3 May 2016, Mr Goulds sent an email to Mr Green asking to see Pitcher Partners' recommendations and options 'as a matter of urgency'. Mr Green responded the same day and the course of the email said:
The reason for requesting the joint venture agreement and any other relevant corporate agreements was to see if there are any terms in those agreements that may be impacted by an insolvency event and/or would make a corporate transaction preferable over a sale of assets or vice versa. If you don't consider this to be an issue we will put something together based on the information provided.
On 3 May 2016 Mr Goulds sent to Mr Green copies of the relevant joint venture agreements. This was followed by an email on 5 May 2016 from Mr Goulds to Mr Green asking when the board of Mesa would be provided with options. Mr Goulds was becoming impatient. Mr Hughes responded by email the same day. He said he had been in the east and had not had the opportunity to speak with Mr Green. He intended to do so that afternoon and he said he would revert to Mr Goulds as soon as possible.
On 6 May 2016 Mr Green sent to Mr Goulds an email which had attached to it a document entitled 'Proposed Scope of Engagement'. Much of that letter is in standard form and details such things as the information which would be required; it refers to the independence of Pitcher Partners; it gives an estimated fee and so on. It provides for the letter to be signed by Mr Goulds on behalf of Mesa. Attached to that letter was a document entitled 'Terms of Engagement'. The document is a standard form and sets out the relationship between the parties. It is common ground the letter of engagement was never signed. It may well be that, because of the provisions of the terms of engagement, the parties in fact were in a contractual relationship because, even without the signed letter Pitcher Partners continued their investigations. But nothing turns on a consideration of the proper legal relationship between Mesa and Pitcher Partners at this stage.
After receiving the letter of engagement, Mr Goulds sent an email to Mr Green and Mr Hughes saying he was anxious to talk about 'the quickest and most efficient route to the objective of clearing this up'. A meeting was set up for 10 May 2016 and it seems the meeting took place. Mr Hughes does not mention that meeting in his evidence. It appears, however, an agreement was reached that PCF would be instructed to value Mesa's mining assets. In fact, Mr Hughes drafted a letter to Mr Liam Twigger of PCF to be signed by Mr Goulds and sent to PCF. It is common ground between the parties PCF was engaged, did provide a preliminary valuation and subsequently a more detailed valuation. Subsequent to Mesa going into administration PCF in large measure has had control of the sale process of Mesa's assets.
On 20 May 2016 Mr Hughes made contact with Mr Cameron Belyea of the law firm Clayton Utz. The initial contact was by telephone and Mr Hughes followed that up with an email. Mr Hughes sets out the position of Mesa and refers to a 'loan‑to‑own' transaction facilitated by a Holding DOCA. This 'loan‑to‑own' expression was used constantly throughout the trial and it appears to equate with what used to be called a debt‑for‑equity swap. So far as I could ascertain, there was no relevant difference between the two concepts. It was really a matter of updating the jargon.
In the course of the email, Mr Hughes does say the following:
Mesa is mindful that the second largest shareholder, after MR, with about 12%, is an aggrieved party who will closely scrutinise and challenge whatever it does.
Mr Hughes then informs Mr Belyea that PCF have been instructed to provide a valuation. Mr Hughes goes on:
Mesa would like you to please give it a quote to review the PCF scope in light of it possibly being the first step in the 'loan to own' process. Should the valuation give the Board comfort that it is acting appropriately by continuing down that path, because the valuation does show that the shareholders do not have any economic interest, then we will need to then look at the rest of the process. If the valuation shows shareholders still have an interest, then we will need to look at greater consultation with shareholders and consideration of other options.
Please note that we expect the 'loan to own' process may require 2 valuations however given Mesa has no funds it needs to minimise all costs and it certainly does not want to have to get 3 valuations if it can be avoided, hence the need for you to review the first one in an effort to allow Mesa to rely on it.
Mr Belyea responded by email the same day. Because this email is of some importance, I will quote it in full:
Bryan
I have given this some thought over the course of the afternoon.
Thank you for instructing us on the matter. I confirm we are free to act.
I anticipate that a loan to own process could take one of four forms (there are others, but these are the 'traditional' methods):
?scheme of arrangement - probably too costly, cumbersome and MRLs vote will be 'tagged' to see if voting thresholds (75% of value, 50% of voting creditors) would have been met if MRLs vote were excluded. Do not suggest this option.
?shareholders meeting - MRLs vote would be excluded, so this option is risky, voting outcomes being unknown. Do not suggest this option.
?DOCA - either creditors voting with conditions precedent that shareholders also support the loan for own process or else the company proceeds to liquidation. This is the most common form of pre‑2013 loan for own, often including a feature in which the administrator swamps old debt with a new share issue. Remains an option, the administrator would choose how much valuation support is needed.
?s444GA - the Nexus and Mirabela Nickel, (#1) Windimurra (#1) and other approach in post 2013 restructures - the Court requires valuation support. ASIC (eventually) granted waiver support for the disputed valuation we produced in Nexus. It examines valuations having regard to RG 12. The courts are instead focused on whether there remains enterprise value in the assets to shareholders. Whether this requires a 'full' valuation or a lesser instrument will depend on the financial conditions of the reference company. The more underwater the assets, the less strict the valuation requirements.
I can review the PCF scope and valuation easily enough, say for under A$1,500.
I would then need to separately consider whether the PCF valuation is sufficient to support a s444GA process. I would do this as a second stage process, once I have seen the PCF valuation and seen whether there are grounds to dispute whether the assets have an 'enterprise value' to shareholders or non secured creditors.
Incidentally, there are a number of ASX Listing Rules that need to be separately considered, not least of which is LR10.1. We have recently had some success in convincing ASX not to apply the requirement to go to shareholders when a company is in administration or under the control of receivers. There are no published ASX rulings supporting this position, ASX preferring to deal with these sorts of matters on a case by case basis.
Please let me know if you have any questions.
Kind regards
Cameron Belyea, Partner
Clayton Utz
Mr Belyea reviewed the PCF letter of engagement and on 27 May 2016 he sent an email with an attached letter to Mr Hughes and to Mr Goulds. The address at the top of that letter is to Mineral Resources Ltd. Mineral Resources and Mesa shared offices at 1 Sleat Road, Applecross. Nonetheless, it is clear the letter was addressed to Mineral Resources, although the reference point was Mr Goulds. In the letter Mr Belyea discusses what would be necessary for an application under s 444GA of the Act. But the letter makes it plain the report to be prepared by PCF was an indicative value only and would not be sufficient for any application under the Act.
There was then some toing and froing and it was not until 16 June 2016 PCF were in a position to provide their indicative valuation. Mr Hughes' affidavit does not disclose what that indicative valuation was but the evidence from Mr Hughes, now unchallenged, was to the effect that the valuation of the mining assets was greater than the company's debts. In other words, it was balance sheet solvent. Mr Hughes said during cross‑examination this was the first time he had become aware of the possibility of the assets being worth more than the liabilities.
On 1 July 2016 Mr Green sent to Mr Goulds a package of documents which would allow the directors to put Mesa into voluntary administration. On 13 July Mr Hughes met with Mr Goulds at the offices of Mesa, the necessary documents were completed, Mesa was placed in administration and an announcement was made to the ASX.
Upon appointment Mr Hughes found Mesa had cash assets of less than $100,000 and little by way of realisable assets. While conscious of the limited financial resources available, Mr Hughes nonetheless set about the usual tasks of administration. He issued circulars to creditors, he arranged for advertisements to be placed in the West Australian newspaper and the Financial Review advertising Mesa's assets for sale, he issued letters to the board of Mesa requiring them to complete a report as to affairs and he arranged to call the first creditors' meeting. That first creditors' meeting was held on 25 July 2016. It was chaired by Mr Bredenkamp and Mr Hughes was not in attendance. A copy of the minutes of the meeting are attachment BKH37 to Mr Hughes' affidavit. Under the heading 'Administrators Independence and Remuneration' there appears the following:
The Chairman referred to the Declaration of Independence, Relevant Relationships and Indemnities ('DIRRI') attached to the circular to creditors and suppliers dated 15 July 2016 which he tabled for the purpose of the meeting.
The Chairman confirmed that he and Mr Hughes had undertaken an assessment of their independence prior to accepting the appointment as Administrators of the Company, giving consideration to the relevant provisions of the Act and the code of Professional Practice issued by the Australian Restructuring Insolvency and Turnaround Association.
The minutes note that after the formal matters had been dealt with, Mr Bredenkamp opened the meeting for questions. At the meeting Mighty River was represented by its solicitor, Mr Reynolds. The following exchange is reported:
Mr Reynolds queried the proposed timing/length of the sales campaign for the Company's assets given the limited time available in the administration.
The Chairman discussed the sales process generally and that he expected the campaign would go for a minimum six week period. He further advised that at this stage, the Administrators consider it likely that a Holding DOCA would be recommended at the second meeting of creditors to allow further time for the Deed Administrators to ensure the assets are widely exposed to the market.
The minutes also note Mr Reynolds quizzed Mr Bredenkamp about pre‑appointment contact between the board of Mesa and the Administrators. I do not need to quote the minutes in full. It is sufficient if I say I am satisfied Mr Bredenkamp answered the questions as fully as he could and disclosed the pre‑appointment meetings between the Mesa board and the Administrators. There was certainly nothing in the answers to questions as reflected in the minutes which would suggest a failure to disclose relevant relationships.
As of 20 July 2016 there commenced a line of correspondence between Mr Reynolds and the Administrators over Mighty River's allegations Mesa had a claim against both its directors and Mineral Resources. The flavour of Mighty River's complaints is apparent from the following email in the chain. It is dated 1 August and reads as follows:
Strictly Privileged, Private and Confidential
Dear Daniel and Bryan,
As you know we act for Mighty River International Limited (MRI) and Mr Yuzheng Xie, a director and shareholder of MRI. MRI owns approximately 15% of the issued share capital of Mesa Minerals Limited (MML) and has already lodged one proof of debt relating to the proceedings in the Federal Court against the company.
Our clients have a number of queries and concerns about the way in which MML has been run since Mineral Resources Limited (MRL) obtained a majority shareholding in the company in 2010.
You are already aware of our clients' concerns regarding the terms on which MRL and other third parties used MML's port capacity at Utah Point, access rights to the Utah Point ore stockyard and the ore loader and the Boodarie Lease. Copies of the Federal Court judgments relating to MRI's application under section 247B of the Corporations Act for documents relating to these matters are attached. Having inspected the documents produced by MML to date our clients' concerns have certainly not been allayed, indeed a host of further questions have been raised.
In addition to these issues our clients have concerns about a number of other matters:
1.The Board's decisions to place the Ant Hill and Sunday Hill manganese mines in care and maintenance and the ongoing decisions not to recommence mining activities on the Ant Hill and Sunday Hill mining tenements;
2.The debt said to be owing by MML to MRL; and
3.The Board's decisions to relinquish, or fail to preserve, MML's port capacity, access rights and Boodarie Lease.
We appreciate you were appointed as the Administrators by MML's Board of Directors but have advised our clients that the appropriate first step must be to raise concerns with you. Mr Xie returns from a business trip to Beijing tomorrow and we would like to meet with both of you to discuss these matters and how they are to be addressed in the context of the administration. Please could you let us know when you are available for a meeting.
Kind regards,
John Reynolds
Partner
Nova Legal Corporate Lawyers
That email was perhaps the most comprehensive statement of Mighty River's position.
On 2 August 2016 Mr Reynolds wrote to Mr Hughes (via email) in the following terms:
Strictly Privileged, Private and Confidential
Dear Bryan,
Thank you for your email.
On the information available to us there must be a very real question about whether MML is in fact insolvent. In our view, the true position may well be that MML is owed substantial amounts by Mineral Resources Limited (MRL).
In those circumstances, a decision to proceed with any sales would be premature. Furthermore, given the uncertainties regarding monies owed to/from MRL it is not clear to us why the Administrators appear to have already decided to proceed by way of a so‑called 'Holding DOCA'.
In our view the legislation already provides mechanisms to deal with circumstances such as those found here and the Administrators should proceed by:
(a)approaching the court for an extension of the convening period; or
(b)recommending the adjournment of the second creditors' meeting pursuant to section 439B(2) of the Corporations Act.
Given your schedule we are happy to meet with Mr Bredenkamp tomorrow or on Thursday and then arrange a follow‑up meeting with both of you on Friday, Saturday or Sunday.
Kind regards,
John Reynolds
Partner
On 8 August 2016 Mighty River's solicitors again wrote to the Administrators fleshing out in even more detail their claims against the directors of Mesa and Mineral Resources. I will not quote the letter in full. However, it is to be noted Mighty River's solicitors say they can see no justification for a Holding DOCA. Rather, they say:
In our view, the Administrators should immediately apply to the Supreme Court of Western Australia for an extension of time to convene a second meeting of creditors. Our client would support any such application.
On 11 August 2016 Mr Green sent Mr Reynolds an email saying the proposed 'Recapitalisation DOCA' had not been drafted. On the same day Mr Reynolds proposed a meeting between representatives of Mighty River and the Administrators. It is not entirely clear whether that meeting took place. Mr Hughes does not refer to it in his affidavit. Nothing turns on the issue and it is not the subject of any complaint by Mighty River.
On 15 August 2016 Mr Reynolds wrote to the Administrators again fleshing out his concerns. Mr Reynolds again repeated Mighty River's position - a Holding DOCA was not appropriate and an application for an extension of a convening period should have been made to the Supreme Court. Mr Hughes responded on 17 August. He rejected any suggestion of a lack of independence, he rejected any suggestion the DIRRI was inadequate and he rejected any suggestion the s 439A report was in any way defective.
On 17 August 2016 a second meeting of creditors was held. The s 439A report was tabled. There was a report on the progress of the sale of the assets and some limited attention was given to potential action against the directors of Mesa and Mineral Resources. The meeting was adjourned for up to 45 days.
It is convenient at this point to consider the contents of the s 439A report. Relevantly, it is dated 10 August 2016. In the executive summary, the report notes a DIRRI has been completed and the Administrators say that 'nothing has come to our attention that requires us to update our DIRRI'. In the executive summary of the report under the heading 'Administrators' opinion on the options available to creditors for the future of the company' there appears the following:
The Administrators' opinion on each of the options available to creditors for the future of the company is that:
1.It is not in the interests of creditors that the administration end.
2.It is not in the interests of creditors that the company be wound up at the upcoming meeting as the use of a Recapitalisation DOCA may deliver an improved outcome to creditors (ie. it is premature for the company to be wound up at this stage).
3.It is in creditors' interests to vote in favour of the executing of the proposed Recapitalisation DOCA as it:
•does not exclude the possibility of winding up the company in the future if that is ultimately determined to be in creditors' interests; and
•allows the Administrators to work to facilitate a restructure and/or recapitalisation of the company which may provide a more beneficial outcome for stakeholders than the immediate winding up of the company.
The second meeting of creditors was reconvened on 20 October 2016. The Holding DOCA was proposed and was adopted by the meeting.
All of these matters and more are covered up to par 107 of Mr Hughes' first affidavit. The remaining 33 paragraphs of the affidavit really detail the investigations Mr Hughes has conducted as to the claims Mighty River believes Mesa has against various parties. Mr Hughes' second affidavit provides even more detail of those investigations. None of this evidence is now relevant to the issues between the parties and need not be detailed or, save for one caveat, commented upon. The one caveat is this. It is clear from the evidence that Mr Hughes has pursued the alleged claims with some degree of vigour. It must be remembered he is presently without funds and therefore, to an extent, constrained. But it is difficult to see how, reading these papers, he could have been expected to do any more than he has done.

Cross‑examination of Mr Hughes

Mr Hughes was subjected to a lengthy and rigorous cross‑examination. He impressed me as a witness of truth. He answered all questions which were put to him fully and from time to time he acknowledged his recollection of events might have been astray. He refused to concede there existed any conflict of interest in his appointment as administrator and went to some lengths to justify that belief. He maintained at all times he had retained an open mind but admitted from the first he had considered a Holding DOCA as the most likely and best outcome of the administration. He maintained he had not ruled out an application to the court for an extension of time, but said his experience suggested a Holding DOCA was both a cheaper and more practical option.
Rather than go through a detailed analysis of the cross‑examination of Mr Hughes, I will deal with particular matters raised by counsel during the cross‑examination and Mr Hughes' evidence.
First, counsel referred to Mr Hughes' reference in his email of 19 April to Mr Green to a 'problem shareholder'. It was put to Mr Hughes he was adopting the terminology used by Mr Goulds and was reflecting the views of Mineral Resources. Mr Hughes maintained that nothing could be read into his comment. He had limited knowledge of the corporate structure of Mesa and was not aware of the animosity between Mighty River and Mineral Resources. He said he was merely reporting on what he had been told by Mr Goulds.
Clearly, there is nothing significant in the use of the comment 'problem shareholder'. In my view, it does not suggest Mr Hughes was, from the first, adopting the views of either the board of Mesa or of Mineral Resources. It was no more than a comment and did not show any bias.
Second, there was the advice from Mr Goulds that Mineral Resources was not interested in keeping the listed shell of Mesa. Quite how Mr Hughes' reporting of this comment shows some form of bias is not clear. In fact, the evidence shows that Mr Hughes was at all times keen to preserve the listed shell. His evidence was to the effect it had value. (There was no evidence as to what that value might be and I would accept speculation in Mr Hughes' affidavit is not evidence. But it can, for the purpose of the exercise, be assumed a listed shell does have value.) At all times Mr Hughes took the view the value of the shell should if possible be preserved. That was one of the main reasons why he did not favour liquidation. His experience told him any value in the shell would be destroyed if the company was liquidated. So Mr Hughes was at odds with Mr Goulds on this issue and that can hardly suggest some form of bias.
Third, Pitcher Partners were aware that an insolvency event may trigger pre‑emptive rights under joint venture and farm‑in agreements. That may be right - it is common in such agreements for an appointment of administrators, let alone liquidators, to give a joint venture partner a pre‑emptive right. But whether or not that was so here was really irrelevant to the question of whether administrators would be appointed. If it was suggested that Mineral Resources in some way manufactured an event of insolvency so that the pre‑emptive rights in various agreements were triggered, the argument was not put directly. But that was not an issue in any event over which Mr Hughes had control. It happened on the appointment of administrators, whether those administrators were Messrs Hughes and Brendenkamp or someone else.
Fourth, there was the contact with Mr Belyea. A reading of the initial letter suggests it was benign in nature. Mr Hughes was seeking preliminary advice about options available to the Administrators. There was nothing sinister in that. At the point when the advice was first sought, the value of Mesa's assets was unknown - PCF had not provided even their indicative report. It is to be expected that in an administration of this sort lawyers would be instructed early on so that they were aware of the issues and able to provide advice immediately the administration commenced. Mr Belyea's response was measured and consistent with considering all available opportunities.
Fifth, Mr Hughes was questioned about his assessment of the assets of Mesa. He said at the first meeting with Mr Goulds the directors had advised him they believed the value of the Mesa assets was less than the debts of the company. Mr Hughes had no reason to doubt that advice. He did say he was aware it was common for mining companies to value assets on their books to reflect exploration costs and nothing more. Such an accounting practice is required by the ASX. It was possible therefore the value of the assets was greater than the directors believed. He was aware of that possibility. But to clear this issue up - and it was an issue of considerable importance - Mesa needed a valuation. That is why PCF was instructed. Furthermore, PCF was instructed by Mesa, not by Mr Hughes. Mr Hughes reasonably and logically thought a valuation of the assets was needed before administration was contemplated.
Sixth, there was the provision of the email from Mr Belyea to Mineral Resources - albeit the email was referenced to Mr Goulds. In my view, nothing can be read into that addressing of the email. There is nothing in the evidence, and nothing emerged in cross‑examination, to suggest Mr Hughes had any contact at all with the board of Mineral Resources. At all times he appears to have dealt with Mr Goulds and at all times he addressed himself to the board of Mesa. But true it is that he must have realised everything he said to Mesa would be passed on to Mineral Resources. Common directorships made that inevitable. But there was nothing Mr Hughes could do about that. It was just a fact. In and of itself that does not mean that Mr Hughes was advising Mineral Resources.
It is worth developing this point a little further. It is not uncommon for subsidiaries to go into administration or liquidation when the support of a parent is withdrawn. While that situation presents some difficulties to an administrator or liquidator, there is not much the administrator or liquidator can do. What seemed to be suggested by counsel during his cross‑examination was that once Mr Hughes realised advice he was giving to the board of Mesa was almost certainly finding its way to Mineral Resources, he should not have accepted the appointment. If that submission were correct, it would mean a prospective administrator in discussions with the board of a company which was a subsidiary could never accept appointment as administrator. Of course every case must depend upon its merits but there is no warrant for any blanket rule to that effect. In this case there was nothing in the rather benign advice Mr Hughes gave to Mesa which would in any way suggest Mr Hughes had been advising Mineral Resources and should then have disqualified himself.
Seventh, there was the question of the DIRRI. Mr Hughes maintained, and I accept, there was nothing in the evidence which suggested the DIRRI was in the first instance misleading or should in some way have been updated in the s 439A report. The relevant relationships were disclosed. Mr Hughes had done nothing with respect to Mineral Resources which would have warranted him disclosing some relationship with that company. In all respects, the DIRRI was adequate.
Eighth, it was suggested there was a predisposition to a Holding DOCA. That it was said was improper because Mr Hughes did not bring an open mind to the administration. In my view, there is nothing in that suggestion. I have already commented below that Mr Hughes did favour a Holding DOCA from the first. But he was doing nothing more than relying upon his experience and expertise. He said, and I accept, at all times he kept an open mind. But he also said he had used Holding DOCAs in the past to good effect. There was nothing in his approach which showed some predisposition which amounted to bias.
Finally, there was a suggestion that Mesa may not have been insolvent at all. This suggestion was not so much developed in counsel's cross‑examination or submissions but rather appears from the correspondence directed to the Administrators from Mighty River's solicitors. When considering the legislative framework of the Act, I made the point the directors could appoint administrators if the company was insolvent or was likely to become insolvent. The directors took the view if Mineral Resources withdrew funding Mesa would be insolvent. They were aware there was a real possibility of funding being withdrawn. They could not be criticised for holding that view. Nor could there be any suggestion that Mr Hughes in some way encouraged the withdrawal of funding by Mineral Resources to somehow enhance Mineral Resources' position. There is nothing in the evidence to that effect. It may well be Mesa is balance sheet solvent. But that is not the test. Without Mineral Resources providing funds, Mesa could not continue to operate on a day‑to‑day basis. It had to meet the costs of holding its tenements and it had other expenses. It had no assets to meet those expenses. By any measure once Mineral Resources withdrew funding, Mesa was insolvent.

No apprehended bias on the part of Mr Hughes

At the conclusion of counsel for Mighty River's submissions, I indicated to the parties I was not satisfied Mr Hughes had demonstrated any bias or that there could be any apprehension of bias. Nor was I satisfied there were any other circumstances which could justify the removal of the Administrators and the termination of the Holding DOCA or indeed the removal of the Administrators to be replaced by other administrators. Before detailing my reasons for that conclusion, I should say something about the pre‑appointment procedure - that is, the contact between the board of the company contemplating appointing receivers and the potential receivers.
It is one of the striking features of pt 5.3A of the Act that the role of the court is limited. It is left to the board of a company to decide whether or not they should appoint administrators. The legislature could have required a board, if it thought administrators should be appointed, to get that decision reviewed by the court. They could also then have allowed the court to appoint the administrators. What the Act does is throw the onus on the board. That must of necessity mean the board has to get advice from potential administrators as to the proper procedure to be followed and the consequences of administration. The potential for a conflict of interest must arise in almost every case. After all, the administrators once appointed are obliged to investigate the conduct of the directors in relation to the affairs of the company. They may well decide the company has an action against the directors. It is only natural most directors should look for an administrator who was 'tame'. But it is the duty of the administrator once appointed to bring all his or her skill and resources to bear on the administration with a view to providing the best possible outcome both for creditors and shareholders. So administrators have to tread a fine line. On the one hand, they have to advise a board - and not individual board members - as to the consequences of administration. On the other hand, they have to bring to the attention of the board the requirements of the law and their obligations to investigate the conduct of the directors.
In this case there was no doubt in my mind Mr Hughes did everything possible to ensure independence. The advice he gave the board of Mesa was minimal and could not be in any way construed as benefiting Mineral Resources or the directors. His conduct was exemplary. In arranging for Mesa to obtain a valuation of its assets he took the first logical step to obtain an idea of Mesa's financial position. He did not at any time advise individual board members of Mesa - he directed his advice to Mesa. He did not advise Mineral Resources and whatever was passed on by the board of Mesa to Mineral Resources was entirely beyond his control. In my view, there exist no grounds at all under s 445D for termination of the deed. Nor are there any grounds for removing Mr Hughes and Mr Bredenkamp and replacing them with other administrators.

The pleaded case in COR 13 of 2017

At this point it is convenient to set out briefly the Points of Claim and Amended Points of Defence in COR 13 of 2017. The first nine paragraphs of the Points of Claim identify the parties and the fact a Holding DOCA has been entered into. By par 10, Mineral Resources acknowledges Mighty River's challenge to the validity of the Holding DOCA. By par 11, Mineral Resources claims that the Holding DOCA in all respects complies with pt 5.3A. By par 12, Mineral Resources says if there are any defects in the Holding DOCA, then those defects should be cured under s 445G(2) and (3). As an alternative it is suggested the deed could be varied to the extent necessary under s 445G(4). Mighty River effectively joins issue with Mineral Resources. They say the defects in the Holding DOCA are fatal and cannot be cured. For what it is worth the Administrators agree with Mineral Resources.

Validity of the Holding DOCA

Mighty River put their position in this way. The execution of the instrument by the Administrators on 3 November 2016 was an exercise by them of a power conferred by s 442A(c) and (d) and s 444B. The valid exercise of that power is limited to instruments which are consistent with the objects of the part as expressed in s 435A. Insofar as they go, those two points are uncontroversial.
Mighty River then says the reason the purported Holding DOCA is inconsistent with the purposes identified in s 435A and elsewhere within the part is that it does not maximise the chances of the company continuing in existence nor does it result in a better return to creditors than would result from immediate winding up. Rather, the Holding DOCA was intended to do nothing more than preserve the status quo so that the administrator could carry out further investigations and formulate some future proposal which may or may not improve the prospects of the company's business surviving or a better return to creditors. Everything that can be done under a Holding DOCA could equally be done in an extended convening period.
Boiled down to its essentials, the submission is this. There is power in the Act for the court to extend the convening period of a meeting. A Holding DOCA which simply subverts the role of the court and extends the convening period by other means must necessarily fail because it does not comply with the terms of the Act. It does nothing more than circumvent the obvious intent of the legislature.
The Administrators and Mineral Resources answer that argument in two ways. First, they refer to the objects of the Act found in s 435A. Second, they say that there is nothing in the terms of the Act which prohibits a Holding DOCA. It is in all respects compliant with the provisions of the Act and any criticism is misguided. As counsel for Mineral Resources put it, there are two gateways. The first gateway is the use of the court approved extension to the convening period. The second is the use of a Holding DOCA. The decision of the Administrators as to which gateway to access is a commercial decision for them which is always subject to review by the court and the setting aside of the Holding DOCA.
If indeed there are two gateways, it must be acknowledged they produce significantly different results. Perhaps the most significant difference is if an administrator decides to apply to the court for an extension of the convening period, it is up to the administrator to lead evidence which will justify the extension being granted. A party who opposes the grant of extension has the right to be heard but does not carry any onus. The court in determining the application will act to protect the interests of the creditors. If a Holding DOCA is agreed upon, then it is up to a disgruntled creditor to make an application to set aside the Holding DOCA. That means the onus is on the creditor. Small creditors who may be disgruntled would not care to go to the trouble and expense of challenging the validity of a Holding DOCA, whereas they may well seek to be heard on an administrator's application. In other words, the use of a Holding DOCA could disadvantage shareholders, particularly small shareholders.
The second reason why on Mighty River's case the Holding DOCA ought be set aside is that it does not satisfy the mandatory requirements for a Holding DOCA under s 444A(c). In particular, the deed does not specify the property of the company that is to be available to pay creditors' claims under s 444A(b) and it does not specify the order in which the proceeds of the realising of the property are to be distributed under (h). In reality, it was s 444A(4)(b) which was at the heart of Mighty River's arguments on this issue.
The Holding DOCA itself is relatively conventional in its terms. Clause 8 of the deed under the heading 'Property available for distribution' reads as follows:
Subject to any variation of this deed there will be no property of the Company available for distribution to Creditors under the deed.
Dealing briefly with other provisions in the Holding DOCA, cl 9 is headed 'Purpose'. The clause makes it plain it is intended the deed administrators will sell all or part of the company's assets to meet outstanding creditors and hopefully return money to shareholders. It also anticipates further investigation of claims Mesa might have against any party including its directors and Mineral Resources. So what the Holding DOCA makes plain is that there is put in place a mechanism for the orderly sale of the company's assets. That may mean all of the assets or some of the assets; it may mean some assets are sold to one party and other assets are sold to another party. It may involve sale of the whole company or it might involve the so‑called 'loan‑to‑own' transaction. Mr Hughes in his evidence was keen to point out the purpose of the Holding DOCA was to retain complete flexibility.
It was also anticipated when the sale process was complete or when plans for reorganisation had reached fruition there would be a meeting which would vary the Holding DOCA to allow for the realisation of the assets in the most expeditious fashion and for distribution of the sale proceeds to creditors and perhaps shareholders. The Act allows for variation of a deed and it is covered by cl 17 of the Holding DOCA.
Clause 18 deals with termination. Apart from the provisions of the Act the 'sunset date' is 3 May 2017. Although it is not entirely clear it would appear from cl 9.2 that proposals have to be put to creditors before that date.
It is Mighty River's position the proper statutory construction of s 444A(4)(b) requires there be some property of the company available to pay creditors' claims. Counsel pointed to the requirement that the instrument 'must' state the property of the company. If it does not do so if nothing is available for distribution, then the requirements of the section are not satisfied and there is no proper Holding DOCA in place. Mineral Resources and the Administrators answer that claim in two ways. First, they point to the fact that although the subsection requires the property be specified, if that property is nil and that is so specified, the requirements of the subsection are met. They point to the fact at present it is unclear how the assets will be realised and what value might be obtained for any sale. So at present to say the assets available for distribution are nil is accurate and satisfies the requirements of the section.
The second argument is that to focus on cl 8 alone is a mistake. Rather, the Holding DOCA has to be read as a whole. When that is done, it is clear the property that will be available is what is realised from the sale of the assets. At present that property cannot be precisely defined, but it is clear there will be some property and the way that it is distributed will depend upon the outcome of the sale process. So read in the overall, the Holding DOCA does in fact satisfy the requirements of the subsection.

The third and final argument put by Mighty River is to the effect the actions of the Administrators have fatally tainted the deed and for that reason it ought be set aside. In large measure I have already dealt with that argument. At the risk of being repetitious, there is nothing in the conduct of the Administrators which would justify the setting aside of the Holding DOCA.
Underlying all of these arguments was a claim by Mighty River that the liquidation process would in no way disadvantage creditors and would hasten realisation of the assets. In my view, there is nothing in the evidence to support that conclusion. If liquidators were now appointed, they would presumably follow precisely the same route to realising the assets of Mesa as the deed administrators. The one difference would be the value of the listed shell would be destroyed. It is hard to see any advantage to anyone from immediate liquidation.
Of course if this deed is set aside, then there is no alternative but for Mesa to go into liquidation. It is not now possible to extend the convening period and somehow put the company back into administration. So the alternatives are stark. Either the deed continues or Mesa is liquidated.
On balance, I am satisfied the use of the Holding DOCA is a valid exercise of power. I accept the submission there are two gateways and Mr Hughes has chosen one. It is an exercise of professional judgment and there is nothing to suggest that in this case his judgment miscarried. Nor am I satisfied the Holding DOCA itself is invalid. I accept both arguments put by counsel for Mineral Resources and the Administrators. It will always be a question of professional judgment on the part of the administrator as to which of the two gateways are accessed. In this case I am not satisfied Mr Hughes has taken the wrong path.
There are two additional reasons why I would be reluctant to set aside this Holding DOCA. First, the aim of pt 5.3A is to maximise returns to all interested parties. The Part clearly anticipates a limited role for the court. It allows the directors to make a decision to appoint administrators and it allows creditors to make decisions as to how or whether the company should be restructured. There seems to be nothing inherently wrong with the creditors meeting as a whole resolving to enter into a Holding DOCA. It is consistent with the intents and purposes of the Act.
Further, it is clear from Mr Hughes' evidence Holding DOCAs are in widespread use. If that is so (and there is no reason to doubt what Mr Hughes says), it would be a bold step to rule that such Holding DOCAs are impermissible. It would have a profound effect on insolvency practice. It is often said that decisions in Commonwealth legislation must show a degree of conformity to allow for consistent outcomes. Those views generally relate to decisions of judges at first instance conforming with decisions in other jurisdictions; they certainly require a judge at first instance in one state to follow a decision of an intermediate court of appeal in another state. But I think the principle can be taken further. If national insolvency practice sanctions Holding DOCAs and their use is widespread, then the uncertainty created by a first instance decision ruling against their validity could create significant problems. This is one of those situations where if Holding DOCAs are found not to be consistent with the Act, then it is a matter which should be determined at least by an intermediate court of appeal.
Having said all of that if I was of the view Holdings DOCAs were not sanctioned by the Act, then I would not have reached the conclusion that the challenge to this Holding DOCA ought be dismissed. Although I think the arguments are finely balanced and Mighty River's case was not without its merits, I am satisfied the arguments of Mineral Resources and the Administrators carry the day.

Conclusion

For these reasons, I would dismiss Mighty River's claim in COR 247 of 2016. On Mineral Resource's claim in COR 13 it is not necessary to make any orders. On publication of these reasons I will hear the parties as to the precise form of orders and as to costs.