Paddington Gold Pty Ltd v Wave Pty Ltd (Subject to a Deed of Company Arrangement) [No 2] - [2023] WASC 420

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   PADDINGTON GOLD PTY LTD -v- WAVE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) [No 2] [2023] WASC 420
CORAM:   LEMONIS J
HEARD:   23 OCTOBER 2023
DELIVERED          :   2 NOVEMBER 2023
FILE NO/S:   COR 109 of 2023
BETWEEN:   PADDINGTON GOLD PTY LTD
Plaintiff
AND
WAVE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
First Defendant
WAVE PROJECTS PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
Second Defendant
JACK JAMES, PAULA SMITH AND NICOLE ALLMARK AS JOINT AND SEVERAL DEED ADMINISTRATORS OF WAVE PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
Third Defendant
JACK JAMES, PAULA SMITH AND NICOLE ALLMARK AS JOINT AND SEVERAL DEED ADMINISTRATORS OF WAVE PROJECTS PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
Fourth Defendant
KARLI HOLDINGS PTY LTD
Fifth Defendant

Catchwords:

Orders terminating deed of company arrangement in respect of the second defendant - Orders agreed to by parties - Explanation of reasons for making agreed orders and otherwise dismissing the proceedings

Legislation:

Corporations Act 2001 (Cth)

Result:

Orders made terminating deed of company arrangement in respect of second defendant and appointing liquidators
Proceedings otherwise dismissed with no order as to costs

Category: B

Representation:

Counsel:

Plaintiff	:	W C J Zappia & T J Langdon
First Defendant	:	P Edgar & S P Tomasich
Second Defendant	:	P Edgar & S P Tomasich
Third Defendant	:	P Edgar & S P Tomasich
Fourth Defendant	:	P Edgar & S P Tomasich
Fifth Defendant	:	P Crutchfield KC & T J Porter
Interested Party	:	Terra Mining Pty Ltd: C S Gough
Interested Parties	:	Kobalt Enc Pty Ltd & Eire Total Access Pty Ltd: S D Majteles

Solicitors:

Plaintiff	:	Minter Ellison
First Defendant	:	Lavan
Second Defendant	:	Lavan
Third Defendant	:	Lavan
Fourth Defendant	:	Lavan
Fifth Defendant	:	Hamilton Locke
Interested Party	:	Terra Mining Pty Ltd: McComish Legal
Interested Parties	:	Kobalt Enc Pty Ltd & Eire Total Access Pty Ltd: Vincent Young

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

Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235
Paddington Gold Pty Ltd v Wave Pty Ltd (subject to a deed of company arrangement) [2023] WASC 263

LEMONIS J:

These proceedings came before me for a trial commencing on 23 October 2023. The proceedings concern deeds of company arrangement entered into in respect of the first and second defendants (Wave and Wave Projects respectively). Wave Projects is a wholly owned subsidiary of Wave.
The fifth defendant (Karli) was the proponent of each deed. In respect of each of Wave and Wave Projects, the majority of creditors in value voted against the resolution to enter into the deed and the majority of creditors in number voted in favour of the resolution. Each resolution was passed on the casting vote of the chairman of the meeting of creditors, who was one of the joint and several administrators of the subject company.
The plaintiff (Paddington) sought orders as a creditor setting aside each resolution, alternatively terminating each deed.[1] One of the orders sought was that each deed be terminated pursuant to s 445D(1)(g) of the Corporations Act 2001 (Cth).
[1] Paragraphs 2, 3, 8 and 9 of the Further Re Amended Originating Process.
On 11 July 2023, I granted an interlocutory injunction restraining the effectuation of each deed.[2] My reasons for doing so set out further background to the proceedings, which I adopt.
[2] See Paddington Gold Pty Ltd v Wave Pty Ltd (subject to a deed of company arrangement) [2023] WASC 263.
On the first day of the trial, the parties agreed to orders disposing of the proceedings in their entirety. The orders provided for the termination of the deed in respect of Wave Projects (Wave Projects Deed) and the appointment of liquidators to it Those liquidators are not the current administrators. The orders also provided for the dismissal of the balance of the proceedings. Thus, no orders were sought in respect of Wave.
On 23 October 2023, I made orders in terms of the agreed orders. These reasons explain why I did so. The orders made are contained in Annexure A.[3]
[3] Subsequent to the making of the orders, paragraph 4 was amended under the ‘slip rule’ to correctly refer to 11 July 2023, instead of 10 July 2023.
The order terminating the Wave Projects Deed is made pursuant to s 445D(1)(g) of the Corporations Act.
Section 445D provides the court with a discretion to terminate a deed of company arrangement if satisfied of at least one of the matters set out in s 445D(1)(a) to s 445D(1)(g). Section 445D(1)(g) provides that the court may make such an order if satisfied the deed should be terminated for some other reason than those set out in s 445D(1)(a) to s 445D(1)(f).
In Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd,[4] Campbell J observed in relation to s 445D(1)(g) as follows:
The express words of section 445D(1)(g) are very broad, and should be applied in a way consistent with the policy of the Corporations Act 2001 (Cth), and other public policies to which the law gives effect. Giving effect to the general policy of the corporations law that insolvent companies should not continue to trade is well within a legitimate use of section 445D(1)(g).
[4] Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235 [261].
It would almost invariably be the case that where the court is satisfied that a deed should be terminated for some other reason, the court would exercise the discretion to do so. However, there may be certain discretionary considerations which preclude the making of the order. None arise in this case.
The effect of making an order terminating the Wave Projects Deed is that Wave Projects is deemed to have passed a special resolution that it be wound up voluntarily: s 446AA(1) and (2). Further, in such circumstances, the court may appoint liquidators who are not the existing administrators: s 499(2D)(a). That is what has happened here.
The orders in relation to Wave Projects were agreed to by Paddington, the administrators of Wave Projects, Karli and the three interested parties all of whom are significant creditors of Wave Projects. The agreement of all of these parties is not by itself a sufficient basis to make the orders. It does however reflect a commercial arrangement between all of the substantive combatants to avoid costly and relatively lengthy litigation. This is a factor in favour of making the order. Further, the administrators have had regard to the interests of all creditors in coming to their decision to support the orders.
In relation to the operation of the Wave Projects Deed, it preserved the claims of Wave International Pty Ltd (Wave International) against Wave Projects: cl 12.9. These claims total approximately $6.5 million.[5]
[5] Administrators’ written submissions [14].
Further, pursuant to an asset sale agreement entered into between Karli and the administrators of Wave, Karli acquired all of the shares in Wave International (amongst other things). Thus, Karli now effectively controls Wave International's claim in respect of Wave Projects. The asset sale agreement was made and carried into effect prior to the passing of the resolutions to enter into the Wave Deed and the Wave Projects Deed.
The Wave Projects Deed also preserved claims by Wave against Wave Projects, with forbearance on recovery to be deferred for three years from effectuation: cl 12.10. These claims total approximately $4.8 million.[6]
[6] Ibid.
As I have already indicated, no orders are to be made in respect of the Wave Deed. Upon effectuation of the Wave Deed, control of Wave will return to its directors. The directors of Karli comprise three of the four directors of Wave.
In respect of Wave Projects, as already explained, it is a wholly owned subsidiary of Wave. The two directors of Wave Projects work within the new group created by Karli upon completion of the asset sale agreement.
In all of these circumstances, I infer that Karli no longer supports the ongoing existence of Wave Projects. Karli's counsel supported the drawing of this inference.
If the Wave Projects Deed was effectuated, its administration would cease and control would be returned to its directors: cl 15.4(c). Given the preservation of claims which I have referred to at [13] and [15], Wave Projects would then be hopelessly insolvent with current debt of approximately $6.5 million and deferred debt of approximately $4.8 million. Wave Projects would have no means of paying this debt. Further, its existence would serve no purpose given Karli does not intend to rehabilitate it.
As the administrators' counsel set out in his helpful written submissions in support of the making of the agreed orders, a good reason for setting aside a deed of company arrangement is that the deed would allow an insolvent company to be in a position to continue trading.[7]
[7] Bidald Consulting Pty Ltd [263] - [264].
Furthermore, in granting the interlocutory injunction in respect of Wave Projects, I found there was a serious question to be tried as to whether the Wave Projects Deed should be terminated. Therefore, this is not a case where a meritless argument has resulted in the Wave Projects Deed being set aside.
The appointment of liquidators who are not the existing administrators is eminently sensible. It enables 'fresh eyes' to look at the possible claims which might arise in a liquidation. In addition, one of the interested parties, Eire Total Access Pty Ltd has agreed to provide initial funding to the liquidators.
I was satisfied the cumulative effect of these matters constituted a reason to make an order terminating the Wave Projects Deed and that I should exercise the discretion to make that order. I was also satisfied that I should appoint the proposed liquidators as joint and several liquidators of Wave Projects.
In relation to the dismissal of the balance of the proceedings, Paddington no longer presses any claim in respect of Wave. Further, the interested parties are not creditors of Wave. Their interest in the proceedings was limited to what occurred in relation to Wave Projects.
In granting the interlocutory injunction in respect of Wave, I found there was a serious question to be tried as to whether the orders sought by Paddington should be made. However, that it is not a matter I could finally resolve without a contested trial.
There previously was an issue as to whether cl 14.1(a)(ii) of the Wave Deed was effective.[8] The parties assure me this issue has now been resolved and does not require any intervention by the court.
[8] See Paddington [66] - [67].
In these circumstances and given Paddington does not press any claim in respect of Wave, I was satisfied the proceedings should otherwise be dismissed.

ANNEXURE A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CA
Associate to the Honourable Justice Lemonis
2 NOVEMBER 2023