PricewaterhouseCoopers Inc in its Capacity as Foreign Representative of Ie CA 3 Holdings Ltd v Ie CA Holdings Ltd

Case [2024] FCA 1208

FEDERAL COURT OF AUSTRALIA

PricewaterhouseCoopers Inc in its Capacity as Foreign Representative of IE CA 3 Holdings Ltd v IE CA Holdings Ltd [2024] FCA 1208

File number: NSD 1293 of 2024
Judgment of: MARKOVIC J
Date of judgment: 18 October 2024
Catchwords: BANKRUPTCY AND INSOLVENCY – cross-border insolvency – application for recognition of foreign main proceeding – where granting recognition is not contrary to Australian public policy – application seeking relief under Art 21 of the UNCITRAL Model Law on Cross-Border Insolvency – where granting relief sought does not constitute an abuse of process – application granted
Legislation:

Corporations Act 2001 (Cth) s 596A and s 596B

Cross-Border Insolvency Act 2008 (Cth) Sch 1, being the UNCITRAL Model Law on Cross-Border Insolvency, Arts 6, 17, 21   
Cases cited:

Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175

Henry v Henry (1996) 185 CLR 571

Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd (2007) 156 FCR 501

IE CA 3 Holdings Ltd. v NYDIG ABL LLC 2024 BCCA 244

In re Black Gold S.A.R.L. 635 BR 517 (9th Cir. BAP 2022)

Garuda, In the matter of Codere Finance (UK) Limited [2015] EWHC 3778 (Ch)

Kapila, Re Edelsten [2014] FCA 1112; (2014) 320 ALR 506

LFDB v SM (2017) 256 FCR 218

Nordic Trustee ASA and another v OGX Petroleo e Gas SA (Em Recuperacao Judicial) and another [2016] EWHC 25 (Ch)

Re Abate, in his capacity as Liquidator of Onix Capital SA [2017] FCA 751

Re PT Garuda Indonesia (Persero) Tbk [2024] SGHC(I) 1

Re Zetta Jet Pte Ltd & Ors [2018] SGHC 16

UBS AG v Tyne (2018) 265 CLR 77

Williams v Spautz (1992) 174 CLR 509
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 176
Date of hearing: 9 October 2024
Counsel for the Plaintiff: Mr S J Maiden KC and Ms V Bell
Solicitor for the Plaintiff: White & Case LLP
Counsel for the Intervenor: Mr J Giles SC and Mr A R Di Stefano
Solicitor for the Intervenor: Norton Rose Fulbright Australia

ORDERS

NSD 1293 of 2024
BETWEEN:

PRICEWATERHOUSECOOPERS INC IN ITS CAPACITY AS FOREIGN REPRESENTATIVE OF IE CA 3 HOLDINGS LTD AND IE CA 4 HOLDINGS LTD

Plaintiff
AND:

IE CA 3 HOLDINGS LTD

First Defendant

IE CA 4 HOLDINGS LTD

Second Defendant

IRIS ENERGY LIMITED

Intervenor

ORDER MADE BY:

MARKOVIC J

DATE OF ORDER:

18 OCTOBER 2024

THE COURT ORDERS THAT:

1.Pursuant to Art 17(1) of the UNCITRAL Model Law on Cross-Border Insolvency, being Sch 1 to the Cross-Border Insolvency Act 2008 (Cth), the bankruptcies that commenced in respect of the defendants in British Columbia, Canada on 28 June 2023 (Vancouver Registry Action No. S230488) (Proceeding) be recognised as a foreign proceeding within the meaning of Art 2(a) of the Model Law.

2.Pursuant to Art 17(2)(a) of the Model…

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PricewaterhouseCoopers Inc in its Capacity as Foreign Representative of Ie CA 3 Holdings Ltd v Ie CA Holdings Ltd [2024] FCA 1208
Case
[2024] FCA 1208
Decision Date

CaseChat Overview and Summary

PricewaterhouseCoopers Inc (PwC) in its capacity as the foreign representative of Ie CA 3 Holdings Ltd (IE CA 3) and Ie CA Holdings Ltd (Ie CA) sought recognition of a foreign main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law). The application was opposed by Iris Energy Ltd (Iris). The Supreme Court of New South Wales was asked to determine whether the foreign main proceeding should be recognised and, if so, whether relief under Art 21 of the Model Law should be granted. The court was also asked to determine the costs consequences of the proceedings.

The court was required to decide two primary legal issues. First, whether granting recognition of the foreign main proceeding would be contrary to Australian public policy. Second, whether granting the relief sought under Art 21 of the Model Law would amount to an abuse of process. The court also had to consider the costs consequences of the proceedings.

The court found that granting recognition of the foreign main proceeding would not be contrary to Australian public policy. The court found that there was no evidence to suggest that the proceedings were not bona fide or that they would be an affront to Australian public policy. The court found that the relief sought under Art 21 of the Model Law would not amount to an abuse of process. The court found that PwC had a duty under Canadian law to safeguard the assets of the IE CA Companies and that the relief sought was necessary to enable PwC to progress its investigations into the circumstances surrounding the arrangements between the IE CA Companies and Iris. The court found that PwC had not acted in bad faith or sought to achieve an improper purpose. The court also found that Iris, as an unsuccessful party, should bear the costs of the interlocutory application and that the costs of the main proceeding should be costs of the liquidation of the IE CA Companies.

The court granted PwC’s application for recognition of the foreign main proceeding and the relief sought under Art 21 of the Model Law. The court also ordered that Iris pay PwC’s costs of the interlocutory application and that the costs of the main proceeding be costs of the liquidation of the IE CA Companies. The court granted leave to any party seeking a variation of the costs orders to file submissions within seven days of the date of publication of the reasons. Any application for variation of the costs orders will be dealt with on the papers.

Orders

Orders of the court

1. Pursuant to Art 17(1) of the UNCITRAL Model Law on Cross-Border Insolvency, being Sch 1 to the Cross-Border Insolvency Act 2008 (Cth), the bankruptcies that commenced in respect of the defendants in British Columbia, Canada on 28 June 2023 (Vancouver Registry Action No. S230488) (Proceeding) be recognised as a foreign proceeding within the meaning of Art 2(a) of the Model Law.

2. Pursuant to Art 17(2)(a) of the Model Law, the Proceeding be recognised as a foreign main proceeding within the meaning of Art 2(b) of the Model Law.

3. Pursuant to Art 17(1)(b) of the Model Law, the plaintiff be recognised as the foreign representative of the Proceeding within the meaning of Art 2(d) of the Model Law.

4. Pursuant to Art 20(1) of the Model Law, except with the consent of the plaintiff or with leave of the Court:

(a) the commencement or continuation of individual actions or individual proceedings concerning either defendant’s property rights, obligations or liabilities is stayed;

(b) any execution against either defendant’s property is stayed; and

(c) the right to transfer, encumber or otherwise dispose of any property of the defendants is suspended.

5. Pursuant to Art 21(1)(e) of the Model Law, the administration and realisation of each defendant’s assets located in Australia be entrusted to Christopher Hill and David McGrath of FTI Consulting (Local Representatives).

6. Pursuant to Art 21(1)(g) of the Model Law, the Local Representatives be invested with all powers available to a liquidator of a corporation appointed under the provisions of the Corporations Act 2001 (Cth).

7. Pursuant to Art 21(1)(d) and 21(1)(g) of the Model Law, the Local Representatives may, as they deem appropriate, examine witnesses, take evidence or require the delivery of information concerning each of the defendants’ affairs, rights, obligations or liabilities as if the Local Representatives were liquidators appointed to the relevant defendant under Pt 5.4B of the Corporations Act.

8. Pursuant to Art 21(2) of the Model Law, the distribution of all of the debtors’ assets located in Australia is entrusted to the plaintiff.

9. The requirement for notice under r 15A.7 of the Federal Court (Corporations) Rules 2000 (Cth) is dispensed with.

10. Any party affected by these Orders has liberty to apply upon five business days’ notice.

11. The interlocutory application filed by Iris Energy Ltd (Intervenor) be dismissed.

12. Subject to Order 13 below, the costs of this proceeding be costs of the liquidation of the defendants and accorded the same priority as costs of proceedings incurred by a liquidator under the Corporations Act.

13. The Intervenor is to pay the plaintiff’s costs of the interlocutory application.

14. Leave is granted to any party seeking a variation of Orders 12 and/or 13 above to file submissions not exceeding two pages in length setting out the proposed variation and the reasons why such a variation should be made within seven days of the date of publication of these reasons.

15. If any application is made pursuant to Order 14 above, it will be dealt with on the papers.

THE COURT DECLARES THAT:

16. Pursuant to s 16 of the Act and Art 20(2) of the Model Law, the stay and suspension described in Order 4 above be:

(a) the same in scope and effect as if the defendants had been made the subject of a winding up under Pt 5.4B of the Corporations Act; and

(b) subject to the same powers of the Court and the same prohibitions, limitations, exceptions and conditions as would apply under the law of Australia in such a case.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

PwC’s application for recognition and the Iris IA were heard together.BACKGROUND On 13 June 2023, the Supreme Court of British Columbia (BC Supreme Court) granted, among others, an order authorising PwC, in its capacity as receiver and manager of the IE CA Companies, to assign the IE CA Companies into bankruptcy. The circumstances in which PwC was appointed as receiver of the IE CA Companies are described below. On 27 June 2023 bankruptcy assignment documents were filed in accordance with the BI Act. On 28 June 2023 those documents were accepted by the Office of the Superintendent and PwC was appointed as trustee of the bankrupt estates of each of the IE CA Companies in the Bankruptcy Proceeding. In accordance with the BC Supreme Court’s order, on 28 June 2023 the IE CA Companies were assigned into bankruptcy by PwC acting in its capacity as receiver. Michelle Anne Grant, senior vice president, corporate advisory and restructuring, PwC, chartered insolvency and restructuring professional and licensed insolvency trustee, and her colleague Georgina Foster, manager, corporate advisory and restructuring, PwC, together have the day-to-day carriage of the insolvency proceeding relating to the IE CA Companies. Ms Grant explains that this includes the protection and realisation of the assets and undertakings of the IE CA Companies.Iris and the Iris Group As set out above, the IE CA Companies are wholly owned subsidiaries of Iris, a public company registered in Australia and listed on the NASDAQ. According to a search undertaken on 13 September 2024 of the register maintained by the Australian Securities and Investments Commission in relation to Iris, its registered office is in Melbourne, Victoria, its principal place of business is in Sydney, New South Wales and three of its six current directors are located in New South Wales. The IE CA Companies are part of a larger group of companies, known as the Iris Energy Group, of which Iris is the parent company. Iris has approximately 27 subsidiaries in Canada, the United States of America (USA) and Australia. To the best of Ms Grant’s knowledge, the IE CA Companies are the only members of the Iris Group that are subject to any form of insolvency process. The Iris Group is primarily in the business of owning and operating Bitcoin mining data centres and undertaking Bitcoin mining. Ms Grant explains that Bitcoin mining involves the application of computational power to generate multiple guesses aimed at solving mathematical problems. When the guess is successful, the winner receives an “award” in the form of Bitcoin. The Iris Group maintains corporate offices in Vancouver, British Colombia, Canada and, as at the date that PwC was appointed as receiver to the IE CA Companies, nearly all the mining facilities owned or leased by Iris Group companies and all Bitcoin operations conducted by it or on its behalf were based in British Colombia, Canada. More particularly, Iris Group companies own and lease special purpose mining facilities in Mackenzie, Canal Flats and Prince George, British Colombia, Canada (together, Iris BC Sites).The IE CA Companies

Evidence

Evidence Before The Court

Ms Grant explains that that PwC seeks the relief in its originating application because:(1)the trustee has a legal duty under Canadian law to safeguard all assets of the IE CA Companies by getting in, managing and controlling them, as best and quickly as possible;(2)given that investigations are still ongoing, the trustee cannot yet be sure that it is aware of all claims that the IE CA Companies may have in Australia (or elsewhere) and seeks assistance where necessary to enable it to understand this;(3)due to the complexities of the matter, the trustee requires further time and assistance to ascertain and understand certain matters identified by it to date, including questions that it has concerning numerous operational and structural issues involving the IE CA Companies. The trustee is of the view that its investigations may be more appropriately progressed in Australia and may result in bringing claims against, among others, directors and officers of the IE CA Companies and their related entities. At present, the trustee does not know whether such claims exist. However, Ms Grant notes:(a)based on the information available to the trustee, the compensation structure under the hashpower agreements and hosting agreements was not commercially reasonable;(b)the IE CA Companies were not (and never were) generating sufficient profit to fund their financial obligations under the funding agreements and were entirely reliant on support from Iris to provide funding; and(c)the trustee has duties pursuant to the BI Act to provide full and frank disclosure to the court, maximise realisations on the debtors’ estates, and not permit any conduct that is illegal or dishonest in respect of the bankruptcy process. As such, the trustee must further investigate the circumstances surrounding the entry into these arrangements by the IE CA Companies, including investigating the role of Iris in them, and requires the relief being sought to progress the investigations; (4)for those purposes, among other things, the trustee wishes to use the broader examination powers available under Australian law; (5)the trustee is not presently aware of the IE CA Companies being subject to any third party claims or actions; and (6)the trustee understands that Bragar Eagel & Squire, P.C. a law firm based in the USA, issued a public alert on 29 July 2024 stating that it is investigating potential claims against Iris on behalf of Iris stockholders concerning “whether [Iris] has violated the federal securities laws and/or engaged in other unlawful business practices”.Expert evidence Both PwC and Iris relied on expert evidence. Iris relied on a report prepared by John Grieve, a legal consultant at John Grieve Law Corporation who has practised in bankruptcy and insolvency law since 1985. PwC relied on a report prepared by Francis Lamer, a partner of Kornfeld LLP and a solicitor and barrister admitted to practice in Canada who has practised law in British Columbia since 1990 in the area of general commercial litigation including insolvency.

Decision

Reasons for decision

Ultimately, Iris and any other party affected by orders made under Art 21 of the Model Law have the protection of Art 22 and the ability to apply to the Court as a “person affected” to modify or terminate such relief. CONCLUSION It follows from the above that I will make the orders in the form sought by the trustee for recognition of the Bankruptcy Proceeding and for the relief pursuant to Art 21 of the Model Law. Iris has been unsuccessful in its opposition to the making of those orders. Accordingly, the Iris IA should be dismissed. In its proposed orders, the trustee seeks an order that the costs of this proceeding be costs of the liquidation of the IE CA Companies and accorded the same priority as costs of proceedings incurred by a liquidator under the Corporations Act. However, as Iris was unsuccessful in pursuing the relief it sought, it should pay the trustee’s costs of the Iris IA. If any party wishes to seek a variation of the costs orders referred to in the preceding paragraph, they should file submissions setting out the proposed variation and the reasons for seeking that variation within seven days of the date of publication of these reasons, not exceeding two pages in length. Any application for variation of the costs orders will be dealt with on the papers. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

The IE CA Companies are not registered under the Corporations Act 2001 (Cth) and are not authorised deposit taking institutions within the meaning of the Banking Act 1959 (Cth), general insurers within the meaning of the Insurance Act 1973 (Cth) or life companies within the meaning the Life Insurance Act 1995 (Cth).The Iris Group business The Iris Group which, as set out above, is primarily in the business of owning and operating Bitcoin mining data centres and undertaking the process of Bitcoin mining, has divided its operations into three components:(1)owning, through Iris subsidiaries, mining servers which are specialised computers called “application-specific integrated circuit miners”;(2)hosting the mining servers. This is a process by which different subsidiaries acquire or lease the premises where the mining servers are operated and provide the associated infrastructure; and (3)selling the Bitcoin from “mining pools” generated by the mining servers. The Iris Group’s operations in British Columbia included approximately 36,400 mining servers owned by the IE CA Companies and distributed across the Iris BC Sites (Mining Equipment). The IE CA Companies, which were special purpose vehicles incorporated for the purposes of owning the Mining Equipment, purchased that equipment from Bitmain Technologies Limited. They obtained secured funding to finance that purchase from NYDIG ABL LLC pursuant to two master equipment financing agreements. Ms Grant summarises the structure of the Iris Group’s business as it relates to the IE CA Companies and Iris as follows:(1)the IE CA Companies purchased and operated the Mining Equipment which produced hashpower which was ultimately used to generate Bitcoin; (2)the IE CA Companies entered into hosting agreements with hosts, all of which were subsidiaries within the Iris Group. The hosts acquired or leased the premises where the Mining Equipment was operated and provided the associated infrastructure in exchange for a fixed fee based on cost per kilowatt hour of electricity usage of CAD$0.08/kWh; (3)Iris purchased the hashpower from the IE CA Companies at a fixed rate of CAD$0.096/kWh under hashpower agreements and submitted the hashpower to a mining pool where it earned Bitcoin. Iris then sold the Bitcoin for dollars on a daily basis; and (4)the IE CA Companies’ net income was the revenue generated by selling the hashpower to Iris pursuant to the hashpower agreements less their expenses paid to the hosts pursuant to the hosting agreements and other expenses including interest payments. Ms Grant opines that, based on the average market daily rate of hashrate, the compensation structure under the hashpower agreements between Iris and the IE CA Companies was substantially below market price before December 2022 and the difference between income received by the IE CA Companies compared to the Bitcoin attributed to the same hashpower was significant. That is illustrated in the following chart which shows the average daily market price of hashrate to that of the sale price Iris had in place with the IE CA Companies for their hashpower contribution under the hashpower agreements: