Re Apex Minerals Nl; - [2019] WASC 155

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE APEX MINERALS NL; EX PARTE BRYAN KEVIN HUGHES as liquidator of APEX GOLD PTY LTD (In liq) (Receiver and Manager Appointed) [2019] WASC 155
CORAM:   MASTER SANDERSON
HEARD:   3 APRIL 2019
DELIVERED          :   10 MAY 2019
FILE NO/S:   COR 195 of 2015
MATTER:   APEX MINERALS NL (In liq) (Receiver and Manager Appointed)
AND
APEX GOLD PTY LTD (In liq) (Receiver and Manager Appointed)
EX PARTE

BRYAN KEVIN HUGHES as liquidator of APEX MINERALS NL (In liq) (Receiver and Manager Appointed)
First Plaintiff

BRYAN KEVIN HUGHES as liquidator of APEX GOLD PTY LTD (In liq) (Receiver and Manager Appointed)
Second Plaintiff

Catchwords:

Corporation law - Application to allow liquidator not complying with s 532(1) to continue as liquidator - General principles

Legislation:

Corporations Act 2001 (Cth)
Fair Entitlements Guarantee Act 2012 (Cth)

Result:

Liquidator's appointment approved

Category: A

Representation:

Counsel:

First Plaintiff	:	Mr J Abberton
Second Plaintiff	:	Mr J Abberton
Non Party	:	Mr J M Healy

Solicitors:

First Plaintiff	:	Lavan
Second Plaintiff	:	Lavan
Non Party	:	Thomson Geer Lawyers - Brisbane

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

Re McGrath (2010) 78 ACSR 405

MASTER SANDERSON:

This is an application of the plaintiffs by interlocutory process filed 30 November 2018.
Section 532 of the Corporations Act 2001 (WA) (the Act) sets out the circumstances that prohibit a liquidator from consenting to an appointment as liquidator of a company without leave of the court. One such circumstance is where the liquidator (who is defined to be an 'officer' by reason of s 9 of the Act) is the liquidator of a company that holds a security interest over that company: s 532(2)(c)(ii). There is no analogous section to s 532 of the Act that applies to voluntary administrators. That is to say there is no prohibition on an administrator accepting an appointment as an administrator of a company if the administrator is appointed to another company that holds a security interest over that company.
To address the transition from a voluntary administration to a creditors' voluntary winding up, s 532(5) contains a carve out. That subsection reads as follows:
Paragraph (2)(c) does not apply to a creditors' voluntary winding up if, by a resolution of the creditors passed at a meeting of the creditors of which 7 days notice has been given to every creditor stating the purpose of the meeting, it is determined that that paragraph does not so apply.
This application raises two questions. First, did the creditors pass a resolution to the effect that s 532(2)(c) did not apply. If it did not then the further question is whether the court ought now sanction the appointment retrospectively under s 532(2).
The relevant facts are as follows and are largely taken from the plaintiffs' outline of submissions.[1] Apex Gold Pty Ltd (Gold) is a wholly owned subsidiary of Apex Minerals NL (Minerals). Gold granted Minerals security interest over all of its assets. On 25 June 2013 Brian Kevin Hughes was appointed voluntary administrator of Minerals and Gold. On the same day receivers and managers were appointed over all of Minerals' and Golds' assets. The receivers originally appointed were subsequently replaced. However, receivers have been in place since June 2013 and they are still in place. However, the security interest granted by Gold to Minerals has now been released.
[1] Plaintiffs' outline of submissions filed 17 January 2019.
On 25 September 2013 Mr Hughes sent a notice to the creditors of Gold and Minerals convening a meeting of creditors on 4 October 2013. That meant he gave nine days' notice. Each of the notices attached a report prepared by Mr Hughes pursuant to s 439A of the Act. The s 439A report in each case recorded that Gold granted Minerals a security interest and the receivers and managers were in control of all of the assets of Minerals and Gold.
On 4 October 2013 the creditors of Gold and Minerals resolved that both Minerals and Gold should be placed into liquidation and that Mr Hughes should be appointed as liquidator of Gold and Minerals.
Since 4 October 2013 the receivers and managers have been in control of all of the assets of Minerals and Gold including the right to deal with Minerals' security over Gold. The receivers caused that security to be released. Further, by reason of the receivers' appointment Mr Hughes, as liquidator of Minerals, had no ability to exercise Minerals' rights to enforce its security over Gold prior to the release of Minerals' security.
Turning then to s 532 it is clear the thrust of the section is to prevent appointment of a liquidator who has a conflict of interest. So a person who is a creditor of the company in an amount of more than $5,000 cannot act as a liquidator of that company. Nor can a person who is an auditor of the company. The prohibition contained in s 532(2)(c)(ii) is entirely consistent with the aim of the section. The conflict of interest is obvious.
The point of the carve out found in s 532(5) is consistent with the overall thrust of the administration/liquidation process. The aim of these provisions is to provide maximum return to shareholders while ensuring liquidators undertake a process that is fair to creditors. The various sections place the emphasis on the decisions of the liquidators and creditors. Although the court has an overall supervisory role the conduct of both administration and liquidation is not court driven. It is driven by the administrator/liquidator and the shareholders. What s 532(5) anticipates is a circumstance where creditors, being fully informed of a conflict of interest, are nonetheless prepared to allow a person to act as liquidator.
There are very good reasons why this should be the case. In any circumstance where a group of companies go into liquidator there are likely to be inter‑company loans. If there was a blanket prohibition that a liquidator of a company within the group could not under any circumstances be the liquidator of a company within the group which had given security to another company real problems could arise. Within one corporate group containing four or five companies there might be four or five separate liquidators. That surely is in no‑one's interest – apart from anything else it would have the effect of dissipating available funds.
The course decided on by the legislature was to allow a single liquidator to act provided the creditors were satisfied that course was proper and appropriate. Moreover there are other safeguards which protect the creditors' position. The liquidator has obligations both pursuant to statute and in equity. If the liquidator was concerned about some aspect of an inter‑company security he could apply for directions from the court. Another alternative is to appoint a special purpose liquidator. Whether to take either of those two steps is a matter for the professional judgment of the liquidator but it remains the fact the options are available and offer a measure of protection to the creditors.
Counsel for Mr Hughes in his written submissions set out four requirements which are found in s 532(5). First, a notice must be sent to all creditors. Second, the notice must provide at least seven days' notice of a meeting of creditors. Third, the notice must state the purpose of the meeting. Finally, the creditors must pass a resolution.[2] It was counsel's submission Mr Hughes had complied with all of those requirements and therefore s 532(5) was satisfied.
[2] Plaintiffs' written submissions filed 17 January 2019 par 19.
With respect, I do not accept that submission. I do accept that the section requires a notice to be sent to all creditors and seven days' notice of the meeting by given to the creditors. I would also accept that the one notice can relate to a number of matters. So in this instance there was an agenda item in the following terms:
2.To consider, and if thought fit, resolve:
(a)that the administration shall end; or
(b)that the company be wound up.
But what the notice did not do was refer to s532(5) and allow the creditors to resolve that section did not apply. In my view it is the clear thrust of the section that an agenda item at the meeting should state explicitly that s 532(2) was not to apply and a resolution to that effect needed to be passed. If that is not done then there has been no compliance with s 532(5). It is not in dispute that, in this case, that was not done. So the requirements of the section are not satisfied.
Although there is no authority directly dealing with this point counsel for the non‑party made reference to Re McGrath (2010) 78 ACSR 405 as a case which is of some assistance. In that action the liquidator of a number of group companies approached the court in circumstances where some companies in the group with cash reserves were proposing to fund the litigation claims of other companies in the group which were without funds. The funding companies were to take security over the property of the companies being funded. The liquidator sought approval under s 477(2B) and leave under s 532(2) of the Act. Counsel summarised the principles found in the judgment of Barrett J as follows:
(a)Liquidators are fiduciaries and are 'therefore subject to the duty to act with single minded regard for the interests of the company for which he or she is liquidator – which, in the case of insolvent administration, may generally be equated with the interests of the body of creditors';
(b)Liquidators may apply to the court for dispensation from fiduciary duties and the court has power to grant such dispensation where the circumstances so warrant;
(c)If the court is to grant authorisation by reference to fiduciary considerations, it will only do so directly and upon proper application. The matter must be put before the court as an explicit application for dispensation from fiduciary duties, with appropriate evidence showing how and why circumstances exist warranting dispensation. The task of explanation inherent in a request to be excused from a fiduciary requirement is an onerous and exacting one;
(d)The propriety of the exercise of powers by liquidators of a particular company is to be judged by reference to the particular interests of that company, rather than the perceived transcending interest of the group;
(e)In determining an application under s 532(2) for leave to act as liquidator not withstanding subsection 2(c)(ii) the court will be conscious of the fiduciary duties of such liquidators and possible conflicts in duties owed to each of the two companies; and
(f)It is not appropriate to grant leave under s 532(2) in circumstances where the court cannot determine the fiduciary issues.
While I would agree generally that statement of principle is apposite in a case such as this it must be treated with some caution bearing in mind the different fact situations. Moreover, the principles require some modification. For instance, under s 532(5) the creditors can effectively grant a liquidator a dispensation from fiduciary duties. So (b) above requires some modification. Accordingly, while I would treat what was said by his Honour in Re McGrath as indicative of the general approach I am not satisfied it sets out a statement of principle which is applicable in a case such as this.
At the hearing of the application the non‑party appeared and made submissions. The non‑party is a creditor in the liquidation and submitted it had been 'invited' to make submissions. In fact notice was given to all creditors of the application and the non‑party chose to appear and make submissions. No objection to that course was raised by the plaintiffs and all parties agreed it was not necessary to make the non‑party a party to the proceeding.
As I understand the position of the non‑party, they did not accept there had been compliance with s 532(5). As to whether the court should retrospectively approve Mr Hughes' acting as liquidator of both companies the non‑party did not actually oppose the application. Rather, they submitted that there had not been sufficient information put before the court to allow determination of the fiduciary issues – in other words, item (f) of the above criteria from Re McGrath had not been satisfied.
The non‑party raised two broad issues. First, it questioned whether Mr Hughes investigated and should have set aside a security known as RF Capital/Gold Security and the Minerals/Gold Security. Second, it questions whether Mr Hughes could act in the best interests of creditors of Gold in pursuing an insolvent trading claim against directors of Gold and against Minerals given his prior engagement with Minerals and in circumstances where he is liquidator of Minerals.[3]
[3] First non-party's written submissions filed 1 February 2019 par 15.
Before dealing with these two points it is necessary to provide further background information. In late September and early October 2012 Minerals entered into a loan agreement with RF Capital Pty Ltd by which RF Capital advanced Minerals $4,000,000. The RF Capital/Minerals Loan Agreement was a refinance of an earlier short term facility in March 2012 between Minerals and a third party. Minerals also entered into a general security agreement with RF Capital by which Minerals granted RF Capital security over all of its present and after acquired property. On 18 November 2012 Gold entered into a loan agreement with Minerals. That agreement acknowledged that a loan of $4,000,000 had already been made as detailed above. Gold also entered into a general security agreement with Minerals by which Gold granted Minerals security over all of its present and after acquired property. The Minerals/Gold Security appears to have secured past and future advances.
In or about January 2013 Minerals and RF Capital entered into a Deed of Forbearance. The Deed of Forbearance noted that Minerals had breached its obligations under the RF Capital/Minerals Loan Agreement and RF Capital was entitled to enforce its rights under that agreement. However, RF Capital agreed to forebear from exercising those rights in exchange for:
(1)Gold entering into a guarantee and indemnity with RF Capital by which it guaranteed the performance by Minerals of the RF Capital/Minerals Loan Agreement;
(2)Gold entering into a general security agreement with RF Capital by which Gold granted RF Capital security over all of its present and after acquired property. By oversight the RF Capital/Gold Security was not registered until 26 March 2013;
(3)Gold granted Minerals a mortgage over certain of its mining tenements; and
(4)Minerals issued shares to RF Capital raising $400,000 of which $100,000 was used as payment of an Arrangement Fee, $200,000 was used as prepaid interest and the balance of $100,000 was available for working capital.
On 28 March 2013 Minerals, RF Capital and Gold entered into a loan agreement by which RF Capital advanced $1,000,000 to Minerals which was paid to Gold evidencing 'a back‑to‑back loan from Minerals to Gold'. The repayment date was 12 months from the date of the advance and the amount to be repaid was $2,000,000, comprising principal, agreed interest and fees.
On 25 June 2013 RF Capital made an application under s 588FM of the Act to the Supreme Court of New South Wales seeking an order extending the time for registration of the RF Capital/Gold Security. The Supreme Court of New South Wales made those orders but gave liberty to any administrator or liquidator to apply if appointed within six months of the 26 March 2013. It is to be noted RF Capital appointed receivers and managers over Minerals and Gold on the same day the orders were made by the Supreme Court.
The non‑party in its written submissions also referred to a number of further matters which it said were relevant to the determination of this application. (I do not necessarily accept these facts are relevant but I include them for the sake of completeness).[4] Mr Hughes was engaged by Minerals to provide a review of its solvency and financial position in September 2010 and to review its cash flow forecasts and assist in procuring short term funding in March 2012. Mr Hughes has stated in his reports to creditors that Minerals and Gold were probably insolvent from October 2011 or at the latest from June 2012. Mr Hughes says the directors of Minerals knew that Gold was insolvent at those times. The principal outstanding matters in relation to the liquidation of Gold and Minerals are insolvent trading claims against the directors of Gold and Minerals under s 588G and s 588M of the Act as well as a claim by Gold against Minerals for holding company liability under s 588V and s 588W. Mr Hughes has published in reports to creditors that the insurance policy which responds to the insolvent trading claims against directors of both Minerals and Gold is capped at a certain amount.
[4] Non-party's written submissions filed 1 February 2019 par 7.
The receivers of Minerals have lodged a proof of debt in the liquidation of Gold in the sum of $71,135,917.44 as an 'estimate subject to reconciliation' which is subject to the Minerals/Gold Security.
The non‑party is a creditor of Gold in an amount of $3,331,491.91 by reason of advances made by the Department to Gold pursuant to the Fair Entitlements Guarantee Act 2012 (Cth).
In support of this application Mr Hughes filed three affidavits, access to which was restricted by order of this court.[5] On that basis I do not intend to go into detail about what action Mr Hughes has taken in relation to investigating the various securities. Suffice it to say, I am satisfied on the material available that all appropriate investigations have been made. I can see nothing in the matters raised by the non‑party which would suggest either that the securities have not been properly investigated or that there would be benefit to the creditors if steps were taken to set aside these agreements.
[5] Affidavits filed by Brian Kevin Hughes 30 November 2018, 17 January 2019, 28 March 2019.
In relation to the insolvent trading claims, Mr Hughes has now issued proceedings. If for any reason the delay in issuing those proceedings prejudices the creditors then those creditors have their remedies against Mr Hughes. Nothing in these orders will protect Mr Hughes either under the provisions of the corporations law or in equity.
During the course of the hearing there was some debate with counsel as to the effect on the liquidation if a retrospective order was not made for the appointment of Mr Hughes. It is at least arguable that pursuant to s 532(1) none of the actions taken by Mr Hughes is of any force and effect. Both counsel, quite sensibly, declined to debate this issue. Both took the view it did not arise in the context of the application. While that may well be correct, the uncertainty surrounding the liquidation if an order was refused and the potential costs involved suggest that unless there is good reason to the contrary, the appointment should be validated. Having carefully considered all matters raised by the non‑party and the circumstances of the liquidation as a whole, I am not satisfied there is good reason to refuse Mr Hughes' application.
Accordingly, I intend to make orders broadly in line with pars 3.1 and 3.2 of the interlocutory process filed 30 November 2018. Before making those orders I will give counsel for the parties the chance to be heard. The question of costs will doubtless be a hot contest.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson

10 MAY 2019