Re Application of Fincorp Group Holdings Pty Ltd

[2007] NSWSC 628

CITATION:	Application of Fincorp Group Holdings Pty Ltd (adm apptd) [2007] NSWSC 628
HEARING DATE(S):	17/05/07
JUDGMENT DATE :	17 May 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	17 May 2007
DECISION:	See paragraphs 18-21 of judgment.
CATCHWORDS:	CORPORATIONS – Administrators – Application by administrators for order as to operation of Part 5.3A of the Corporations Act 2001 (Cth) – Administrator incurring debt by borrowing not entitled to indemnity under s 443A of the Corporations Act – Order that Part 5.3A amended so that administrators personally liable for loan taken out by first plaintiff and entitled to indemnity under s 443D – Application for directions that administrators may properly and justifiably enter into agreements providing cross-collateral security from companies within group – Where provision of loan facility is a desirable step for administration of group of companies and is in the interests of creditors – Order that administrators are justified in entering into deeds of agreement and guarantee. - (CTH) Corporations Act 2001, ss 443A, 443D, 447A(1)
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Re Ansett Australia Limited & Ors v Mentha (2002) 40 ACSR 389 Re Spy Glass Management Group Pty Limited v Mentha (2004) 51 ACSR 432
PARTIES:	Application of Fincorp Group Holdings Pty Ltd (administrator appointed)
FILE NUMBER(S):	SC 2766/07
COUNSEL:	Applicants: A Leopold
SOLICITORS:	Applicants: Henry Davis York

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Thursday, 17 May 2007

2766/07 Fincorp Corinna Waters Epping Pty Ltd & 6 Ors

JUDGMENT

1 HIS HONOUR: The fifth, sixth and seventh plaintiffs, Messrs Winterbottom, Korda and McIntosh, are the administrators of two companies in the Fincorp Group. These include the first, second, third and fourth plaintiffs.

2 The first plaintiff, Fincorp Corinna Waters Epping Pty Limited, is a purchaser under a contract for the purchase of land in Wollert, Victoria. The purchase price is $14,500,000.

3 To complete the purchase that company has obtained agreement from the Commonwealth Bank of Australia to lend to it the sum of $8,100,000.

4 The administrators have formed the view, for reasons which they gave, that it is in the interests of Corinna Waters to complete the purchase.

5 The Commonwealth Bank has stipulated that conditions of the loan include that the administrators obtain an order from the Court having the effect of making the administrators personally liable for the debt which will arise from the borrowing, and that the administrators have the benefit of the right of indemnity in s 443D of the Corporations Act 2001 (Cth) as if it is a debt for which the administrator is liable under of Div 9A of Pt 5.3A of the Corporations Act.

6 A further requirement of the Commonwealth Bank is that the first to fourth plaintiffs enter into certain agreements and guarantees with it, the effect of which would be that certain cash amounts held in credit accounts with the bank in the names of the first, second, third and fourth plaintiffs would be made available as cross-collateral security for the obligations of Corinna Waters under its proposed borrowing with the bank, and in respect of future interest obligations on borrowings of each of the first to fourth plaintiffs with the bank, and of any other debts which those plaintiffs may owe the bank.

7 The administrators seek:

(a) an order pursuant to s 447A(1) of the Corporations Act that Pt 5.3A of the Act is to operate in relation to the first plaintiff as if s 443A(1)(a) provided that moneys which will be owing to the CBA as a result of the proposed borrowing by the first plaintiff from the CBA of the principal sum of $8,100,000 pursuant to the CBA facility constituted a debt incurred by each of the administrators for the purpose and exercise of their functions and powers as administrators of the first plaintiff for services rendered; and

(b) a direction pursuant to s 447D(1) of the Corporations Act that the administrators may properly and justifiably on behalf of the first to fourth plaintiffs enter into the proposed deed of agreement and deed of guarantee.

8 The effect of the first of the stipulations will be both to create a personal liability of the administrators to the bank in respect of the debt which will be incurred by the loan to Corinna Waters and to provide for the administrators to be entitled to be indemnified out of the company's property for such a debt.

9 There is authority that, absent an order under s 447A modifying the operation of Pt 5.3A, an administrator who incurs a debt by way of a borrowing would not be entitled to such an indemnity because the lending of money would not be considered to fall within that Part of s 443A (Re Ansett Australia Limited & Ors v Mentha (2002) 40 ACSR 389; Re Spy Glass Management Group Pty Limited v Mentha (2004) 51 ACSR 432 at [4]).

10 The present application appears to go beyond those considered in those cases as it involves both the creation of a debt and the provision of indemnity in respect of it. Quite why the application is brought in this form, as distinct from the bank's requiring the administrators to join as guarantors or principal obligors under the loan, is not immediately apparent. However, I can see no possible prejudice to anyone other than the administrators themselves from the orders sought.

11 The administrators, by their application, accept that they will incur a personal liability. Their doing so is a condition of the bank's providing the facility.

12 The provision of the facility is a desirable step for the administration of the group and is in the interests of the creditors. I am satisfied that there is both the power to make the order sought, and that the power ought to be exercised.

13 I am also satisfied that the administrators are justified in entering into the proposed deed of agreement and deed of guarantee on behalf of the first to fourth plaintiffs.

14 The evidence is that the value of the secured debts owed by each of the first to fourth plaintiffs substantially exceeds the value of their assets. In the case of the second plaintiff, Fincorp Breezes Hervey Bay Pty Limited, this is only because it has charged all of its assets to Fincorp Investments Limited to secure not only advances made to it but to secure advances made by Fincorp Investments Limited to its related companies.

15 Nonetheless, the position is that each of the first to fourth plaintiffs is both indebted to the Commonwealth Bank of Australia, as first mortgagee, and also owes a sum in excess of $154,000,000 to Fincorp Investments Limited which holds a charge over the assets of the companies.

16 The receivers appointed to Fincorp Investments Limited consent to the proposed agreements. The proposed agreements appear to be in the interests of note holders who have advanced money to Fincorp Investments Limited.

17 No unsecured creditor would be prejudiced by the cross-collateralisation of the cash deposits because there is no prospect, on the evidence before me, of their receiving a dividend in a liquidation of any of the companies.

18 For these reasons, I make orders in accordance with paragraphs 4 and 5 of the originating process.

19 I also make an order that the costs of the administrators of these proceedings be costs in the administration of the first plaintiff.

20 The exhibits may be returned.

21 In proceedings 2292/07 I order that the exhibits may be returned.

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