Re Birch
[2024] WASC 84
•22 MARCH 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE BIRCH; EX PARTE EVM NICKEL PTY LTD (ADMINISTRATORS APPOINTED) [2024] WASC 84
CORAM: MUSIKANTH J
HEARD: 19 MARCH 2024
DELIVERED : 19 MARCH 2024
PUBLISHED : 22 MARCH 2024
FILE NO/S: COR 43 of 2024
MATTER: EVM NICKEL PTY LTD (ADMINISTRATORS APPOINTED)
EX PARTE
THOMAS DONALD BIRCH as joint and several administrators of EVM NICKEL PTY LTD (ADMINISTRATORS APPOINTED)
First Plaintiff
JEREMY JOSEPH NIPPS as joint and several administrators of EVM NICKEL PTY LTD (ADMINISTRATORS APPOINTED)
Second Plaintiff
Catchwords:
Corporations - Insolvency -Voluntary administration - Extension of time for convening second creditors' meeting - Reasons justifying substantial extension - Extension granted
Legislation:
Corporations Act 2001 (Cth), s 435A, s 439A
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | J J Davidson |
| Second Plaintiff | : | J J Davidson |
Solicitors:
| First Plaintiff | : | Blackwall Legal LLP |
| Second Plaintiff | : | Blackwall Legal LLP |
Case(s) referred to in decision:
Cameron Shaw and Richard Albarran (in their capacity as joint and several administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274
Diamond Press Australia Pty Ltd [2001] NSWSC 313
Flynn v Theobold [2008] WASC 263
Mighty River International Limited v Hughes [2018] HCA 38 [73]; (2018) 265 CLR 480
Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd; Ex parte Weaver [2009] WASC 71
MUSIKANTH J:
On 18 March 2024, the plaintiffs filed an originating process seeking an order, under s 439A(6) of the Corporations Act 2001 (Cth) (Act), extending the convening period for the second meeting of creditors of EVM Nickel Pty Ltd (Administrators Appointed) (ACN 145 758 050) (the Company) for a period of approximately four months, until 19 July 2024.
By their application, the plaintiffs also sought various other orders; including an order to the effect that, notwithstanding s 439A(2) of the Act, the plaintiffs could hold the second meeting of creditors more than five business days before the conclusion of the proposed extended period.[1]
[1] Provided at least five business days' notice of such meeting was given in accordance with s 439A(3).
The originating process came on for hearing before me on an urgent basis on 19 March 2024.
In support of their application, the plaintiffs filed and relied upon two affidavits of one of the administrators, Thomas Donald Birch, sworn 18 March 2024. The second of those affidavits (Second Birch affidavit) was stated to be confidential, and the plaintiffs sought an order restricting access to it pursuant to O 67B r 5 of the Rules of the Supreme Court 1971 (WA).
After considering the evidence and hearing from counsel, I granted the application, made orders substantially as asked, gave short oral reasons for granting an order restricting access to the Second Birch affidavit, and said that I would provide separate reasons for granting the remainder of the orders.
These are those reasons.
Background
The background to the application emerges from the first affidavit of Mr Birch (First Birch affidavit). It can be summarised as follows.
On 19 February 2024, the plaintiffs were appointed joint and several voluntary administrators of the Company pursuant to s 436C(1) of the Act.
The Company is a subsidiary of EV Metal Group PLC (EV Metals), a company registered and domiciled in England and Wales, focused on the supply of battery chemicals for electric vehicles and renewable energy storage.
The main assets of the Company are mining tenements, located some 65 km north‑west of Cue and 85 km west‑southwest of Meekatharra in Western Australia, and rights in relation to tenements arising under arrangements with its key contractual counterparty.
The first meeting of creditors of the Company was held on 29 February 2024. The meeting was chaired by Mr Birch, and representatives of four creditors of the Company were in attendance.
At the meeting, Mr Birch, as chairperson, among other things suggested that the administrators would consider the merits of making an application to the Court for an order extending the statutory convening period for the second meeting of creditors. None of the creditors present objected to or otherwise queried this suggestion.
Also, at the meeting, it was unanimously resolved that a committee of inspection be appointed comprising three named individuals (or their respective nominees). The individuals appointed represented three of the Company's creditors; namely, EV Metals, a secured creditor of the Company, and the key contractual counterparty referred to in paragraph 10 above. Together, these three creditors represented 99.57% in value of the Company's (eight known) creditors.
On 18 March 2024, Mr Birch convened a meeting of the committee of inspection. At that meeting, the committee unanimously approved a resolution that the administrators were to seek '…a Court ordered extension of the convening of the second meeting of creditors of up to four … months'.
By force of s 439A(5)(b) of the Act, the administrators were required to convene the second meeting of creditors of the Company by 19 March 2024, and to hold that meeting by 26 March 2024.
Ahead of the second meeting of creditors, the administrators are, in consequence of div 75‑225(3) of the Insolvency Practice Rules (Corporations) 2016, required to prepare and circulate a report to the Company's creditors about the Company's business, property, affairs and financial circumstances, and a statement setting out the administrators' opinion regarding the available options for the future of the Company, together with reasons for that opinion.
Based on his preliminary assessment, Mr Birch considered that the available options for the Company's future (and the maximum return that its creditors could expect to receive) would be significantly limited unless the date by which a second meeting of creditors was to be convened was extended.
In this regard, Mr Birch relevantly noted the following.
First, upon their appointment, the administrators commenced an urgent assessment of the Company's financial position and affairs. Their preliminary findings included that the Company was not presently trading and that its assets were limited to mining tenement interests and other proprietary mining rights which arose under a number of written agreements with its key contractual counterparty. However, despite its current external administration status, the tenements in the Company's own name were in good standing and were not currently liable to being revoked, cancelled or forfeited.
Secondly, in addition to holding the first creditors' meeting and meeting with the committee of inspection, the administrators had relevantly also held discussions with a specialist advisory firm regarding a possible sales campaign for the Company's mining assets.
Thirdly, given the Company's assets were entirely comprised of proprietary mining rights and rights under its existing contractual arrangements, Mr Birch considered it likely that a party seeking to acquire the Company might wish to acquire its shares through a voluntary administration process rather than its assets in liquidation. Similarly, Mr Birch considered that any existing stakeholders who might wish to participate in a restructure of the Company's affairs may wish to do so by way of a deed of company arrangement (DOCA).
Fourthly, it was, in Mr Birch's opinion, more likely that the Company would obtain the best price for its assets if they were the subject of a 'proper sales campaign' conducted through a specialist advisory firm experienced in valuing and marketing mining interests.
Fifthly, unless an order were made extending the statutory convening period, Mr Birch contended that creditors would probably be left with no option but to wind up the Company. According to Mr Birch this was because of the likely illiquidity of the Company's assets (ie. mining rights), coupled with the relatively short period within which the second meeting was required to be held, and the fact that no DOCA had yet been received by the administrators.
Sixthly, the administrators were not yet in a position to issue a report to creditors. This was because they had yet to form a view as to the prospects of a restructure of the Company, or a sale of its business or assets.
Seventhly, if the second meeting of creditors proceeded without the administrators having first completed a sales campaign, the Company would, in Mr Birch's opinion, likely be wound up. If that happened, a DOCA would cease to be an option and the Company's creditors would likely receive a lower return than might otherwise be the case.
Eighthly, in Mr Birch's view a sales campaign was likely to be completed within four months. In this regard, the proposed timetable for such a campaign would commence in March 2024. The proposed timetable would, among other things, facilitate preparation and distribution to potentially interested parties of marketing and informative materials, collection of expressions of interest, due diligence processes, assessment and evaluation of any indicative offers, site visits, negotiations, stakeholder management, receipt of indicative offers, and completion of formal documentation. It would also allow the administrators to issue their report to creditors, and to convene the second meeting of creditors, in July 2024.
Legal principles
Section 439A(6) forms part of pt 5.3A of the Act. The objects and scheme of pt 5.3A were outlined by Beech J (as his Honour then was) in Flynn v Theobold[2] and Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd; Ex parte Weaver.[3]
[2] Flynn v Theobold [2008] WASC 263 [36] ‑ [53].
[3] Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd; Ex parte Weaver [2009] WASC 71 [2] - [9].
In determining this application, it was necessary for the Court to consider those objects and that scheme.
The objects are set out in s 435A of the Act, namely to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company (or as much as possible of its business) continuing in existence or, if that were not possible, for the administration to be done in a way which would result in a better return for the company's creditors and members than would result from its immediate winding up.
As was noted by Nettle and Gordon JJ in Mighty River International Limited v Hughes:[4]
The function of the Court on an application [for an extension under s 439A(6)] is … to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders. [5]
[4] Mighty River International Limited v Hughes [2018] HCA 38 [73]; (2018) 265 CLR 480.
[5] Their Honours referring with approval to Barrett J in Diamond Press Australia Pty Ltd [2001] NSWSC 313 [10].
In Cameron Shaw and Richard Albarran v Home Art Building Group Pty Ltd (Administrators Appointed),[6] Beech J summarised the established principles in relation to s 439A(6) to be as follows:
(1)The short time frames are an element of the scheme of the Act, the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible.
(2)However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under s 439A(6) involves a balancing of these considerations.
(3)In considering an application for an extension, the court must take into account the detriment to third parties including the suspension of rights and remedies of secured creditors, lessors and others.
(4)An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed of company arrangement, for the administration to end, or for the company to be wound up.
(5)Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, wind up the company or end the administration.
[6] Cameron Shaw and Richard Albarran (in their capacity as joint and several administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18].
His Honour went on to observe that among the situations where substantial extensions of time had in the past been granted by Courts were where such time was needed to effect an orderly process for the disposal of the company's assets in a manner sufficient to maximise the return to creditors, or where the extension was needed to maximise the chances of the sale of the company's business as a going concern.[7]
[7] Cameron Shaw and Richard Albarran (in their capacity as joint and several administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [20].
Disposition
Based on the evidence of Mr Birch set out in the First Birch affidavit, and for the following reasons, I was satisfied that the application for an extension of the convening period should be granted.
First, on the evidence presently before the Court it seemed clear to me that the convening period contemplated by the Act was insufficient to enable the administrators to produce a report containing a considered recommendation to creditors.
Consequently, unless an extension was granted, in circumstances where the administrators had yet to form a view as to the prospect of a restructure or sale of its business assets, and where no proposed DOCA had in any event been received, it appeared likely that creditors would be left with no option but to wind up the Company.
Secondly, I accepted Mr Birch's evidence that if the second meeting of creditors proceeded without the administrators having first completed a sales campaign, and the company were to be wound up, a DOCA would cease to be an option and the Company's creditors would likely receive a lower return than might otherwise be the case.
Thirdly, I also accepted Mr Birch's evidence that it was more likely that the Company would obtain the best price for its assets if they were the subject of a 'proper sales campaign' conducted through a specialist advisory firm experienced in valuing and marketing mining interests; particularly given the nature of the Company's assets.
Fourthly, I considered that an extension of time to facilitate a proposed campaign for a sale of the Company's business and/or a DOCA, to be proposed and negotiated, would be a course consistent with the objects and scheme of pt 5.3A of the Act, and would, moreover, strike an appropriate balance of the kind adverted to by Nettle and Gordon JJ in Mighty River International Limited v Hughes.[8]
[8] [2018] HCA 38Error! Bookmark not defined. [73]; (2008) 265 CLR 480.
Fifthly, I was satisfied on the evidence that there was a reasonable basis for Mr Birch's view that a four-month extension of the statutory convening period was in fact required.
In short, I was satisfied on all the evidence not only that such an extension would be in the best interests of the creditors of the Company as a whole, but also that the potential benefit of such an extension to creditors would outweigh any prejudice to them.
The fact that such an extension appeared, in effect, to enjoy the support of 99.57% (in value) of known creditors lent further support to my conclusions.
Conclusion
For the above reasons, I made the orders as set out in Annexure A below.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TM
Associate to Justice Musikanth
22 MARCH 2024
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