Re Centennial Mining Ltd (Subject To Deed Of Company Arrangement)
[2019] WASC 441
•3 DECEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE CENTENNIAL MINING LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT); EX PARTE TUCKER [2019] WASC 441
CORAM: VAUGHAN J
HEARD: 21 NOVEMBER 2019
DELIVERED : 21 NOVEMBER 2019
PUBLISHED : 3 DECEMBER 2019
FILE NO/S: COR 174 of 2019
BETWEEN: RICHARD SCOTT TUCKER as joint and several administrator of CENTENNIAL MINING LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 149 308 921),
JOHN ALLAN BUMBAK as joint and several administrator of CENTENNIAL MINING LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 149 308 921) and
LEANNE KYLIE CHESSER as joint and several administrator of CENTENNIAL MINING LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 149 308 921)
Plaintiffs
Catchwords:
Voluntary administration - Deed of company arrangement - Application for leave under s 444GA Corporations Act 2001 (Cth) to transfer shares pursuant to deed of company arrangement - No residual value in shares - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 444GA
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiffs | : | P R Edgar |
Solicitors:
| Plaintiffs | : | Lavan |
Case(s) referred to in decision(s):
Re Black Oak Minerals Ltd (Subject to a Deed of Company Arrangement) (in liq) [2019] FCA 293; (2019) 134 ACSR 472
Re Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53
VAUGHAN J:
(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)
Introduction
The plaintiffs, the deed administrators of Centennial Mining Ltd (subject to deed of company arrangement) (Company) move for orders pursuant to an amended originating process dated 24 October 2019. In substance two orders are sought.
1.Orders pursuant to s 444GA(1)(b) of the Corporations Act 2001 (Cth) granting the plaintiffs leave to transfer all of the issued shares in the company.
2.Ancillary orders pursuant to s 447A of the Corporations Act 2001 (Cth) dealing with the mechanics of the share transfer.
If an order is to be made under s 444GA(1)(b) then, in my view, the ancillary orders under s 447A are relatively uncontroversial. They simply provide a means of working out any leave under s 444GA. So, for example, the ancillary orders would permit the plaintiffs to execute the share transfer forms and make appropriate entries in the Company's share register. For that reason, the focus of the application and these reasons is on whether the plaintiff deed administrators have made out a case for leave under s 444GA(1)(b).
The application is supported by a considerable body of affidavit material:
1.There are six affidavits sworn by one of the plaintiff deed administrators, Richard Tucker. Those are the affidavits of Mr Tucker sworn 30 August, 26 September, 8 October, 24 October, 18 November and 20 November 2019.
2.The plaintiffs also rely on three affidavits sworn by one of their solicitors, Teagan Healey. Those are an affidavit sworn 27 September 2019 and two further affidavits of 20 November 2019.
I have also been provided with comprehensive written submissions dated 19 November 2019.
Background facts
Turning first to the background facts, the relevant summary is as follows:
1.The Company and its wholly owned subsidiary, Maldon Resources Pty Ltd (together the Companies), were junior gold producers with operations in Victoria.
2.Centennial has been listed on the ASX since June 2012.
3.The Company's trading performance became problematic. The deed administrators later identified that the Company's adverse financial position could be attributed to three factors. First, an inadequate mine plan and lower revenue than expected. Second, a lack of working capital to resolve operational issues. Third, withdrawal of support from a major shareholder and creditor.
4.On 21 March 2019 the plaintiffs were appointed as voluntary administrators to Centennial and Maldon.
5.The voluntary administrations then proceeded. An initial report to creditors was issued on 10 May 2019. This made mention of a deed of company arrangement (DOCA) proposal by an entity called Avior Consulting Pty Ltd. At a meeting of creditors on 17 May 2019 the creditors resolved that the Companies execute a DOCA in accordance with the Avior proposal. A DOCA was executed on 7 June 2019. Subsequently, however, Avior sought that the DOCA be varied.
6.An initial variation to the Avior DOCA was approved on 27 August 2019 and executed on 27 September 2019.
7.The varied DOCA contemplated that the deed administrators would obtain approval under s 444GA for the shares and options issued by Centennial to be transferred for nil consideration to participating creditors and trustees of the creditors' trust. This was part of a wider proposal under which parties would be participating in a capital raising. In particular, the capital raising would see a DOCA contribution with money to be paid into a creditors' trust to be available for distribution to creditors and to meet the fees and disbursements of the deed administrators.
8.These proceedings were commenced on 30 August 2019.
9.After the proceedings were commenced it became apparent that a further amendment to the varied DOCA was required. There were various commercial and legal reasons for the further amendment. It is unnecessary for me to refer to the commercial reasons. As to the legal reasons, the deed administrators determined that it was no longer desirable to seek the transfer of the options. Rather, it was intended to proceed on the basis that the options should be cancelled and the option holders admitted as contingent creditors under the DOCA.
10.On 30 October 2019 the plaintiff deed administrators convened a further meeting of creditors. The notice convening the meeting was supported by a report to creditors.[1] That 30 October 2019 report to creditors provides important information as to the financial position of the Companies and the form that the DOCA (as eventually amended and further varied) takes and will be referred to again shortly.
11.At the meeting of creditors on 15 November 2019 the creditors resolved unanimously to approve an amended varied DOCA.
12.The amended varied DOCA was executed on 20 November 2019.[2]
[1] Affidavit of Richard Tucker sworn 18 November 2019, attachment 'RST74'.
[2] First affidavit of Tegan Healey sworn on 20 November 2019, attachment 'TEH4'.
The 30 October 2019 report to creditors explains Avior's amended varied DOCA proposal in this way:
Under the terms of the Amended Varied DoCA proposal:
· funds of $3.15 million to be received from the DoCA Contributors to fund costs of the Administrations operations, and returns to creditors;
· an order is to be obtained from the Court pursuant to section 444GA of the Act to transfer the existing Centennial shares from shareholders to creditors;
· a distribution to unsecured creditors will be facilitated on a class basis;
· Surplus Cash is paid to the Company;
· termination of Centennial's Options; and
· support given to the Companies' intended merger with Austar post effectuation of the Amended Varied DoCA.
The merger with Austar will mean that both Centennial and Maldon become fully owned subsidiaries of Austar. Employees both pre-merger and post-merger will remain employed by the relevant subsidiary, ie Centennial and Maldon. There will be no change in employment for employees.
Austar is an entity whose full name is Austar Gold Ltd. Austar is an ASX-listed company. As part of the amended varied DOCA, Austar will be issuing shares to be made available for the benefit of creditors of Centennial and will conduct a capital raising to fund the DOCA contribution.
The 30 October 2019 report to creditors goes on to explain:
The Amended Varied DoCA proposal includes:
· Creditors and DoCA Contributors to receive cash and shares in Centennial.
· $3.15 million plus a certain amount of trading cash plus the $500,000 of sale proceeds from the Highlake shares will be available to the Creditors' Trust. Under the terms of the Creditors' Trust the Voluntary Administrators and Deed Administrators will be paid for their trading costs, remuneration, charges, expenses and other liabilities incurred. The remainder of the available property in the Creditors' Trust will be distributed to creditors in full and final satisfaction of their claims and the Surplus Cash will be provided to Centennial.
· Austar agree to offer shareholders (previously its creditors) in Centennial post the 444GA application and distribution from the Creditors' Trust Austar shares as part of an acquisition.
· Employee entitlements for continuing employees of the Companies will be preserved in full and employee entitlements for employees whose employment has been terminated are expected to be paid in full. If the Companies are placed into liquidation, employees should consider that FEG does not pay superannuation and is subject to caps on earnings.
· Intercompany creditors will not participate in the distribution from the Creditors' Trust.
· Creditors are dealt with in separate classes. Further detail is provided on this later in this report.
I will not recount the terms of the amended varied DOCA as executed on 20 November 2019. They broadly reflect what is contained in the 30 October 2019 report to creditors. There is, however, specific mention of a condition precedent to be satisfied by the deed administrators. Clause 1.2 of sch 2A to the amended varied DOCA provides:
Conditions precedent to be satisfied by Deed Administrators:
1.The Deed Administrators must:
…
1.2obtain leave from the Court pursuant to section 444GA of the Corporations Act to transfer the Centennial Shares in accordance with Schedule 2B; …
In turn, sch 2B is headed 'Completion'. It provides:
The Recapitalisation Transaction will comprise of the following steps which are interdependent and, to the extent possible, to occur simultaneously:
1.The Consolidation by AuStar Gold of its existing shares.
2.The transfer of the Centennial Shares by the Deed Administrators to the following parties, on the following basis:
2.113.5% of the Centennial Shares to the Class D Creditors (to be divided amongst them proportionately to their Claims or otherwise as agreed and advised by the Class D Creditors);
2.21.5% of the Centennial Shares to the Class E Creditor;
2.316.76% of the Centennial Shares to the Class H Creditors (or their nominees) (to be divided amongst them proportionate to their Claims or otherwise as agreed and advised by the Class H Creditors);
2.41.5% of the Centennial Shares to the Trustees, to be held on trust for the benefit of Class I Creditors;
2.52.4% of the Centennial Shares to the Trustees, to be held on trust for the benefit of Class F Creditors;
2.62.1% of the Centennial Shares to the Proponent;
2.728.36% of the Centennial Shares to Mining Lending (or its nominee);
2.819.86% of the Centennial Shares to AuStar Gold;
2.9 6.72% of the Centennial Shares to the Proponent; and
2.107.3% of the Centennial Shares to the Gandel Parties (or their nominees) (to be divided amongst them as agreed and advised by the Gandel Parties).
3.The agreement to the transfer of the Centennial Shares by the parties in clause 2 above to AuStar Gold in exchange for AuStar Gold issuing 25,236,854 ordinary shares (or such other number of ordinary shares as may be agreed in writing by the Deed Administrators and the Proponent) in AuStar Gold to those parties as outlined in clause 3.1, and on the additional terms outlined in clauses 3.2 to 3.5:
3.1AuStar Gold shares to be issued as follows (unless otherwise agreed in writing by the Deed Administrators and the Proponent):
3.1.1Class D Creditors 4,251,279
3.1.2 Class E Creditors 472,364
3.1.3 Class H Creditors and Gandel Parties 7,676,726
3.1.4Class I Creditors 472,364
3.1.5 Class F Creditors 755,783
3.1.6 Proponent 661,310
3.1.7 Mining Lending Pty Ltd 8,930,836
3.1.8 Proponent 2,116,192
3.2the Class E Creditor, to be escrowed for 12 months;
3.3 the Class F Creditors, to be escrowed for 12 months;
3.4the Class I Creditors, to be escrowed for 12 months; and
3.5 the shares issued to the Proponent in accordance with clause 3.1.6, to be escrowed for 12 months.
The various classes of creditors, and other share recipients, are defined earlier in the amended varied DOCA. Accordingly, the amended varied DOCA contemplates shares in Centennial being transferred - for nil consideration - by the deed administrators to creditors and others. The Centennial shares are then to be transferred by those others to Austar in consideration of Austar issuing shares to them. Thus, the creditors and others will receive Austar shares.
The plaintiff deed administrators have identified that the proposed transfer of the Centennial shares would contravene s 606 of the Corporations Act 2001 (Cth) unless there had previously been an exemption granted by the Australian Securities and Investments Commission (ASIC) under s 655A of the Corporations Act 2001 (Cth). Accordingly, on 27 September 2019 application was made for an exemption from ch 6 of the Act. Since that time the solicitors for the deed administrators have been conferring with the ASIC about that exemption application.
As at today's hearing date the status of the application for relief by way of exemption under s 655A is that, by letter dated 20 November 2019, the ASIC has made a decision in principle that it will grant the relief sought in the application. However, this is only a decision in principle. The ASIC's letter explains:
ASIC's decision does not take effect until a formal instrument of relief is executed. We propose to execute the instrument of relief if, and only if:
(a)the Court grants leave to the Deed Administrators under s444GA(l)(b) of the Act to transfer all of the existing shares in Centennial pursuant to the Centennial deed of company arrangement as amended and varied from time to time; and
(b)all conditions precedent in clauses 1, 2, 3 and 4 in Schedule 2A of the Centennial deed of company arrangement dated 20 November 2019 are satisfied.
This ensures we do not grant relief that is never used.
It follows that there is the possibility that some further matter could come to light before or during the Proceedings that would cause us to reconsider our decision. However, we do not presently have any reason to think this is likely.
Legal principles
Section 444GA provides:
(1)The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:
(a)the written consent of the owner of the shares; or
(b)the leave of the Court.
(2)A person is not entitled to oppose an application for leave under subsection (1) unless the person is:
(a)a member of the company; or
(b)a creditor of the company; or
(c)any other interested person; or
(d)ASIC.
(3)The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.
The key consideration is that posed by s 444GA(3). I must be satisfied that the proposed transfer would not 'unfairly prejudice' the interests of members of the company.
The applicable principles on an application invoking s 444GA were recently summarised by Banks-Smith J in Re Black Oak Minerals Ltd[3] by reference to a number of earlier authorities. I will not repeat the whole of what her Honour had to say at [30] ‑ [37] of that decision. It suffices to state the following propositions.
[3] Re Black Oak Minerals Ltd (Subject to a Deed of Company Arrangement) (in liq) [2019] FCA 293; (2019) 134 ACSR 472 (Re Black Oak Minerals Ltd).
First, the requirement that the transfer not unfairly prejudice the interests of members directs the court to consider the impact of compulsory transfer on shareholders where there may be some residual value in the company.
Second, the question of unfairness only arises if prejudice is established. If the company has no residual value to the members - such that the shares have no value - and the members are unlikely to receive any distribution in a winding up, it is difficult to see how the members could suffer any prejudice. That, of course, assumes that winding up is the only practicable alternative to the DOCA proposal of which the transfer is an aspect.
Third, one relevant consideration is whether a full and accurate description of the proposal has been given to shareholders and whether shareholders have been given a full opportunity to appear in opposition to the application.
Fourth, while there is an evidentiary onus on the shareholders to raise any consideration telling against the exercise of the discretion, the ultimate onus of satisfying the court that the discretion should be exercised remains on the deed administrator. This requires the deed administrator to satisfy the court that the transfer would not unfairly prejudice the interests of members of the company.
Banks-Smith J also quoted with approval what was said by White J in Re Diverse Barrel Solutions Pty Ltd[4] at [19]:
Whether or not 'unfair prejudice' will result from a transfer of the shares is to be determined having regard to all the circumstances of the case and to the policy of the legislation. Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted.[5]
[4] Re Diverse Barrel Solutions Pty Ltd(Subject to a Deed of Company Arrangement) [2014] FCA 53.
[5] Re Black Oak Minerals Ltd [34].
Later Banks-Smith J noted that an assessment that there was no residual value and there would be no return to shareholders might not, in every case, be sufficient to allay concerns about unfair prejudice to members.[6] There may, for example, be a potential benefit to shareholders from further investigation being carried out by a liquidator. Those observations are consistent with the more general observations of White J in Re Diverse Barrel Solutions Pty Ltd and also the accepted wisdom that the relevant comparator is the likely position of the shareholders in winding up - assuming that liquidation is the only practicable alternative to the transfer proposed.
[6] Re Black Oak Minerals Ltd [64], [67].
Disposition
The plaintiff deed administrators have given notice of this application and today's hearing to the shareholders on multiple occasions. In particular, there has been notice by:
1.correspondence dated 6 September 2019;
2.advertisements in The Australian, The West Australian and the Herald Sun on 9 September 2019;
3.further correspondence of 8 November 2019; and
4.further advertisements in The Australian, The West Australian, the Herald Sun, the Courier Mail and the Sydney Morning Herald on 11 and 12 November 2019.
In addition, materials relevant to the application have been published on a website maintained by the deed administrators' firm. The correspondence to shareholders has directed the shareholders to consider that material. The materials provided for the shareholders include, through the website, an Explanatory Statement and Expert's Report, to which I will come to shortly. So far as the shareholders are concerned - in particular in relation to the proposal that the shares be transferred for nil consideration - I am satisfied that the Explanatory Statement has provided the shareholders with a full and accurate description of the proposed transfer and the reason why, based on the valuations as obtained, the shares have (in the deed administrators' opinion) no residual value.
The responses received to the correspondence and advertisements have been disclosed in the affidavit material before me. Much of it is by way of request for further explanation and copies of materials. Some shareholders have requested formal advice for tax purposes that no consideration will be received for their shares. There have, however, been some very general objections to the application and the valuations on which the application is based.
In particular, by counsel for the plaintiffs' written submissions, my attention has been drawn to those shareholders who have informally objected and who have not withdrawn their objections. Those two objections read as follows:
1.Objection by first objecting shareholder:
I am formally raising an objection on behalf of myself and [name deleted] to the Varied DOCA.
I/we have never been informed as to the total debt of Centennial and the net value of the mining leases at A1 and Maldon, plant and equipment at both sites and the value of any other assets.
I find it hard to believe that the value of these assets would not be considerably more than the value of the debt.
2.Objection by second objecting shareholder:
I oppose the proposed 444GA application that is to be heard before the Western Australia Supreme Court …
While the Korda Mentha view that the existing company has no value when considering its existing debts, this has not been tested in the marketplace.
Clearly, the shares have a value to the proposed new trading entity, otherwise why take this action?
The proposal to rob the existing shareholders of their stake in Centennial mining is audacious and smells of the underhand mechanisms that were used in earlier periods of mining.
Importantly, despite being on notice of the application, no shareholder has appeared to oppose the application. Nevertheless, to the extent there have been informal objections, the objections are based on whether the shares have a residual value. This is something that I must consider in any event in determining whether to grant leave under s 444GA.
The plaintiff deed administrators have also provided the ASIC with notice of the application. At its request the ASIC has been provided with all of the papers filed in the application. The ASIC has informed the plaintiff deed administrators that it does not propose to seek to appear to make submissions, or to oppose, the s 444GA application.
The plaintiffs have referred me to correspondence recently received from an entity that claims to be a secured creditor of Centennial. That letter makes assertions as to the adequacy of the return under the amended varied DOCA. It foreshadows proposing a revised DOCA providing for a greater return to creditors. That may be put to one side for the purpose of today's application. First, it does not seek to advance a case against the transfer of the members' shares. Second, no alternate DOCA proposal has been made. Third, any relief I provide will be conditional on transfer being part and parcel of effectuation of the amended varied DOCA before me. If that DOCA is replaced by a revised DOCA then the relief I grant will fall away.
I turn then to the critical issue of whether the proposed transfer for nil consideration would unfairly prejudice the interests of the Company's members.
Centennial has 1,044,434,244 shares on issue. There are 1564 separate parcel holders. Mr Tucker, on behalf of the deed administrators, deposes that:
Based on the Deed Administrators' investigations and analysis, it is our view that if, instead of entering into the Varied DOCA Proposal, Centennial is wound up:
(1)there would be no return to non-priority unsecured creditors; and
(2)there would be no return to Centennial's shareholders.
The matters so deposed to are at such a level of generality as to be of little value. Separately, however, Mr Tucker has prepared an Explanatory Statement and an Expert's Report.[7] This, in turn, relies on an independent technical expert report valuing the Victorian mining projects and a separate valuation for machinery and plant and equipment owned by the Companies. The plaintiff deed administrators have also adduced materials confirming that the valuations which so inform their Expert's Report remain current.
[7] Affidavit of Richard Tucker sworn 26 September 2019, attachment 'RST25'.
I have reviewed the Explanatory Statement and the Expert's Report in their entirety. Those documents, with attachments, are very large - 370 pages in total. It is impossible to adequately summarise them without doing them a disservice. Also, in some respects, the documents have been overtaken by events. At the risk of oversimplification, it suffices to say that the deed administrators have expressed the following conclusions.
First, as to liabilities, the deed administrators have determined that the total indebtedness of the Companies under a liquidation scenario is as follows:
Liability ($'million) Reference Centennial Maldon Pooled Secured Creditors
4.4 1.94 - 1.94 Secured Creditor - Voluntary and Deed Administration Funding for Trading Costs
4.5.1 1.77 0.91 2.68 Voluntary and Deed Administration Remuneration
4.5.2 1.22 0.33 1.55 Administration Costs
4.5.2 0.38 0.18 0.56 Liquidators' Trading Costs
4.5.3 0.81 0.35 1.16 Liquidators' Fees and Costs
4.5.4 0.26 0.16 0.42 Employee Entitlement
4.5.5 2.12 0.46 2.58 Ordinary Unsecured Creditors
4.5.6 6.85 1.24 8.09 Related Party Loans
4.6 15.74 - Excluded Priority Claims 4.5.5 1.10 - 1.10 Total Indebtedness 16.45 19.37 20.08 Source: Company's books and records and Deed Administrators' estimate
Second, as to asset values, based on the independent valuations obtained the deed administrators have concluded that on an individual and pooled basis the realisable valuation range of the Companies' mineral and other assets are as follows:
Valuation ($ millions) Company Value Asset Valuation Low High Preferred Centennial - Assets A1 Goldmine Mid point - Discounted Cash flow & Market Comparable methods 2.00 8.00 5.00 Plant & Equipment Discount of Liquidation value 0.25 0.30 0.28 Preference Claims Weighted average cost 0.13 0.16 0.15 Maldon Dividend Estimated Return 0.01 0.60 0.44 Total Centennial Assets 2.39 9.06 5.87 Maldon - Assets Union Hill Mine Discounted Cash Flow Method 1.38 1.38 1.38 Nuggety Reef Mid-point - Multiple of Exploration Expenditure & Discounted Cash Flow Forecast Methods 0.25 0.25 0.25 Pearl Croydon & Specimen Reef Highest offer received for Highlake Shares Method 0.50 0.50 0.50 Plant & Equipment Discount of Liquidation value 0.30 0.35 0.32 Land & Buildings Discount of Liquidation Value Nil 0.20 0.10 Preference Claims Weighted average cost 0.06 0.36 0.21 Total Maldon Assets 2.49 3.04 2.76 Pooled Valuation Range (excludes Maldon Dividend) 4.87 11.50 8.18
Third, by way of overall conclusion, the deed administrators conclude as follows:
In our opinion, Centennials' Total Indebtedness of $20.08 million on a pooled basis materially exceeds the value range of its assets, being $4.87 million to $11.50 million (preferred valuation $11.50 million [sic - must mean $8.18 million]). Therefore, Centennials' shares and consequently its options have nil value in a liquidation scenario. This deficiency is shown on an individual basis as follows:
Table 5 - Asset deficiency on an individual basis Centennial Maldon Low High Preferred Low High Preferred Total Assets 2.39 9.06 5.87 2.49 3.04 2.76 Total Indebtedness (16.45) (16.45) (16.45) (19.37) (19.37) (19.37) (Deficiency) (14.06) (7.39) (10.58) (16.88) (16.33) (16.61)
And a pooled basis as follows:
Table 6 - Asset deficiency on a pooled basis Low High Preferred Total Assets 4.87 11.50 8.18 Total Indebtedness (20.08) (20.08) (20.08) (Deficiency) (15.23) (8.58) (11.90)
In summary, with the benefit of independent valuations that inform their analysis, the plaintiff deed administrators have concluded that Centennial's shares have no value as the group's total indebtedness exceeds the value of its remaining assets. Also, on an individual entity basis, there is a deficiency. In particular, as to Centennial, even on the higher valuation figures there is a deficiency of some $7.39 million. As the amount owed to creditors materially exceeds the value of the remaining assets Centennial's shares have a nil value.
The Expert's Report is comprehensive. In the course of oral submissions counsel for the plaintiff deed administrators has taken me through the material matters that underlie the valuation of the mining assets as has been provided by the authors of the independent technical expert report. On its face, based on the passages I have been taken to, the independent technical expert report provides a reasoned basis for the valuations that have been carried out. Otherwise, based on the detailed Expert's Report, I accept the conclusions that have been expressed by the plaintiff deed administrators.
It follows that Centennial has no residual value and the members' shares have no residual value. Based on the financial materials as presented to the court there will - on any winding up of Centennial - be no return to Centennial's members and there is, thus, no residual value to the Centennial shareholders.
The asset values that underlie the Expert's Report assumed certain preference recoveries. Otherwise, having referred to the plaintiff deed administrators having undertaken investigations into the affairs of the Companies, the Expert's Report stated that the investigations did not find any antecedent transactions or breaches of the corporations law which should be pursued in a liquidation scenario. This included investigations as to uncommercial transactions, under-priced sale of assets, insolvent trading and breaches of directors' duties.
The conclusion expressed in the Expert's Report is consistent with what was expressed by the deed administrators in their initial report to creditors. More recently, on 18 November 2019, Mr Tucker has deposed to the effect that there have been no developments which would alter the views expressed in the initial report to creditors so far as to investigations which might result in a benefit to shareholders from action being taken on behalf of the Companies in liquidation.
Accordingly, to the extent - if any - that a finding that there is no residual value for, and there will be no return to, shareholders, does not exhaust the inquiry as to whether transfer will not unfairly prejudice the interests of members, this is not a case where there is reason to suppose that further investigation by a liquidator may reap potential benefits for the members.
I conclude, in terms of s 444GA(3) of the Corporations Act 2001 (Cth), that I am positively satisfied on the materials before the court that the proposed transfer under the amended varied DOCA will not prejudice - and therefore, will not unfairly prejudice - the interests of the members of the Company. The Centennial shares have no residual value and there is nothing to suggest potential benefit to shareholders from further investigation in liquidation. Accordingly, I will grant leave in terms of s 444GA.
As an order for leave will be made under s 444GA, it is appropriate to make ancillary orders under s 447A to facilitate the transfer. Such orders were made by Banks-Smith J in Re Black Oak Minerals Ltd.[8] The orders sought by the plaintiffs are drafted in similar terms to the orders made by her Honour in Re Black Oak Minerals Ltd.
[8] See Re Black Oak Minerals Ltd [38] - [40], [69].
Conclusion and orders
The orders sought are in the following terms:
1.Pursuant to section 444GA(1)(b) of the Corporations Act2001 (Cth) (the Act), the Plaintiffs, Mr Richard Tucker, Ms Leanne Chesser and Mr John Bumbak in their capacities as deed administrators of Centennial Mining Ltd (subject to deed of company arrangement) (ACN 149 308 921) (Centennial) (Deed Administrators) have leave to transfer all of the issued shares held by each of the members of Centennial in accordance with the deed of company arrangement entered into by (amongst others) the Plaintiffs and Centennial dated 7 June 2019, as amended and varied from time to time, including on 20 November 2019 (DOCA) and subject to:
1.1the Australian Securities and Investments Commission granting Centennial relief from complying with section 606 of the Act pursuant to section 655A of the Act; and
1.2the Conditions Precedent numbered 1.1, 1.3, 1.4, 2, 3 and 4 (as defined in the DOCA) of Schedule 2A being satisfied.
2.Pursuant to section 447A(1) of the Act and section 90-15(1) of Schedule 2 of the Act, an order that the Deed Administrators have leave to execute all necessary share transfer forms and other documents ancillary to the relevant share transfers and the entry of the name of each of the parties receiving shares in Centennial in accordance with the DOCA in Centennial's share register.
I am satisfied that, with one alteration, an order in terms of par 1 of the minute is appropriate to give effect to these reasons. I note that the order is subject to two things. First, it is subject to the ASIC granting the s 655A exemption as sought. If, notwithstanding its initial indication, the ASIC eventually refuses the exemption, this order for leave will not be operative and cannot be relied on. Second, it is subject to the various conditions precedent in the amended varied DOCA being satisfied. I think that, out of an abundance of caution, it should be clarified by the order that not only should the conditions precedent be satisfied, but it should be made express that leave is conditional on effectuating the arrangement effected by the amended varied DOCA as before the court. Accordingly, I would add the following to paragraph 1.2:
and the plaintiffs effecting the arrangement under the DOCA.
As to order 2, I see no reason for the reference to s 90-15 of the Insolvency Practice Schedule. That should be omitted.
I will hear from counsel as to whether there should be liberty to apply and the necessity for an order as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to Justice Vaughan3 DECEMBER 2019
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