Re CopperCo Ltd
[2009] WASC 170
•18 MAY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE COPPERCO LTD; EX PARTE DORAN [2009] WASC 170
CORAM: MASTER SANDERSON
HEARD: 18 MAY 2009
DELIVERED : 18 MAY 2009
PUBLISHED : 17 JUNE 2009
FILE NO/S: COR 95 of 2009
MATTER :In the matter of CopperCo Ltd (Administrators Appointed) (Receivers & Managers Appointed) ACN 004 434 904 and certain of its subsidiaries as listed in the schedule to the originating process
EX PARTE
GARY PETER DORAN
DAVID JOHN FRANK LOMBE as joint and several receivers of CopperCo Ltd (Administrators Appointed) (Receivers & Managers Appointed) ACN 004 434 904 and certain of its subsidiaries as listed in the schedule to the originating process
Plaintiffs
Catchwords:
Corporations law - Application by receiver and manager in relation to sale of assets - Relationship between appointer of receiver manager and purchaser of assets - Turns on own facts
Legislation:
Nil
Result:
Sale approved
Category: B
Representation:
Counsel:
Plaintiffs: Mr J C Vaughan
Solicitors:
Plaintiffs: Blake Dawson
Case(s) referred to in judgment(s):
Australian Securities & Investments Commission v Rich (2001) 51 NSWLR 643
Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd (rec & mgr apptd) (1992) 7 ACSR 245
Farrar v Farrars Ltd (1888) 40 Ch D 395
Franbridge Pty Ltd v Societe & Generale Finance Corporation Pty Ltd (1994) 14 ACSR 304
Re Actwane Pty Ltd (in liq) (rec and mgr apptd) (2002) 42 ACSR 307
Re Ansett Australia Ltd and Korda (No 3) (2002) 115 FCR 409
Re Bromfield; Ex parte West Australian Newspapers Ltd (1991) 6 WAR 153
Re North City Developments Pty Ltd; Ex parte Walker (1990) 20 NSWLR 286
Re One.Tel Networks Holdings Pty Ltd (Hall as rec and mgr) (2001) 40 ACSR 83
Re Vartex Petroleum Industries Pty Ltd (Unreported, NSWSC, BC8901834, 17 August 1989)
White v Huxtable (2006) 232 ALR 388
MASTER SANDERSON: On an originating process filed 15 May 2009 I made the following orders:
1.The time for hearing of the application is abridged so that the application may be heard at any time after the filing of the application.
2.The entry into and completion of the Asset Sale Agreement dated 7 May 2009 and the Sale and Subscription Agreement dated 7 May 2009 (attached as attachments 'GD30' and 'GD31' to the confidential affidavit of Gary Peter Doran sworn 14 May 2009 and dated 15 May 2009) is not unlawful solely by reason of the relationship between the purchasers under each agreement (Buyers), namely Cape Lambert Lady Annie Exploration Pty Ltd and Cape Lambert Minsec Pty Ltd, on the one hand, and, on the other:
(a)the appointor of the plaintiffs, namely Macquarie Bank Ltd as security trustee for and on behalf of Dempsey Resources Pty Ltd (secured creditor); further or alternatively
(b)the secured creditor;
both the Buyers and the secured creditor being subsidiaries of Cape Lambert Iron Ore Ltd.
3.The following document, namely, the confidential affidavit of Gary Peter Doran sworn 14 May 2009 and dated 15 May 2009:
(a)be placed in a sealed envelope marked:
'Confidential - Not to be Accessed for Inspection without Order of a Judge or Master of the Court';
(b)not be available for inspection except so far as the Court orders;
and any application to inspect the Document be referred to a Judge or Master of the Court with 3 business days notice thereof to be provided to the solicitors for the plaintiffs.
4.Subject to further order of the Court, disclosure or publication of, or of any report of, the contents of the Document is prohibited.
5.Orders 3 & 4 above cease to have effect on the earlier of 30 September 2009 or completion being effected under the Sale and Subscription Agreement and Asset Sale Agreement.
6.The costs of the application be costs in the receiverships.
7.There be liberty to apply in relation to Order 5 above.
The matter came on for hearing on 18 May 2009. At the conclusion of the hearing I made the orders. I indicated I would publish reasons for that decision. These are those reasons.
The plaintiffs are the privately appointed receivers and managers to certain companies in the CopperCo Group. This was an application for directions pursuant to s 424(1) of the Corporations Act 2001 (Cth). The application for directions was made in the context of two sales of certain secured assets to related entities of the holder of the secured debt. These sales were to be made pursuant to the plaintiffs' power of sale as receivers.
Strictly as to the whole of the secured assets the subject of the sales, the plaintiffs' appointor, Macquarie Bank Ltd (Macquarie), is not a related entity to the purchasers. But as chargee under relevant charges granted by CopperCo Group, Macquarie acts as a security trustee under a security trust deed. Macquarie, as the legal chargee, does so for and on behalf of a related entity to the purchasers namely Dempsey Resources Pty Ltd (Dempsey). Dempsey is the beneficial chargee being the holder of the secured debt.
Dempsey and the purchasers Cape Lambert Lady Annie Exploration Pty Ltd and Cape Lambert MinSec Pty Ltd, are all wholly owned subsidiaries of Cape Lambert Iron Ore Ltd (Cape Lambert). Cape Lambert also guarantees the purchasers' obligations under the sales.
The plaintiffs were conscious of the principle in that a mortgagee cannot exercise a power of sale in favour of itself: see Farrar v Farrars Ltd (1888) 40 Ch D 395, 409. The plaintiffs therefore sought a direction that the sales were not unlawful solely by reason of the relationship between their appointor and the purchasers. The obtaining of such a direction was a condition precedent to the performance of the sale agreements.
For the sake of completeness, I should also mention that, as part of the CopperCo facility, there was a subordinated facility secured by a charge in respect of which Macquarie is the security trustee. Part of the debt the subject of the subordinated facility has been assigned to Dempsey. However, as at the plaintiffs appointment, there was some $7.66 million under the subordinated facility and secured by the charge in favour of a third party company called Glencore International AG (Glencore). Glencore continues to be a subordinated creditor.
I turn then to the facts. CopperCo is a company listed on the Australian Stock Exchange. The CopperCo Group is comprised of two distinct subgroups of companies, namely:
1.the CopperCo subgroup entities, where the underlying assets generally concern an operating copper mine in north‑west Queensland known as the Lady Annie; and
2.the second subgroup is controlled by Mineral Securities Ltd (MinSec) and the MinSec subgroup is a diverse portfolio of investments and assets in Australia and overseas.
CopperCo Group's interest in the MinSec subgroup is held through MinSec, a wholly owned British Virgin Islands company.
CopperCo acquired 100% of the shares in MinSec in early September 2008. That is the reason why there are quite separate funding and security arrangements for the two parts of the CopperCo Group. In summary:
1.in January 2007, the MinSec subgroup entities entered into a funding arrangement with Macquarie; and
2.in May 2007, the CopperCo subgroup entities entered into a funding arrangement with Macquarie, Glencore and LinQ Capital Ltd (LinQ). There was a senior facility (Macquarie alone); and a subordinated facility (Macquarie, Glencore and LinQ).
Each facility was supported by a series of securities provided by companies within the relevant subgroup. As to the CopperCo subgroup, Macquarie held the security over the property of the relevant entities as security trustee for itself, Glencore and LinQ.
On acquisition of the MinSec subgroup, CopperCo provided a guarantee to Macquarie in respect of the MinSec facility. However, this was not secured by the charge over CopperCo as part of the CopperCo subgroup facility. On 26 November 2008, voluntary administrators from McGrath Nicol were appointed to the Australian borrowers and guarantors under the CopperCo and MinSec facilities. The same day, receivers and managers from Ferrier Hodgson were appointed to the entities.
On 6 February 2009:
1.Dempsey, a wholly owned subsidiary of Cape Lambert, acquired the interests of Macquarie and LinQ under the CopperCo and MinSec facilities. At the time the secured debt consisted of:
(a)CopperCo subgroup facility - $18.5 million under the senior facility and $20.4 million under the subordinated facility (of which some $7.66 million was owed to Glencore); and
(b)MinSec subgroup facility - $43.5 million.
2.Macquarie appointed the plaintiffs as receivers and managers of the relevant CopperCo Group entities. The plaintiffs replaced the previous receivers and managers from Ferrier Hodgson.
It will be apparent from the above that Glencore continues to have an interest in the CopperCo subgroup facility as a subordinated creditor.
Macquarie, not Dempsey, appointed the plaintiffs as receivers and managers of the various CopperCo entities. As to CopperCo and the CopperCo subgroup entities, this was of necessity, as Macquarie remained the security trustee. The plaintiffs approached this matter on the basis that in the circumstances it should be inferred that the appointment of the plaintiffs by Macquarie was at the direction of Dempsey and Cape Lambert. It was part of the transaction by which Dempsey acquired the secured debt. In the context of this application, this was an important concession properly made on the part of the plaintiffs.
Before the plaintiffs' appointment, Deloitte Corporate Finance (Deloitte), a division of the accounting firm of which the plaintiffs are members, had been retained by Cape Lambert to provide strategic advice as to how Cape Lambert might acquire assets of the CopperCo Group entities. Mr Gary Peter Doran had a limited involvement in that retainer, giving advice as to the acquisition of Macquarie's interest in the secured debt and replacement of the previous receivers and managers. Mr Doran also made clear that if, following acquisition of the secured debt, Cape Lambert was to seek to acquire the secured assets, very strict sales protocols would be needed to be put in place including information controls.
Following appointment, the plaintiffs embarked on a sale process. The sale process was extensive. Relevantly, it involved:
1.Assessment of the secured assets and the manner in which to proceed to realise them.
2.Engagement of specialists, namely Deloitte and PCF Capital Group Pty Ltd, to assist in the marketing of the secured assets and the assessments of indicative and final offer.
3.Retaining commercial solicitors to assist with legal matters.
4.Preparation of detailed informed memorandums for the Lady Annie assets and the MinSec assets.
5.A series of advertisements in The Australian, The Australian Financial Review, The Wall Street Journal Asia, The Wall Street Journal Europe, and The Northern Miner.
6.Identification of and communication with persons who might be interested in purchasing the secured assets (including flyers, confidentiality agreements and the information memorandums and the like).
7.Construction of and access to an electronic data room for those parties who, following an indicative office offer, had been assessed as being entitled to due diligence.
8.Arranging site visits to the Lady Annie Mine for interested parties.
9.Liaising with interested parties as to expressions of interest, due diligence and offers.
In summary, there was a six‑stage sale process. First, the marketing; second, the distribution of information memorandums to interested persons who first signed a confidentiality agreement; third, receipt of indicative non‑binding offers; fourth, valuation of indicative non‑binding offers and short listing thereof; fifth, due diligence and site visits by short listed offerors; and sixth, final offers.
There were separate sale processes run in tandem for CopperCo subgroup assets and the MinSec subgroup assets. In addition, there was another sale process seeking expressions of interest in a potential reconstruction of the broader corporate group. In the end, the only indicative offer for reconstruction of the CopperCo Group was one associated with Cape Lambert. So far as the CopperCo subgroup assets were concerned, 101 parties returned confidentiality agreements, and 17 parties made non‑binding indicative offers. Of these, 11 were short listed for due diligence and three made final binding offers. As to the MinSec subgroup assets, there were 117 expressions of interest and 80 parties returned confidentiality agreements. There were 26 non‑binding indicative offers and 15 of these were short listed for due diligence. All 15 made final binding offers.
All of the above facts are taken from two affidavits sworn in support of the application. The first of these affidavits was sworn by Mr Doran on 14 May 2009 and filed on 15 May 2009. This is the confidential affidavit to which reference is made in the orders sought. There was an additional affidavit of Andrew Paul Annand sworn 14 May 2009 and filed 15 May 2009. Mr Annand is a partner of Deloitte and head of the Perth Corporate Finance practice. Both of these affidavits were comprehensive and lengthy. In particular, Mr Doran's affidavit provides fine detail of the final binding offers which I have referred to above. Because of the commercial sensitivity of this information, it is not appropriate that I say anything more than is necessary about the terms of the offer, the price and so on. But it is important to note that I am satisfied that both affidavits provide a full and complete picture of the sale process, the offers made and the merits of each offer.
Cape Lambert's potential interest as a purchaser was known at the time of the appointment. Accordingly, sale protocol and other procedures were adopted to ensure that Cape Lambert did not receive information which put it at an advantage in relation to the other potential purchasers. Relevantly:
1.Reports to Dempsey as secured creditor provided relatively generic information as to the sale process, interested parties and indicative bids. No figures were mentioned. In respect of the CopperCo subgroup facility, there was mention that all short listed indicative offers would pay out the secured debt.
2.Sales protocols were prepared to assure other potential purchasers of the probity of the sale process. This was made plain in the information memorandums.
3.Anticipating that, as in fact happened, Deloitte might be engaged to assist Cape Lambert in making an offer, the members of Deloitte engaged on the sale process for the plaintiff implemented a strict information barrier. (This was described as the 'Ethical Walls Checklist'.)
4.All parties making indicative offers that were short listed were entitled to the same due diligence material in the electronic data rooms.
5.As Cape Lambert was the only party making a CopperCo Group reconstruction indicative offer, it obtained access to some additional information relevant to such an offer. Both Mr Doran and Mr Annand say, and I accept, that any other person who made a short listed offer for a group reconstruction would have had access to the same information.
6.When Cape Lambert was the only person making a CopperCo Group reconstruction indicative offer, the plaintiffs readvertised and sought further expressions of interest in a reconstruction or recapitalisation of the corporate group.
The final offers were initially assessed by Mr Doran and his advisors. A final report assessing the final offers was also prepared by Deloitte. In his affidavit, Mr Doran sets out why it was that the final offer on behalf of the purchasers associated with Cape Lambert was selected. (In fact, special purpose entities being Cape Lambert Lady Annie Exploration Pty Ltd and Cape Lambert MinSec Pty Ltd were the purchasing entities. But it is acknowledged that this is a technical distinction. Essentially, it was Cape Lambert who was purchasing the assets.)
Following selection of the purchasers associated with Cape Lambert, the plaintiffs negotiated the necessary sales agreements. For this purpose, the plaintiffs retained commercial solicitors Cochrane Lishman. In a letter dated 7 May 2009, Ian Cochrane of that firm has confirmed that the sales agreements reflected the commercial terms of the agreed arrangements and were in order for execution. He went on to say that:
We can also observe that the agreements will be entered into following a sale process which you have conducted and that in our view that process has taken place very much on an arms‑length basis. Similarly, the terms of the agreements which have been entered into have been subject of rigorous negotiation and we believe reflect a commercial position from your perspective which is favourable to you and, if anything, more favourable than might usually be achieved by a Seller not under external administration.
The structure of the final offer on behalf of the purchasers is very complicated. It is explained in detail in Mr Doran's affidavit. It is unnecessary for me to detail these arrangements but I should make mention of one unusual feature of the agreements and summarise briefly its effect.
There are in fact two agreements which affect the sales. One is referred to as the Asset Sale Agreement (referred to as the ASA) and the Share Subscription and Sale Agreement (referred to as the SSSA). Under the SSSA (in respect of the MinSec subgroup assets) there is a 'share swamping' by which the purchaser will gain control of MinSec (and through it, the MinSec subgroup assets). The arrangement works in this way. MinSec is not a company to which the plaintiffs are appointed. It is, however, a wholly owned subsidiary of CopperCo. The plaintiffs are the receivers and managers of the whole of the property of that company including its shares in MinSec. Under the agreement, CopperCo, to which the plaintiffs are appointed, must procure that MinSec by its directors, will issue 50.1 million shares in MinSec to the purchaser for the amount of $50.1 million and amalgamate the pre‑existing MinSec shares on issue into one share. This is to be sold to the purchaser for $1.00. It is this sale that is the relevant sale in exercise of the plaintiffs' power of sale. The $50.1 million raised by the share issue will see repayment of the MinSec subgroup facility by an on‑loan to the Australian borrowing company, Mineral Securities Operations Ltd.
The ASA and the SSSA are interdependent and completion of both is to occur at the same time. Exercise of the power of sale under the SSSA, seeing a sale of the remaining MinSec share, is for the purpose of completing the exercise of the power of sale under the ASA and seeing repayment of the secured debt under the CopperCo subgroup facility.
In the end then, the proposed sales will see:
1.Repayment in full of the secured debt under the CopperCo subgroup facility including the subordinated secured debt of Glencore.
2.A surplus available to the relevant CopperCo subgroup entities after repayment of the CopperCo subgroup facility.
3.Repayment in full of the secured debt under the MinSec subgroup facility.
4.Repayment in full of all of the external unsecured creditors of the MinSec subgroup.
Against that factual background, it is necessary to consider the provisions of the Corporations Act. A controller (which, by s 9(1), includes a receiver and manager) may apply to the court for directions in relation to any matter arising in connection with the performance or exercise of any of the controller's, functions or powers as controller: see s 424(1) of the Corporations Act. Here, the direction is sought that entry into and completion of the sale agreements is not unlawful solely by reason of the relationship between the plaintiffs' appointer (and the secured creditor) and the purchasers. It is thus concerned with the plaintiffs' decision to exercise their power of sale as receivers in the manner proposed by the ASA and the SSSA.
In Re Ansett Australia Ltd and Korda (No 3) (2002) 115 FCR 409, Goldberg J said:
There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised [65].
There is no doubt that a receiver is entitled to apply to the court for directions as to whether he or she may lawfully take a course of proposed action: see Re North City Developments Pty Ltd; Ex parte Walker (1990) 20 NSWLR 286, 290.
The receiver exercising a power of sale has statutory and general law duties. By s 420A(1), the receiver has a duty to take reasonable care to sell the secured property for not less than market value, if it has a market value, or otherwise for the best price reasonably obtainable. Under the general law, the proper exercise of the power of sale depends on considerations of good faith, proper procedure and fair price. Courts have consistently refused any application for directions by a receiver that has sought comfort as to the commercial propriety or reasonableness of the proposed transaction.
This is an important point. Resort cannot be had to s 424 for the purpose of seeking intervention of the court to make a commercial decision for a receiver. This point of principle has been made in numerous cases: see, for instance, Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd (rec & mgr apptd) (1992) 7 ACSR 245, 247. The reason for this approach was explained in some detail by Young J in White v Huxtable (2006) 232 ALR 388 [35]. Essentially, commercial and business decisions must be taken by a receiver. That is their function - it is not the court's function.
On behalf of the plaintiffs, it was submitted that they did not seek a direction that offended these principles. They did not seek a direction that the plaintiffs were justified or acting reasonably in proceeding with the sales. Nor did they seek comfort as to the propriety of the exercise of the power of sale in terms of the duties under s 420A and the general law. The plaintiffs accepted these were matters they had to decide themselves. The directions sought dealt with whether the plaintiffs may lawfully proceed with the proposed sales given the principle that a mortgagee cannot exercise a power of sale in favour of itself.
The cases make it clear that it may be appropriate to make a direction to the effect that a particular exercise of the power of sale is not unlawful solely because the purchaser is a company associated with the entity which appointed the receivers. This emerges from a number of cases including White v Huxtable (supra); Re Vartex Petroleum Industries Pty Ltd (Unreported, NSWSC, BC8901834, 17 August 1989) (Hodgson J); Re One.Tel Networks Holdings Pty Ltd (Hall as rec and mgr) (2001) 40 ACSR 83; and Re Actwane Pty Ltd (in liq) (rec and mgr apptd) (2002) 42 ACSR 307.
Against this approach is the decision of Einfeld J in Franbridge Pty Ltd v Societe & Generale Finance Corporation Pty Ltd (1994) 14 ACSR 304. It was submitted this case is distinguishable from others I have mentioned on the basis that the direction sought was without utility and therefore should not be made. I accept that submission. Of course, each case will depend on its facts. As a statement of principle, it is necessary to go no further than to say that in certain circumstances it may be appropriate to make a direction that the exercise of a power of sale is not unlawful.
As was pointed out by the plaintiffs, a receiver is invariably appointed as agent of the mortgagor and therefore the self‑dealing prohibition is not engaged on the exercise of a power of sale by a receiver in favour of the mortgagee. This principle has been confirmed in a number of cases including White v Huxtable (supra) [37]. Here, the plaintiffs are appointed as agents of the relevant CopperCo entities. On that basis, it can be concluded that the proposed sales are not unlawful per se.
It has been said that one basis for the self‑dealing prohibition is what Austin J described in Re One.Tel Networks Holdings Pty Ltd (supra) [50] as the 'logical difficulty' of a person selling to himself. That does not apply here as the purchasing entities are separate entities to Macquarie (the security trustee) and Dempsey (the secured creditor and person beneficially entitled to the rights and interests under the charge). It follows then that there is no 'sale to self' and no logical difficulty.
The other basis for the self‑dealing prohibition is the so called absolute principle of equity that a mortgagee is not permitted to exercise the power of sale in favour of itself.
In Re One.Tel Networks Holdings Pty Ltd (supra), Austin J thought there was a real doubt as to whether the absolute equitable principle was still applicable: see [54] ‑ [55]. In any case the principle is not attracted where the purchaser is an entity other than the legal chargee (Macquarie as security agent) or the beneficial chargee (Dempsey). Accordingly, even if the plaintiffs had so conducted themselves as to become the agents of either Macquarie or Dempsey, the self‑dealing prohibition is not engaged. But on the evidence, there is no basis to suggest that the plaintiffs have acted other than as agents of the relevant CopperCo Group entities.
In all the circumstances, I concluded that it was appropriate to give the direction. The proposed sales were conditional upon the direction. This is a substantial transaction. The purchase consideration was over $100 million. That being so, it is not surprising that both the plaintiffs, on behalf of the vendor CopperCo Group entities, and the purchasers should seek all possible legal avenues to avoid uncertainty.
The terms of the direction sought are based on that made in White v Huxtable. It does not involve the court expressing opinion on matters of fact which might be in contest. Nor does it deal with the position of the plaintiffs under the law concerning the proper exercise of the power of sale. The direction is limited and is intended only to establish that the contract is not unlawful by reason of the relationship between the parties. This direction says nothing about the commercial considerations which inform the sale process.
There is one further matter about which I should make comment. The plaintiffs sought orders there be ongoing confidentiality restrictions as to some of the material filed for the purpose of this application. As will be seen, I made these orders. Given that it is a fundamental feature of the Australian judicial system, the proceedings should, with strictly limited exceptions, be conducted in public. I need to explain why I made the orders.
It is a corollary to the principle of 'open justice' that where access is sought to affidavits received into evidence, the court will ordinarily take the view that a non‑party should have access to all non‑confidential material unless the interests of justice require otherwise. This is all the more so on an ex parte application: see Australian Securities & Investments Commission v Rich (2001) 51 NSWLR 643 [26].
However, where the presence of the public or public knowledge is likely to defeat the paramount object of doing justice according to law, the court is justified in restricting access to information. This power is to be exercised in exceptional circumstances and in the interests of justice: see Re Bromfield; Ex parte West Australian Newspapers Ltd (1991) 6 WAR 153, 167.
One accepted category of case in which the court may make orders that result in ongoing confidentiality is where an external administrator seeks directions. For the purposes of an application, the external administrator may need to disclose matters that are confidential between him and the court. These matters may be such that they should not be disclosed more widely because to do so is not in the interests of the stakeholders in the external administration. To have the material in the public domain is not in the interests of the administration of justice.
In this case, the affidavit of Mr Doran disclosed the terms of the sales of the secured assets, the competing offers for the purchase of the secured assets and the plaintiffs' views as to the merits of the competing offers. It would not be in the interests of the administration of justice for these matters to become public. If, for instance, for one reason or another, the proposed sale did not proceed, this material would be available to competing bidders. Self‑evidently, that would be detrimental to the sale process.
Furthermore, the orders made were confined in their operation. The presently confidential aspects of the evidence will cease to have that character on completion or entry into an alternative sale. In my view, it was appropriate to make orders that the confidentiality restrictions apply only for a limited time.
It was for these reasons that I made the orders sought.
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