Re Environinvest Ltd (No. 5)
[2011] VSC 474
•21 September 2011 (Revised 27 September 2011)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List E
No. 2384 of 2010
IN THE MATTER OF ENVIRONINVEST LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)
(ACN 080 743 791)
| ENVIRONINVEST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 080 743 791) (IN ITS CAPACITY AS RESPONSIBLE ENTITY OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1) | First Plaintiff |
| JAMES PATRICK DOWNEY (IN HIS CAPACITY AS SCHEME LIQUIDATOR OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1) | Second Plaintiff |
| MARKO YURI MISKO & ORS | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 September 2011 | |
DATE OF JUDGMENT: | 21 September 2011 (Revised 27 September 2011) | |
CASE MAY BE CITED AS: | Re Environinvest Ltd (No. 5) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 474 | |
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CORPORATIONS – Managed Investment Scheme – Winding up by a person appointed under s 601NF(1) of the Corporations Act 2001 (Cth) – Approval of variation of mediated agreement as to distribution of funds in the winding up – Approval of a proposal for relinquishment of interest in scheme property for fixed sum - Directions in winding up under s 601NF(2) of the Corporations Act.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Rubenstein | Norton Rose |
| For the Receivers and Managers of the First Plaintiff | Mr H Austin | Minter Ellison |
| For the Defendants | No appearance |
HER HONOUR:
Introduction
The first plaintiff, Environinvest Limited, is the responsible entity of a number of failed managed investment schemes for growing and harvesting timber plantations. James Patrick Downey, who is the second plaintiff, is the liquidator of Environinvest and also the liquidator appointed to wind up the schemes. The scheme relevant to this application is the Primary Yield Eucalypt Project (“PYEP”).
The collapse of Environinvest led to numerous proceedings in this Court[1] and a number of orders for costs were made in the proceedings.
[1]Supreme Court Proceedings 8734 and 9141 of 2008 and this proceeding, 2384 of 2010.
In this proceeding, Mr Downey has previously sought various directions and orders, including in respect of the approval of his costs, expenses and remuneration, the allocation of funds from the sale of trees, and the ranking of other claims for costs and expenses. The claimants included Mark Francis Xavier Mentha and Craig Peter Shepard (“the Receivers”). They are the receivers and managers of the assets and undertaking of Environinvest. The Receivers were appointed under a registered charge by the Commonwealth Bank of Australia Ltd. Other claimants included ABL Nominees Pty Ltd and the receivers and managers appointed by it to the assets of Primary Yield Finance Pty Ltd (“the PYF Receivers”). Primary Yield Finance had made loans to investors in the various Environinvest schemes. A final group of those interested in the distribution of the funds were certain of the investors in the Environinvest schemes who are known as the Growers (some of whom had costs orders in their favour and some who did not).
A successful mediation between all of these interested parties and Mr Downey resulted in an agreement as to the distribution of the scheme liquidation fund that resulted from the sale of trees. The agreement was recorded in Terms of Settlement dated 18 October 2010. One of the conditions precedent was Court approval of the apportionment and payment out under the Terms of Settlement. Court approval was given.[2] At the time that the Terms of Settlement were entered into, it was assumed by all the interested parties that it was not commercially viable to harvest or sell the trees grown on properties known as Emu Downs and Whitestone, which were scheme property under the PYEP Scheme. In this regard, Mr Downey obtained orders and directions that he was justified in not seeking to realise or to convert to money the rights and interests in those trees.[3]
[2]Re Environinvest Limited (No 4) (2010) 81 ACSR 145; orders 8 December 2010 in this proceeding.
[3]Re Environinvest Limited (No 3) [2010] VSC 301, orders in this proceeding dated 30 June 2010.
The position has now changed in relation to the Emu Downs and Whitestone PYEP Scheme trees and it now appears that a sale may be possible. Therefore, Mr Downey seeks orders and directions that would enable a deed of variation to be entered into in respect of the Terms of Settlement with the effect that the proceeds of sale from the Emu Downs and Whitestone PYEP Scheme trees would be available for distribution to the parties to the Terms of Settlement in the same proportions that had previously been agreed.
Mr Downey has given notice of this application to the PYEP Scheme Growers and to all the parties to the Terms of Settlement. Apart from the Receivers, who supported Mr Downey’s application, no other interested person appeared on the application.
For the reasons set out below, Mr Downey’s application should be granted.
Further background information in relation to this application is set out in the reasons of Judd J in Re Environinvest Limited (No 3)[4] and Re Environinvest Limited (No 4)[5] and I will not repeat that information in these reasons. I will however set out some of the facts that are particularly relevant to the current application in relation to the Terms of Settlement and the Emu Downs and Whitestone PYEP Scheme trees before considering the relevant principles and their application in this case.
[4][2010] VSC 301.
[5](2010) 81 ACSR 145.
The Terms of Settlement
The parties to the Terms of Settlement are Environinvest, Mr Downey, the Receivers, ABL Nominees Pty Ltd, the PYF Receivers and a number of the Growers who were represented by Brian Ward & Partners. As noted above, all of the parties to the Terms of Settlement claimed to have an interest and entitlement to participate in the distribution of the fund which represented the sale proceeds of certain trees which were scheme property (but not the Emu Downs and Whitestone PYEP Scheme trees). The Terms of Settlement provided for the distribution of the fund between the parties to it. The Terms of Settlement include releases in the following terms:
“Upon the Scheme Liquidator causing Environinvest to distribute the Fund the parties will not have any further right, entitlement or interest to the Fund or any entitlement under any of the Costs Orders, in relation to any of the Priority Claims or otherwise.”
The Emu Downs and Whitestone trees
The background facts relating to the PYEP Scheme trees on Emu Downs and Whitestone are conveniently set out by Judd J in Re Environinvest Limited (No 3) as follows:[6]
Mr Downey contends that the PYEP scheme trees on Emu Downs and Whitestone are unsaleable because there is no reliable process by which he can readily identify the trees held on trust for PYEP scheme members. They are intermingled with trees belonging to other growers, known as Excluded Offer Growers. The EOG grower schemes are not the subject of any order for winding up.
Approximately 17.5 hectares of an overall of 197.5 hectares of Emu Downs Plantations is, according to investor allocations described in a map prepared by Environinvest in 2004, PYEP plantation. But a plantation overview, prepared by Environinvest in 2005, bears little resemblance to the investor allocations map. References to EOG leases, which contain plans purporting to show the location of grower allotments, do not assist.
For the property Whitestone, approximately 150 hectares of plantation out of a total of 247.5 hectares is allocated under EOG leases. The remaining 97.5 hectares appears to be part of the PYEP scheme. Like discrepancies are apparent in relation to those plantations as for Emu Downs. If Mr Downey is to resolve the discrepancies, in the absence of agreement from all interested parties, there will remain a risk that any sale may result in the inadvertent conversion of trees which fall outside the PYEP scheme plantation.
Mr Downey accepts that it might be possible to engage a surveyor to conduct a survey of the properties in order to differentiate between excluded offer grower trees and PYEP scheme trees although the cost of doing so would be significant. He does not have funds to undertake the work. Mr Downey is also of the opinion that the cost of undertaking such a survey would probably outweigh any benefit achieved from a subsequent sale of the trees. The PYEP scheme trees appear to have been planted over a number of years in respect of different offers under the PYEP scheme.
The intermingling of trees also means that it would be extremely difficult, if not impossible, to undertake a conjunctional sale of land and trees. As a consequence, Mr Downey has concluded that there is no utility in seeking to realise the PYEP scheme trees on Emu Downs and Whitestone.
[6][2010] VSC 301, [47]-[51].
The Receivers have put a proposal to Mr Downey in respect of the PYEP Scheme trees on Emu Downs and Whitestone. They have informed Mr Downey that they have an agreement with the excluded offer growers to relinquish their rights in exchange for payment of an agreed sum. This removes the primary obstacle to the sale of those trees. The Receivers have proposed that Mr Downey, as scheme liquidator of the PYEP Scheme, surrender the rights in relation to the Emu Downs and Whitestone PYEP Scheme trees and acknowledge that the Receivers may give good title to them in exchange for the payment of a proportion of the net sale proceeds of each of the properties, with the amount of the payment to be determined by reference to a formula. It is intended that the proceeds of sale that Mr Downey receives will then be distributed between the parties to the Terms of Settlement in the same proportions as had been agreed in respect of the fund that was originally the subject of the Terms of Settlement.
The formula proposed by the Receivers and developed by them is based on the apportionment of the purchase price as between land and trees for properties which were part of the previous sale process and which the Receivers believe are comparable to Emu Downs and Whitestone. The formula is an alternative to engaging an independent valuer to undertake a valuation of the trees on Emu Downs and Whitestone. Such an exercise would be costly. The PYEP Scheme is insolvent and there are no funds to undertake such a valuation. Further, even if a valuer is engaged, there would be other difficulties, including in ascertaining the PYEP Scheme trees from the trees of the excluded offer growers.
Mr Downey is of the view that in all the circumstances the use of an apportionment formula (rather than obtaining an independent valuation) and the actual formula proposed will result in a fair apportionment of the net sale proceeds as between land and trees.
If Mr Downey does not agree to the Receivers’ proposal, the position remains that it would not be commercially viable to convert the Emu Downs and Whitestone PYEP Scheme trees into cash.
In the circumstances, Mr Downey’s position is that it is commercially pragmatic and sensible for him to accept the Receivers’ proposal. However, it will result in him receiving and holding further funds in the PYEP Scheme liquidation which will need to be distributed.
A mechanism has previously been agreed for the distribution of PYEP Scheme liquidation funds. That mechanism is through the process identified in the Terms of Settlement. Mr Downey believes that it is appropriate for the additional funds to be subject to the earlier claims of the interested parties, and those funds should be distributed to them in accordance with the Terms of Settlement.
However, by operation of the mutual releases (referred to in [9]), the interested parties have no ongoing entitlement to have the funds provided under the Receivers’ proposal, to be dealt with in the agreed manner provided in the Terms of Settlement. As I have already noted, the releases were given because it was not foreseen that further assets might be realised.
In order to resolve this issue, the parties propose a deed of variation to amend the Terms of Settlement to allow the additional amounts to be distributed in accordance with the percentages listed in a schedule to the Terms of Settlement. This amendment will also mean that if any further sale proceeds become available they will also be dealt with in accordance with the Terms of Settlement. Mr Downey has deposed that there might be an opportunity for further assets to be realised from the sale of PYEP Scheme trees located on another property known as Modesty Park.
Mr Downey has received agreement to the proposed deed of variation from all the parties to it.
Mr Downey seeks orders that he is justified in entering into and implementing the Receivers’ proposal and that he is justified in entering into and performing the deed of variation and that he is justified in causing Environinvest to distribute the PYEP Scheme proceeds in accordance with the percentages provided for in the Terms of Settlement.
Should the orders and directions be made?
The power to make such a declaration or order arises from s 601NF(2) of the Corporations Act2001 (Cth) which provides that:
The Court may, by order, give directions about how a registered scheme is to be wound up if the Court thinks it necessary to do so (including for the reason that the provisions in the scheme’s constitution are inadequate or impracticable).
This section authorises the making of directions of a kind consistent with the administration of the winding up. It is procedural in nature. It allows the Court to provide guidance and direction in relation to the winding up of a registered managed investment scheme.[7] In my opinion the section may be relied upon for the making of directions of the type sought by Mr Downey on this application. In this regard, the acceptance and implementation of the Receivers’ proposal and the deed of variation are aspects of the winding up of the PYEP Scheme. Further, the dual roles that Mr Downey plays as liquidator of Environinvest and of the PYEP Scheme and the conflict of interest regime established by earlier Court orders[8] justifies the making of the application.
[7]Re Stacks Managed Investments Ltd (2005) 219 ALR 532 per White J at 544; Re Rubicon Asset Management Ltd (2009) 74 ACSR 346 per McDougall at 356. See also Re Environinvest Ltd (No 3) [2010] VSC 301. See also the comments of the Court of Appeal in Capelli v Shepard (2010) 264 ALR 167 at 197 where it was stated that the power under section 601NF(2) may be limited to procedural rather than substantive matters.
[8]Order of 30 April 2009 in proceeding S CI 2008 09141.
In my opinion, it is appropriate for Mr Downey to accept the Receivers’ proposal and to enter into and perform the deed of variation and to cause Environinvest to take all necessary steps to implement the Receivers’ proposal in circumstances which include:
(a)the fact that the funds to be received under the Receivers’ proposal represent a benefit that was otherwise not expected or foreseen;
(b)receipt and subsequent distribution of those funds is consistent with the previous mechanisms mandated by the Court; and
(c)Mr Downey is of the opinion that the Receivers’ proposal is commercially prudent and pragmatic in light of the limited financial resources that he has at his disposal as scheme liquidator.
Conclusion
I will hear counsel as to the form of orders and directions to be made to give effect to these reasons.
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