Re Gunns Plantations Limited (In Liquidation) (Receivers and Managers Appointed) (No 3)
[2014] VSC 267
•5 June 2014
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted | |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
Corporations List
S CI 2013 2095
IN THE MATTER OF GUNNS PLANTATIONS LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 091 232 209)
| DANIEL MATHEW BRYANT, IAN MENZIES CARSON and CRAIG DAVID CROSBIE (in their capacities as joint and several Liquidators of GUNNS PLANTATIONS LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 091 232 209)) | First Plaintiffs |
| and | |
| GUNNS PLANTATIONS LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 091 232 209) | Second Plaintiff |
JUDGE: | JUDD J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 June 2014 |
DATE OF JUDGMENT: | 5 June 2014 |
CASE MAY BE CITED AS: | Re Gunns Plantations Limited (In Liquidation) (Receivers & Managers Appointed) (No 3) |
MEDIUM NEUTRAL CITATION: | [2014] VSC 267 |
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CORPORATIONS — Managed Investment Scheme — Application for approval of allocation of proceeds of sale of scheme property — Application made under s 511 of the Corporations Act 2001 (Cth) — Allocation to be made according to established principles of law and equity — Allocation not merely a matter for the commercial judgment of liquidators.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms W Harris, one of Her Majesty’s Counsel and Dr O Bigos | Arnold Bloch Leibler |
| For the Liquidators of Great Southern Plantation Holdings Pty Ltd | Mr A P Young | Chew + Matthews Solicitors |
| For the Receivers of Gunns Plantations Limited | Mr P Crutchfield, one of Her Majesty’s Counsel and Mr R G Craig | Ashurst Lawyers |
| For Save My Tiwi Trees Inc | Dr J P Moore, one of Her Majesty’s Counsel and Mr R Pintos‑Lopez | Mills Oakley Lawyers |
HIS HONOUR:
This application, brought by the liquidators of Gunns Plantations Limited, is part of a group of applications brought by Originating Motion dated 1 November 2013. The applicants sought directions under s 511 of the Corporations Act 2001 (Cth) to authorise their involvement in the sale of trees following the collapse of the Great Southern Group and subsequent collapse of the Gunns Group. A sufficient background is set out in the judgment in Re Gunns Plantations Limited (In Liquidation) (Receivers & Managers Appointed).[1]
[1][2014] VSC 239.
The liquidators’ conduct in terminating grower rights to facilitate completion of the sale of trees to Trust Company (Australia) Limited was approved on 17 December 2013. An application to approve the allocation and distribution of the proceeds was refused on that occasion. My reasons for refusing that application are set out in an ex tempore judgment. On that occasion, I said:
It is not to the point to contend, as did the liquidators, that the process of allocation was fair and reasonable, or was informed by independent advice. It was inherently compromised by very real conflicts between the liquidators’ duty to act in the best interests of the growers, their self‑interest in having a sufficient pool from which to recover their own fees and expenses, and their interest in satisfying the demand of the receivers to ensure completion of the contract. The liquidators no doubt understood, all too well, that without a sufficient pool in each scheme for the receivers, the transaction, as presently structured, might not be completed.
While the liquidators may be justified in their opinion that completion of the sale is in the best interests of the growers, they cannot expect the court to relieve them of the potential risks associated with their conflicts unless they have made full disclosure to those who might be affected. They must also provide all growers with an opportunity to adduce evidence and make submissions, if so advised, as to what the allocation ought to be. It is only then that the court can make an informed, equitable adjustment, reflecting the various rights given up.[2]
[2]Ex tempore judgment delivered 17 December 2013, [20]–[21].
Applications for approval of transactions are now commonly sought and obtained by liquidators in the course of winding up managed investment schemes. They are often dealing with trust property, without the assistance of detailed statutory provisions regulating the process. In many instances the liquidators are required to negotiate and cooperate with receivers of land on which schemes were conducted.
An application for allocation of the proceeds of sale of scheme assets involves a sale and allocation of trust property. The sale was of trees on woodlots leased to growers by the responsible entity. There is a separate trust in relation to each scheme. Growers in each scheme, on the date of sale, are the beneficiaries. Thus, the allocation of proceeds between schemes, and the distribution to growers, required the applicants to have regard to the respective rights of grower groups within each scheme, and individually on distribution.
On this application, the applicants proceeded on the basis that the process of allocation was of the same character as a sale transaction to an arm’s‑length third party. They contended that it was not for the court to substitute its own commercial judgment; and that the court should generally defer to their commercial judgment unless they are found to have acted with lack of good faith, under an error of law or principle, or there were real and substantial grounds for doubting the prudence of the liquidators’ conduct.[3]
[3]Re Ansett Australia Ltd (2001) 39 ACSR 355 [65]–[68].
In my opinion, the characterisation of the allocation process as equivalent to a sale transaction, calling for no more than the bona fide exercise of commercial judgment, is misconceived. The allocation of the purchase price between schemes must be based on established principles of law and equity.[4]
[4]Re Hazelton Air Charter Pty Ltd (2002) 41 ACSR 472, 482 [35] and 485 [50]–[51]; Re Timbercorp Securities Ltd (in liquidation) (2009) 74 ACSR 626, 644 [80].
The application had some unusual features. First, the allocation advanced by the applicants for approval, which became known as the Mid‑Point Allocation, was embedded within the contract of sale, as Schedule 4. The applicants relied upon Schedule 4 as if a negotiated term of the contract of sale, that ought to be accepted by the court as representing a reasonable valuation of entitlement according to the principles in Spencer v The Commonwealth.[5] Second, the process under which the allocation was made by the applicants, and incorporated into the contract, involved a clear conflict between their duty to growers in the various schemes, and self‑interest in recovering all of their fees, costs and expenses out of the proceeds allocated on a scheme‑by‑scheme basis. That was acknowledged. There were other, perhaps more troubling, concerns raised by a grower group about that process.
[5](1907) 5 CLR 418, 441–2.
At the hearing, the applicants were represented by senior and junior counsel. The receiver who controlled the assets of GPL, other than scheme assets, was also represented by senior and junior counsel. Grower interests were also represented by counsel, providing the court with a real contradictor.
Following the hearing in December 2013, directions were made to facilitate proper notice to growers and provide growers with an opportunity to apply to intervene. Great Southern Plantation Holdings Pty Ltd (in liquidation) and Save My Tiwi Trees Inc, were given leave to intervene, and were each represented by counsel on this application. GSPH was a grower in the 1998, 1999, 2000, 2001, 2002 and 2003 schemes, having assumed control of woodlots whose owners had defaulted under scheme agreements. Tiwi Trees is an incorporated entity representing growers in the 2005 and 2006 schemes. While there was no representation for 2004 scheme growers, it was common ground that their interests were aligned, for the purpose of this application, with the 2005 and 2006 growers. Thus, the court was assisted by a satisfactory contradictor for each of the schemes whose growers might be entitled to some part of the proceeds of sale.
While the applications before the court on this occasion involved the question of allocation and subsequent distribution to growers within schemes, it was common ground that any distribution to individual growers should be made in the manner proposed by the applicants. In my opinion, there is a reasonable basis for that concession, having regard to the way in which harvest proceeds were to be distributed amongst growers under scheme documents.
Thus, the central issue was the question of allocation between schemes. With that in mind, the parties helpfully formulated the following question to be decided by the court:
Are the liquidators justified and otherwise acting properly and reasonably in allocating, or in procuring GPL to allocate, the net proceeds under the sale contract between the schemes on the basis of:
(a) the Mid‑Point Allocation?
(b) alternatively, the URS Allocation?
(c) alternative, the First Trust Company Allocation?
First Trust Company Allocation
In his consolidated affidavit affirmed on 16 May 2014, Daniel Mathew Bryant, one of the applicants, described each alternative basis for allocation. During the course of negotiations with the manager of Trust Company, New Forests, over the sale contract, the applicants requested an allocation of proceeds, on a lease‑by‑lease basis. That information would permit a calculation to be made on a scheme‑by‑scheme basis. The applicants informed New Forests of their intention to engage URS to express an independent opinion on the appropriate allocation.
On 13 September 2013, an employee of the applicants contacted Mr Shelton of New Forests, by email. There were two relevant emails. In the first email, Mr Wight wrote:
Allocation process
As part of the asset sale agreement, the purchaser has to allocate the gross proceeds on a scheme by scheme basis. Can you please provide this at your earliest convenience.
As previously advised, the allocation has to be on a reasonable basis, and we’re engaging URS to assess the allocation. To the extent that URS cannot support the allocation, there may need to be a reallocation of the gross proceeds of sale.
Scheme costs
I also note below a list of the scheme costs that the GPL Liquidators have accrued to date plus an estimate of future costs (through until settlement).
Total Estimated
GSP Schemes Costs
GSP 1998 28,301.32
GSP 1999 83,741.75
GSP 2000 706,820.55
GSP 2001 204,594.18
GSP 2002 249,789.29
GSP 2003 804,463.34
GSP 2004 1,466,743.48
GSP 2005 1,576,717.26
GSP 2006 1,397,942.28Total 6,519,113.44
In his second email, sent the same day, Mr Wight said:
It would be difficult for us to justify an allocation whereby growers in any particular scheme receive nothing (net of all costs).
The second email, no doubt intended to explain the inclusion of scheme costs, conveyed a position that could not have been misunderstood by New Forests.
Tiwi Trees contended that these two emails set the negotiating parties on a course that compromised the integrity of the process from which it never recovered. There were subsequent communications between the negotiating parties, and a communication from the liquidators of GSPH to New Forests about its interest in schemes’ proceeds. The applicants seemed to concede that the process may once have been compromised, but submitted that if so, it was redeemed by the opinion of URS to the effect that the applicants’ preferred Mid‑Point Allocation was not unreasonable.
Given the nature of the issues raised by the questions for determination, it is perhaps surprising that the applicants were not cross‑examined on their conflict and the integrity of the allocation process more thoroughly explored. The absence of any evidence from New Forests and the liquidators of GSPH went almost unnoticed. The applicants submitted that as the growers had not challenged their bona fides, or sought to establish bad faith, no such finding is open. That is no doubt correct. Accordingly, I do not make any such finding. The evidence did not suggest any dishonesty or bad faith. On the other hand, it did establish that throughout the discussions leading to the applicants’ calculation of the preferred Mid‑Point Allocation, they maintained the paramount objective, that all growers in each scheme should receive something, which in turn would have the effect that the applicants and the receivers would receive everything.
On 20 September 2013, Mr Shelton of New Forests provided two draft allocations of sale proceeds to Mr Wight. The first was an allocation formulated by New Forests, and the second purported to be the ‘URS Pricing Distribution’.
NFAM Distribution
Prospectus Code Allocation
%
Total allocation
$’000
VA/liq. Costs
$’000
Receivers Lien
$’000
Allocation to growers
$’000
FH share
$’000
Other growers
$’000
1998 0% 29 28 1 0 0 0 1999 0% 84 84 1 0 0 0 2000 7% 2,677 707 5 1,965 295 1,670 2001 6% 2,145 205 396 1,544 386 1,158 2002 23% 8,787 250 721 7,816 2,032 5,784 2003 49% 18.836 804 876 17,156 4,975 12,181 2004 5% 2,092 1,467 625 0 0 0 2005 5% 1,925 1,577 348 0 0 0 2006 5% 1,925 1,398 527 0 0 0 Total 100% 38,500 6,519 3,500 28,481 7,688 20,793 URS Pricing Distribution
Prospectus Code Allocation
%
Total allocation
$’000
VA/liq. Costs
$’000
Receivers Lien
$’000
Allocation to growers
$’000
FH share
$’000
Other growers
$’000
1998 0% 0 0 0 0 0 0 1999 0% 0 0 0 0 0 0 2000 8% 3,176 707 5 2,464 370 2,095 2001 7% 2,545 205 396 1,945 486 1,459 2002 27% 10,427 250 721 9,456 2,459 6,997 2003 58% 22,352 804 876 20,671 5,995 14,677 2004 0% 0 0 0 0 0 0 2005 0% 0 0 0 0 0 0 2006 0% 0 0 0 0 0 0 Total 100% 38,500 1,966 1,998 34,536 9,309 25,227
Mr Shelton said that New Forests was:
indifferent as to which one you think should be used as the allocation in the asset sale deed. We are generally indifferent if you wish to make further changes, but would reserve our right to review this before finalising.
I am not persuaded by his apparent indifference. It would appear that New Forests may have had some interest in the allocation, if only because some transactions would attract stamp duty. There might also be accounting considerations relating to the cost to be attributed to the trees on particular plantations.
It will be observed that the first draft schedule prepared by New Forests contained a zero percentage allocation for the 1998 and 1999 schemes, but with a dollar amount that was slightly more than the liquidators’ costs. Furthermore, New Forests seems to have attributed only so much to the 2004, 2005 and 2006 schemes as was sufficient to discharge the liquidators’ costs and some of the receivers’ lien, leaving nothing for growers. These were schemes in which GSPH had no interest. While New Forests’ calculation of the receivers’ lien seemed understated, that may only represent the balance available after payment of the liquidators’ costs. Importantly, the whole of the value of the sale, after deduction of liquidators’ and receivers’ costs, would benefit GSPH. The provenance of the URS Pricing Distribution was unexplained.
Not surprisingly, the applicants became concerned about the New Forests allocation. Mr Wight telephoned Mr Shelton and told him that he should not have regard to what the liquidators, receivers or GSPH might receive, but provide an allocation based on what it considered to be fair and reasonable, having regard to its own pricing methodology. A few days later, on 24 September 2013, Mr Shelton sent an email to Mr Wight in which he said, ‘I think there may have been a misunderstanding’. He went on to say:
As you would be aware, there are several ways the allocation process can be undertaken. We provided you with multiple versions of these, but these are not final, but are working documents and not intended for circulation or further discussion – and thus should be considered fully commercial in confidence. For example, our counsel were still finalising the schedules of leases and properties included, thus the previously attached may still move around.
We will now consider the buyers final allocation, and provide that to you shortly.
On 30 September 2013, Mr Shelton sent the applicants what is now described as the First Trust Company Allocation. Any reference to liquidators’ or receivers’ costs or GSPH entitlement had been removed. He wrote:
Hello Daniel
Please find attached what we consider to be a draft final allocation. Assuming there are no further changes from our legal counsel, regarding the detailed property schedules, there should be no further changes from our side.
Please confirm your acceptance, that this can now be used in the drafting of the ASD. If so, we will provide the additional property by property schedule that flows from this.
We would like to resolve and sign the agreements ASAP, so the interim funding arrangements can commence.
Kind Regards
Dave
Scheme Allocation
%
Total
Allocation
$’0001998 0.26% 100 1999 0.26% 100 2000 6.83% 2,628 2001 5.47% 2,106 2002 22.41% 8,628 2003 48.04% 18,496 2004 4.23% 1,630 2005 6.88% 2,647 2006 5.62% 2,164 Total 100.0% 38,500
Mr Bryant deposed:
I reviewed the First Trust Company Allocation and noted that, under the First Trust Company Allocation, relatively low value would be allocated to the 2004, 2005 and 2006 Great Southern Schemes resulting in the Growers in these schemes receiving a nil return. This was below what I had anticipated would be allocated to those Schemes. We were not willing to accept the First Trust Company Allocation in circumstances where any of the Great Southern Schemes were allocated a nil return given the prejudice to Growers in such schemes.
URS Allocation
In order to brief URS, Mr Lee, of the applicants’ office, contacted Mr Shelton, requesting details of how the First Trust Company Allocation had been calculated, including the pricing model. Mr Shelton responded on 2 October 2013 with a short summary of the rationale, but declined to provide the pricing model, which he said was confidential. He noted that there were a number of methods that could be used to value a forest, depending on who held the asset. He set out seven items that had been taken into account, including shadow rental, woodchip export price, harvest profiles, foreign exchange factors, cost base, and other factors. He noted that:
General consideration of the various interests involved in the transaction, derived from what is in the public domain, also played a role in our deliberations. For example, when looking at the scheme years, our model allocated zero to 1998 and 1999 as they are no longer material. However, we have allocated a notional $100k in recognition of the seller undertakings and costs associated with completing the transaction.[6]
The ‘seller undertakings and costs’ could only be those of the applicants.
[6]Emphasis added.
Following a telephone call between Mr Lee of the applicants’ office and URS representatives, Andrew Morton and Ben Pearce, Mr Lee sent them copies of the emails from Mr Shelton, dated 30 September 2013. Mr Lee said:
Following a review of these and the discussions and the email below from David Shelton, we would like your view as to whether their allocation is not unreasonable.
Mr Lee also sought an estimate of URS costs.
On about 4 October 2013 there were discussions between representatives of URS and New Forests. On 11 October 2013, URS provided Mr Lee with an allocation between schemes now known as the URS Allocation. Mr Bryant deposed that at some time on 11 October 2013, Mr Lee received from URS ‘an allocation of the Sale Proceeds which URS considered was reasonable’, calculated using URS’s pricing model and assumptions set out in New Forests’ email of 2 October 2013. The URS Allocation is as follows:
Scheme URS
Allocation
($)1998 - 1999 - 2000 921,000 2001 577,000 2002 5,744,000 2003 16,465,000 2004 5,282,000 2005 5,357,000 2006 4,414,000
It will be noted that URS attributed no value to the 1998 and 1999 Great Southern schemes. Mr Bryant deposed to an understanding ‘from discussions by our staff with URS’ that this was because the leases relating to the schemes had expired. Such an explanation is not apparent from any of the URS reports. In its report dated 20 February 2013, prepared to assist the applicants in their negotiation for the sale of the trees, URS attributed a nominal value to the 1998 scheme and a negative value to the 1999 scheme and noted:
Harvesting is essentially complete in the 1998 and 1999 Projects and only a few plantations remain in each Project. The value for the 1998 Project reflects the impending harvest of the remaining area. The 1999 Project is a negative value because harvesting of the remaining plantations is unable to fit into the wood flow of the overall estate.
It was not until 15 October 2013 that URS confirmed its agreed tasks under the recent retainer which were to:
·test whether the process applied by the preferred bidder to allocate value across each of the GSP schemes is not unreasonable;
·provide a URS value allocation across each of the GSP schemes (having regard to the preferred bidder’s assumptions); and
·confirm that the GPL liquidators’ value allocation is not unreasonable.[7]
[7]Emphasis added.
In its report dated 16 October 2013, URS set out the Mid‑Point Allocation in table 2. Even then, it attributed a zero percentage of the price to the 1998 and 1999 projects, noting:
URS has been informed that GPL has applied the mid‑point between the NFAM and URS assessment. The only difference to this approach is a transfer of $13–15,000 from the 2000 to 2006 Projects to the 1998 and 1999 Projects to recognise the sale costs associated with these two projects. Those amounts are reflected in $90,000 attributed to the 1998 scheme and $110,000 attributed to the 1999 scheme.[8]
[8]Emphasis added.
Thus, URS was under the same impression as New Forests, that the reason for the dollar sum uplift for the 1998 and 1999 schemes was to accommodate the applicants’ costs.
Mid‑Point Allocation
Mr Bryant deposed that having reviewed the First Trust Company Allocation and the URS Allocation, and after comparing them, he observed that the First Trust Company Allocation attributed a relatively low value to each of the 2004, 2005 and 2006 schemes, resulting in a nil return to growers; and the URS Allocation attributed no value to the 1998 and 1999 schemes. He concluded that an allocation based on a mid‑point would result in all schemes having a positive value so that all growers would receive a return. Mr Bryant said:[9]
We considered, and still do, that it is fair and reasonable to allocate some value to the trees in the 1998 and 1999 Great Southern schemes essentially as an amount referable to the resolution of compromise of these potential grower claims.
[9]Paragraph 83, emphasis added.
A little later in his affidavit, Mr Bryant placed a different complexion on the reason for the 1998 and 1999 dollar amount uplift, explaining it by reference to ‘the likely costs and expenses Trust Company would incur in obtaining clear title to the relevant land and trees’. At another place in his consolidated affidavit, Mr Bryant elaborated on his contention that an uplift for the 1998 and 1999 schemes was fair and reasonable. He noted a possible claim by growers that the relevant head lease had not expired, or that the growers retained some interest in the trees regardless of the expiration of the head lease, or that the growers might be able to seek some relief against forfeiture. He deposed that in relation to the 2004, 2005 and 2006 schemes it was fair and reasonable to allocate some additional value beyond that attributed by New Forests, because the leases had not expired, and there were trees growing on the relevant land. He gave some other reasons. Mr Bryant repeated his paramount concern, ‘We were not willing to accept an allocation that did not return some value to each Great Southern scheme’. He deposed that adopting the mid‑point would balance the subjective and objective allocations. The subjective allocation was that of New Forests, while the objective allocation was that of URS.
On 15 October 2013, Mr Bryant telephoned Mr Shelton to discuss the URS Allocation, expressing the view that the Mid‑Point Allocation would be the fairest and most reasonable method for allocating the sale contract proceeds. On the same day, Mr Wight sent an email to Mr Shelton setting out the Mid‑Point Allocation amounts and concluded:
Assuming the final URS value allocation does not alter from that noted above, the GPL Liquidators require this allocation to be reflected in the Asset Sale Agreement.[10]
[10]Emphasis added.
On 16 October 2013, URS provided a draft report to the applicants that confirmed the scope of their engagement, set out the Mid‑Point Allocation, and concluded:
The methodology used by NFAM to value the tree crop is consistent with the requirements of AASB 141 – Agriculture for an entity that owns the land and tree crop. This methodology would not be appropriate if the party acquiring the tree crop was not the owner of the underlying freehold land (i.e. a party other than NFAM).
As URS was not provided with the detailed input assumptions to NFAM’s valuation model, we were not able to fully replicate NFAM’s allocation of value by Project. However, the outcome from our analysis based on our understanding of NFAM’s valuation assumptions indicates NFAM’s allocation across the GSP Projects is not unreasonable.
GPL advised URS it was seeking to allocate Project value based on the mid‑point between the URS and NFAM view. Given the outcome of the URS analysis this approach is considered not unreasonable.[11]
[11]Emphasis added.
The applicants relied on this opinion to redeem the flawed allocation process and validate their Mid‑Point Allocation.
Grower contentions
GSPH contended that the allocation of purchase price between beneficial owners must be based on established principles of law and equity, rather than some notion of commerciality or fairness. That is no doubt correct. It contended that the correct measure of value was well established, referring to a well‑known passage from the judgment of Isaacs J in Spencer v The Commonwealth. GSPH contended that the best evidence of the value was that attributed by New Forests as the purchaser. That allocation, of course, substantially favoured GSPH.
In my opinion, the First Trust Company Allocation was not a reflection of an arm’s‑length negotiation. The process under which that allocation had been calculated was highly managed and compromised. New Forests was plainly open to suggestion. The inclusion of an allocation within the contract of sale was at the request or direction of the liquidator.
The criticism by GSPH of the URS valuation was not justified. The URS Allocation was provided prior to the draft report dated 16 October 2013. URS was plainly requested to provide a valuation, and did so.
Tiwi Trees contended that the only independent objective expert assessment was that of URS. I agree. It contended that the applicants’ justification for choosing a mid‑point, explained by the apparent unfairness for the 1998 and 1999 growers and the other mid‑point allocations, was compromised and created an unfairness to growers, in particular its constituency. In written submissions, Tiwi Trees contended that it may be appropriate to adjust the position of the 1998 and 1999 growers so that they could achieve a modest return, without the necessity to make the overall mid‑point adjustments that disadvantaged the 2004, 2005 and 2006 schemes. That position was not pressed in oral submissions. There is no justification for such an adjustment.
Tiwi Trees submitted that the First Trust Company Allocation should not be accepted, because the process leading to its formulation was fundamentally compromised. It contended that the modelling was not transparent, and did not reflect any real market valuation on a scheme‑by‑scheme basis. Tiwi Trees argued that it was based on subjective factors.
Conclusion
In my opinion, the approach taken by the applicants in arriving at the Mid‑Point Allocation had the appearance of a process that had been managed to achieve a return for all growers, but would ensure, as an inevitable by‑product, that the applicants and receivers could recover the whole of their claims on a scheme‑by‑scheme basis. The fundamental difficulty with the process was that it did not purport to be an apportionment made according to established principles of law and equity.
Even if it be accepted that the allocation process was a transaction, such as a sale of property to a third party, where liquidators are to exercise their commercial judgment, there was a real and substantial ground for doubting the prudence of their conduct in advancing the Mid‑Point Allocation.[12] The conflict of duty and interest was self‑evident and continuing. It was not redeemed by the opinion of URS, to the effect that the Mid‑Point Allocation was not unreasonable.
[12]Re Ansett Australia Ltd (2001) 39 ACSR 355, [65].
Nor am I persuaded by the various reasons given by the applicants for insisting on the mid‑point. While their evidence in that regard was not challenged, it was not supported by some of the written exchanges with New Forests and URS. In the absence of any challenge, I make no adverse finding against the applicants. But they were vulnerable to challenge, due to their conflict of interest and duty, as well as the magnitude of the claims for costs and expenses made by them and the receivers. Those factors made this application unsuitable for determination under s 511 of the Corporations Act. Had the applicants only sought approval of the Mid‑Point Allocation, I would have refused their application.
The fact that the Mid‑Point Allocation was embedded in the contract as Schedule 4 is not persuasive. It was not the outcome of an arm’s‑length negotiation between growers and New Forests. The process under which those numbers were calculated and adopted had been compromised. The inclusion of the Mid-Point Allocation in the contract was just another factor that raised a concern about the prudence of advancing such an allocation in that manner. The incorporation of the Mid‑Point Allocation in Schedule 4 did not address the requirement that the allocation of trust property be made according to established principles of law and equity.
What was anticipated in the brief reasons given on 17 December 2013 was ‘an informed, equitable adjustment, reflecting the various rights given up’. The only assessment approaching that objective was that undertaken by URS.
The grower representatives did not suggest that a further or different hearing ought to take place to fully explore the basis for the First Trust Company Allocation, or the Mid‑Point Allocation, or to enable the court to make its own assessment, or to explore the applicants’ conflict. GSPH did, however, contend that if the First Trust Company Allocation were not approved, the applicants ought to be directed to procure an independent valuation of the rights given up.
Notwithstanding the criticism of the URS Allocation by GSPH, I am persuaded that it is independent, and the most reliable allocation available. It is also responsive to a request for an independent valuation. While it does not suit all of the parties, it is devoid of the compromising conflict of interest and duty, and the unhelpful process commencing with the early discussions between New Forests and the applicants, and New Forests and GSPH. There is no utility in seeking a further independent valuation. The adoption by URS of certain assumptions employed by New Forests refined and enhanced the valuation.
I propose to authorise the applicants to allocate the proceeds of sale, on a scheme‑by‑scheme basis, in conformity with the URS Allocation.
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