Re Gunns Plantations Limited (No 5)
[2015] VSC 420
•18 August 2015
| 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) in its capacity as the responsible entity of the managed investment schemes listed in Schedule 1
| 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 |
| v | |
| GUNNS PLANTATIONS LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 091 232 209) in its capacity as the responsible entity of the managed investment schemes listed in Schedule 1 | Second Plaintiff |
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JUDGE: | JUDD J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 July 2015 |
DATE OF JUDGMENT: | 18 August 2015 |
CASE MAY BE CITED AS: | Re Gunns Plantations Limited (No 5) (Tasmanian Forestry Estate) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 420 |
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CORPORATIONS — Managed Investment Scheme — Application for approval of termination of grower rights to facilitate sale of scheme property — Application for directions for allocation and distribution of sale proceeds — Applications made under s 511 of the Corporations Act 2001 (Cth) and r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiffs | Mr P D Corbett, one of Her Majesty’s Counsel with Ms L H Kirwan | Arnold Bloch Leibler |
| Mr Trevor Burdon | Appeared on his own behalf |
HIS HONOUR:
The liquidators of Gunns Plantations Limited sought directions pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005, s 511 of the Corporations Act 2001 and the inherent jurisdiction of the court, that they are justified and otherwise acting properly and reasonably in allocating proceeds from the sale of the Tasmanian Forestry Estate assets between seven Gunns Plantations Woodlot Projects, and within those projects between various sub‑schemes, based upon a value allocation made by URS, and to distribute the allocated proceeds to members of each scheme or sub‑scheme in proportion to the number of hectares held by each grower. The court has already directed that the liquidators were justified in terminating grower rights to facilitate completion of the sale of the Tasmanian Forestry Estate. The background facts and circumstances leading to the approval are to be found in the reasons for judgment in Re Gunns Plantations Limited (No 4) delivered 11 August 2014.[1]
[1][2014] VSC 369.
The liquidators presently hold the proceeds allocated to them on trust for the growers pursuant to a Sale Process Agreement with the receivers dated 24 October 2013. The liquidators’ share of sale proceeds was $43,506,951 and is continuing to accrue interest. Prior to the allocation and distribution of the proceeds, the liquidators intend to deduct the costs incurred by Gunns Growers Group Pty Ltd as an intervener on the liquidators’ application for approval of the sale, the liquidators’ costs of the application, sale costs and the costs of this application for approval. A separate application has been made to the court in relation to the liquidators’ claim for costs, expenses and remuneration in the winding up of the schemes.
The woodlot schemes operated by Gunns Plantations comprise the 2002, 2003, 2004, 2005, 2006, 2008 and 2009 Woodlot Projects. The 2002 Woodlot Project had plantations only in Tasmania, and consisted of two options or sub‑schemes. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 13,753 hectares by 1,112 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 1,954 hectares by 453 growers.
The 2003 Woodlot Project had plantations only in Tasmania, and consisted of two options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 15,157 hectares by 1,273 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 2,050 hectares by 420 growers.
The 2004 Woodlot Project had plantations only in Tasmania, and consisted of two options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 4,370 hectares by 238 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 475 hectares by 71 growers.
The 2005 Woodlot Project had plantations only in Tasmania, and consisted of two options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 11,443 hectares by 944 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 1,603 hectares by 333 growers.
The 2006 Woodlot Project 2006 had plantations in Tasmania and New South Wales, and consisted of three options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 18,091 hectares by 1,882 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 9,667 hectares by 955 growers. Option 3 involved radiata pine trees grown for sawlog and pulpwood. The anticipated duration was approximately 25 years. Trees were planted on 4,582 hectares by 130 growers.
The 2008 Woodlot Project had plantations in Tasmania and New South Wales, and consisted of three options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 14,565 hectares by 1,527 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. The anticipated duration was approximately 20 years. Trees were planted on 2,306 hectares by 470 growers. Option 3 involved radiata pine trees grown for sawlog and pulpwood. The anticipated duration was approximately 25 years. Trees were planted on 344 hectares by 35 growers.
The 2009 Woodlot Project had plantations in Tasmania and New South Wales, and consisted of three options for investors. Option 1 involved eucalyptus grown for pulpwood. The anticipated duration was approximately 13 years. Trees were planted on 4,107 hectares by 674 growers. Option 2 involved eucalyptus grown for veneer and pulpwood. ·The anticipated duration was approximately 20 years. Trees were planted on 309 hectares by 110 growers. Option 3 involved radiata pine trees grown for sawlog and pulpwood. The anticipated duration was approximately 25 years. Trees were planted on 427 hectares by 132 growers.
The woodlot schemes were generally governed by a suite of scheme documents, which included a constitution, pursuant to which the scheme was established. By a Forestry Right Deed (or sub-lease), Gunns Plantations granted to each grower a right to exercise forestry rights on a specified plantation. Gunns Plantations was appointed by each grower to manage the plantations under a standard Management Agreement.
When growers applied to invest or participate in a particular scheme, by completing an application form, they also selected an option such as those described above. Particular parcels of land were not allocated to a grower until some time later. Upon acceptance of the grower’s application, Gunns Plantations and the grower would enter into the Management Agreement.
Under the 2002 woodlot scheme, growers could elect, subject to conditions, to harvest and sell their own trees. A grower so electing was required to indemnify Gunns Plantations for any loss or damage caused by the grower in harvesting the trees. A self‑harvesting grower was also required to comply with all reasonable directions of Gunns Plantations in relation to harvesting and removing the wood; and must have paid all amounts owing under the Management Agreement and Forestry Right Deed. Even so, Gunns Plantations remained responsible for maintaining the trees until harvest. Only one grower in the 2002 woodlot scheme elected to self‑harvest. He invested in 180 hectares of plantations, and is currently harvesting the trees. This application does not relate to the trees on that land or proceeds of sale from the harvest.
Trees planted under each planting option were spread over multiple properties located across Tasmania, although a number of the Option 3 plantations were also located in the Southern Highlands region of New South Wales. The Option 3 trees located in the Southern Highlands region of New South Wales are not relevant to this application.
The subscribers for each of Option 1, 2 and 3 paid an upfront fee of $6,820 (including GST) per woodlot. The fee represented the total cost for the establishment and planting of each woodlot. There was no ongoing rent, maintenance cost or sales commission fees payable. Some such costs and fees were to be deducted from the proceeds of sale following harvest.
The 2006 scheme documents provide a sufficient template for the purpose of this application. Under the 2006 Management Agreement, the trees grown under Option 1 and 3 were not to be pruned. Option 2 trees were to be pruned three times before reaching 10 years of age. The Option 2 growers were required to pay a baseline pruning expenses per woodlot. In year 4, the cost was $736 per woodlot. In year 6, the cost was $788, and in year 7, $840. The pruning fees were indexed.
The Product Disclosure Statements and Management Agreements for all woodlot schemes provided that the proceeds of sale were to be pooled (other than for self‑harvesting growers) and distributed by Gunns Plantations to growers within each scheme option according to the number of woodlots held by each grower.
Growers were told they could expect two to three harvests during the course of each scheme. By way of example, the trees in Option 1 and 2 of the 2006 woodlot scheme were expected to have two harvests — a commercial thinning and a final harvest. The trees in Option 3 were expected to have three harvests — two commercial thinnings and a final harvest.
Under the scheme documents, the trees in each woodlot in Option 1 and 2 were required to be commercially thinned at around the ninth year of the scheme. The trees in each woodlot in Option 3 were required to be commercially thinned in the thirteenth and the eighteenth year of the scheme. The proceeds from the commercial thinnings were to be divided between all growers.
The stated purpose of the pooling of harvest proceeds was to ensure individual investors were protected from losses and damage resulting from fire, disease, pests and the impact of weather and climatic events that might cause damage to one or a few woodlots.
Growers might elect to take out insurance. In the event that a grower insured trees, and made a successful claim under an insurance policy, the grower was entitled to retain the proceeds of the claim. Insurance proceeds would not form part of pooled proceeds. On the other hand, a grower making a successful insurance claim would not receive a distribution of the sale proceeds following harvest, in respect of the woodlot to which the claim related.
Under the scheme documents, each grower was required to pay 9 per cent of any insurance proceeds received to the manager of the woodlot in satisfaction of the maintenance and rental fees for the respective woodlots or those part of the woodlots that were the subject of the insurance claim. The same proportion was deducted by the manager from the proceeds of sale following harvest before distribution.
Under the Constitution, subject to retaining certain deductions, Gunns Plantations was required to distribute to growers within each scheme option a share of proceeds of harvest in proportion to the number of woodlots held by each grower.
On or about 20 July 2011, Gunns Plantations wrote to Option 2 growers within each scheme, advising them of a review of Option 2 trees, and of a Board decision to cease pruning operations for the 2002, 2003, 2004, 2005 and 2006 schemes. Given the anticipated pruning timetable, the board decision did not immediately affect the 2008 and 2009 schemes because, as at the date of that letter, the pruning operations for those schemes were not due to commence for a further 12 to 24 months.
On 15 August 2011, Gunns Plantations wrote to growers in the 2002 woodlot scheme providing the growers with a ‘Quarterly Grower Update’. The letter informed growers of the status and the expected returns from the commercial thinnings for each of those scheme options. Growers were informed that priority would be given to thinning the Option 2 trees to ensure the future production of veneer and to derive benefits from the pruning operations that had already been undertaken.
On 2 March 2012, Gunns Plantations wrote to growers who invested in the 2000, 2001 and 2002 woodlot schemes, providing a ‘Quarterly Grower Update’. Growers were informed that the thinning of scheme trees remained ‘very problematic’ due to the commercial viability of the process. Option 2 trees were still prioritised for thinning.
The liquidators were appointed as administrators of Gunns Plantations on 25 September 2012, and as liquidators on 5 March 2013. Soon afterwards, maintenance, including pruning and thinning, ceased. Except for some basic maintenance carried out by the receivers, to preserve the value of the trees and land, harvests through pruning and thinning did not occur.
The woodlot scheme assets included in the Business Sale Agreement were scheme trees located on approximately 51,194 hectares of land known as the Tasmanian Forestry Estate. Set out below is a table describing, in respect of each scheme and option, the number of hectares under plantation.
Scheme
Option 1 Ha
Option 2 Ha
Option 3 Ha
Total Ha
2002 10,162 294 10,456 2003 6,309 – 6,309 2004 3,324 – 3,324 2005 6,896 1,537 8,433 2006 7,395 6,313 1,411 15,119 2008 4,153 1,670 39 5,862 2009 1,459 232 1,691 TOTAL 39,698 10,046 1,450 51,194 In total, across each of the Gunns woodlot schemes, there were approximately 39,698 hectares of Option 1 trees, 10,046 hectares of Option 2 trees and 1,450 hectares of Option 3 trees included in the Business Sale Agreement.
Allocation between schemes
The liquidators are of the opinion that the sale proceeds held on trust by them should be allocated between schemes, and the various options within schemes, based on an assessment of the market value of the trees in each option and scheme that formed part of the sale.
By direction of the court made on 14 November 2014 the liquidators were required to give notice of this application by publishing court documents on their website, and the website of their solicitors, and informing growers by email of the application and supporting affidavit. Growers were to be given a telephone number on which they could make enquiries and request court documents. The liquidators were also required to publish an advertisement in a national newspaper. Any grower wishing to be heard on the application was required to file and serve an appearance and any submission or affidavit material within a prescribed time.
On 5 December 2014, the liquidators sought a further direction that they were justified in instructing URS Australia Pty Ltd to undertake a value allocation of the proceeds between the schemes and within each scheme between the various options. A direction to that effect was made.
Trevor Lesley Burdon, an Option 1 and 2 grower in 2002 Woodlot Project, had been granted leave to appear at the hearing of the liquidators’ earlier application for directions that they were justified in terminating grower rights to enable completion of the sale agreement.[2] He also appeared at various directions hearings leading up to this application.
[2][2014] VSC 369. Mr Burdon’s superannuation fund was also an investor in 2002 Option 2 projects.
Mr Burdon filed an interlocutory process, dated 13 March 2015, in which he sought access to confidential exhibits to the liquidators’ affidavits. Some of Mr Burdon’s requests, while initially denied by the liquidators, were eventually rewarded by the production to him of some documents on the basis of undertakings as to confidentiality.
Mr Burdon appeared at a directions hearing on 10 April 2015, the day after the liquidators received the latest URS report. On that occasion the liquidators sought to stand over further directions for two weeks to consider the report, and prepare a memorandum to growers to inform them of the proposed allocation. At the hearing the court was informed of a continuing dispute between the liquidators and Mr Burdon over his access to confidential exhibits. Mr Burdon sought access to a URS report prepared in February 2013, that had been employed by the liquidators in their application heard and determined in August 2014. He said he wished to review the basis for the sale process that had already been reviewed by the court the previous year. Mr Burdon also wanted to challenge the conduct of the liquidators in the sale process and the quantum and allocation of their costs.
The liquidators resisted the application, although agreed to provide Mr Burdon with a copy of the URS allocation report received by them the previous evening. He was directed to file and serve an affidavit in support of his application, which was listed for hearing on 8 May 2015. The plaintiffs’ interlocutory process, filed 31 October 2014, was also re‑listed for directions on that day. Both matters eventually returned to court on 12 May 2015.
In an affidavit affirmed on 24 April 2015, Mr Bryant deposed that the 2013 URS report remained highly sensitive because of ongoing negotiations for the sale of other land, the outstanding application for approval of the proposed allocation and distribution in relation to the Tasmanian Forestry Estate land, and in relation to land at Tumbarumba in New South Wales.
At the hearing on 12 May 2015, Mr Burdon relied upon a further affidavit, affirmed on 17 April 2015, described as his fifth affidavit, to press his application for access to the 2013 URS report. Having received a copy of the URS report dated 24 April 2015, Mr Burdon pressed his application for the 2013 report on a different basis — to enable him to question whether the cost of the more recent report was necessarily incurred. His application was refused, although he was given liberty to renew the application for production at the hearing of this application. Directions were made for affidavits, submissions and a date for the hearing was fixed.
Having received the recent URS allocation report, the liquidators adopted the proportionate allocations set out as Table‑ES 1. Mr Bryant deposed that the liquidators were reinforced in their decision by their experience in the valuation and sale of forestry assets. They also employed a forestry expert, Tim Lee, as a member of their team. The liquidators were of the opinion that the proportionate allocations set out in the table were reasonable. One allocation column included negative values for plantations, while the other ignored negative values.
Table‑ES 1 Allocation of GPL sale proceeds
PROJECT
OPTION
PROJECT AREA (ha)ALLOCATION (INCL –VE VALUES) ($000)
ALLOCATION (INCL –VE VALUES) (%)ALLOCATION (NO –VE VALUES) ($000)
ALLOCATION (NO –VE VALUES) (%)2002 Option 2 301.6 781 1.9% 1.9% 770 Option 1 10,441.0 17,295 42.6% 42.2% 17,113 2003 Option 1 5,275.1 5,442 13.4% 13.3% 5,394 Option 1 (Late) 1,294.3 1,598 3.9% 3.9% 1,577 2004 Option 1 2,097.5 2,629 6.5% 6.4% 2,595 2005 Option 2 1,474.5 1,175 2.9% 2.9% 1,160 Option 2 (Late) 109.8 56 0.1% 0.1% 55 Option 1 6,576.6 3,407 8.4% 8.6% 3,485 Option 1 (Late) 560.2 70 0.2% 0.2% 85 2006 Option 2 1,596.1 659 1.6% 1.6% 653 Option 2 (Late) 4,912.5 1,041 2.6% 2.7% 1,094 Option 1 4,830.8 840 2.1% 2.1% 858 Option 1 (Late) 2,767.1 898 2.2% 2.3% 923 Option 3 240.8 198 0.5% 0.5% 196 Option 3 (Late) 763.9 610 1.5% 1.5% 602 2008 Option 2 1,722.4 1,104 2.7% 2.7% 1,110 Option 1 4,194.0 1,426 3.5% 3.9% 1,575 Option 3 38.6 23 0.1% 0.1% 22 2009 Option 2 239.5 222 0.5% 0.5% 219 Option 1 1,504.2 1,090 2.7% 2.7% 1,081 Total 50,940.6 40,566 100% 100% 40,566 Key: Decrease in weighting, increase in weighting when plantations with a negative value are assumed to have a zero value
Source: URS
The liquidators preferred the allocation made in Table‑ES 1, which ignored negative values for plantations. URS expressed the view that there was an economic argument that plantations with a negative value may be abandoned by the grower and returned to the landowner. They expressed the opinion that such a contingency was material to a valuation based upon a discounted cash flow methodology, which applied certain assumptions to an ongoing business undertaking. URS reported some low productivity plantations, which would involve high harvesting costs, or were located a long distance from the market. These attracted a negative calculated value. There were only a few plantations with negative values. Thus, the elimination of negative values did not have a significant impact on the allocation, but there was some impact. The attribution of a nil value, rather than a negative value, resulted in a marginal increase of the overall value within a particular project option in which the compromised stands were to be found.
The decision made by the liquidators to opt for an allocation, after eliminating negative valuations, was not challenged. URS provided a rational basis upon which to follow that course, arguing that a business undertaking in which trees had a negative value would probably be abandoned by the owner.
At the hearing on 30 July 2015, Mr Burdon appeared and made oral submissions. He also relied on a further affidavit filed on 15 July 2015. Mr Burdon did not renew his application for the 2013 URS report.
Another grower, Adam Jolyon Musgrave, filed an affidavit affirmed on 15 July 2015, and written submissions of the same date, in opposition to the liquidators’ application. He had purchased 10 woodlots under Option 1 in the 2005 Woodlot Project, paying fees of $68,200, and expressed concern at the length of the winding up process and associated costs, and the small return as a grower.
Mr Musgrave had also provided with a copy of the URS report, dated 9 April 2015. He objected to the allocation of sale proceeds between options and schemes. He criticised the approach taken by URS in the report, and in particular its failure to undertake more site inspections, and what he described as an abridged inventory program. He complained that while 15 days had been set aside by URS for inspection of inventory, URS had only spent two days on inventory inspections. He complained that URS had failed to inspect the minimum number of allotments required to assess the robustness of yield estimates previously made by Gunns. He criticised URS for failing to undertake a more rigorous analysis of tree damage. There was some damage to trees in areas other than where his woodlots were located. If the damage was to be confined as Mr Musgrave proposed, a higher value might be attributed to his woodlots.
Mr Musgrave complained about the discounting by URS of yields estimates made by Gunns before its collapse. He also complained that Gunns Finance Pty Limited was a grower in some schemes, as a result of grower investors defaulting on loans. He alleged, without any foundation, that ‘URS would have been encouraged by the liquidators (acting in concert with the receivers) to allocate as much of the GPL scheme proceeds to the 2002 and 2003 projects as was justifiable and supportable’.
Finally, Mr Musgrave proposed an alternative allocation process that would result in a lower allocation percentage to the 2002 project, and a correspondingly higher allocation percentage to all others, including the project in which he participated. He proposed that the court undertake its own analysis of the data contained in the URS report, or that another forestry expert be engaged. Mr Musgrave did not otherwise participate at the hearing; he did not appear at the hearing to make oral submissions, nor did he file evidence other than his argumentative affidavit.
Mr Burdon, who did appear at the hearing, summarised his objections as follows:
(a) There were fault, cost and sale opportunities issues that remained unresolved.
(b) Grower investors were not sufficiently informed to comment on the adequacy of the liquidators’ proposal for allocation distribution.
(c) The feasibility of the woodlots comprising Option 2 under the 2002 Project remained unconfirmed.
(d) There was a wood sale agreement that had not been taken into account by URS in its report. Presumably, the sale was by the self‑harvesting grower.
(e) There was no information on the sales, if any, of third party land, which might have an impact on the final amount to be distributed to growers.
(f) Contributions made by growers had not been recognised in the allocation process.
(g) The amount allocated to growers following the sale of the Tasmanian Forestry Estate had been overwhelmed by considerations that favoured the landowners.
(h) Cost variances across the 2002 and 2005 Option 2 schemes were high.
(i) Rent obligations were taken into account by URS, but were never the responsibility of the growers.
Some submissions made by Mr Burdon were difficult to follow, while others were not relevant to the application before the court. Unfortunately, Mr Burdon did not accept an offer from the liquidators to fund legal representation for the purpose of this application. He justified his refusal on the basis that he considered it would have restricted what he wanted to say to the court. He mentioned conditions imposed by the liquidators that had influenced his decision to reject the offer. The absence of legal representation for Mr Burdon was unhelpful.
Mr Burdon complained that, having paid for the growing and management of the trees on his allotments, his asset had been appropriated through the sale and termination of his rights under the agreements. He was concerned about the insolvency of the Gunns Group, that was no fault of his, and its impact on him as a grower. He felt alienated from the liquidation process. Mr Burdon contended that his woodlots were the oldest and most valuable. He could not understand how, in that case, his return was so poor. He gave an example of the self‑harvest option holder achieving $12 to $15 per green metric tonne, whereas he would be lucky to achieve $1 per tonne.
Mr Burdon was also concerned at the lack of information about 2002 Option 2 woodlots on third party land. The proposed distribution would be made to all scheme members, including those with woodlots on third party land, whose trees has not yet been sold. He would lose the benefit of the higher value of his woodlots, and his return would be further diminished because growers whose trees had not yet been sold would also benefit. He accepted that, with any sale of trees, located on third party land, further funds may be generated that would be distributed equally across all scheme members, including himself. Mr Burdon suggested that a fairer way to allocate proceeds would be by reference to the contributions made by investors to fund each woodlot sold by the receivers.
Mr Burdon complained that maintenance costs attributed to the trees by URS, when valuing the trees, assumed an annual cost of $75 per hectare, whereas in another model they had used a maintenance cost of a little over $14.
URS had referred to the failure of Gunns Plantations to undertake thinning and pruning as a material factor adversely affecting the value of some trees. Mr Burdon argued that much depended upon the density of planting when considering whether the absence of thinning would be prejudicial. He argued that there was an active industry in Tasmania using veneers and high quality timber to make furniture. Thus, the value of his trees would be significantly higher than was attributed by URS. He complained that there was no detailed investigation of the opportunity for the use of such timber, and therefore a failure to consider the particular attributes of individual woodlots, and in particular, his trees.
David John Paul was formerly a principal consultant with URS, and an author of the URS report dated 9 April 2015. He filed an affidavit, dated 24 July 2015, responding to the complaints made by Mr Musgrave. Mr Paul was well qualified to prepare the URS report and respond to the complaints.
Mr Paul explained that Mr Musgrave had misunderstood the amount of time taken by URS when conducting the inventory program. He explained the reason why less than 40 actual plots were inspected and the impact of plantation damage. He said that plantation damage had been taken into account in the 2002 project value allocation, and that the severely damaged plantation areas were removed from the value allocation process altogether.
Mr Paul explained the adjustment made to earlier forecasts by Gunns. He said the forecasts were outside plausible confidence limits. Mr Paul said that the alternative value allocation method proposed by Mr Musgrave ignored accepted valuation practices, both within and outside the forestry sector.
Having regard to Mr Paul’s unchallenged evidence, Mr Musgrave’s attempt to undermine the credibility of the URS report failed.
Most of the complaints made by Mr Burdon sidestepped the reality confronting him. He was, quite understandably, distressed by the failure of his investment, and frustrated by a liquidation process brought about by circumstances outside of his control. Unfortunately, the collapse of the Gunns Group resulted in the collapse of the responsible entity and project manager. In the absence of a substitute responsible entity, capable of maintaining the woodlots and meeting other financial obligations, the schemes failed. With the collapse of the Gunns Group, investors became exposed to a contest between the receivers, appointed by Gunns Group bankers, and the liquidators of the responsible entity and schemes, over the sale process and any entitlement the growers might have to sale proceeds. That contest has now been resolved.
The valuations by URS were made as at the date of sale, in circumstances where timely management of the forestry assets had been suspended for some time, and funds were not available to undertake thinning and pruning. It was impractical to value individual woodlots. Mr Burdon’s woodlots might have been more valuable than others, but under the scheme documents, all proceeds from harvest were to be distributed across scheme members of a particular scheme and option. The valuation methodology employed by URS was not shown to have been erroneous or unreasonable.
It was open to Mr Burdon and Mr Musgrave to adduce evidence of a more appropriate valuation methodology, or to contradict significant assumptions made by URS in its report. They did not do so. Mr Burdon said in his affidavit that he intended to call witnesses. He did not. He gave notice of his intention to call Mr Bryant. He might have applied for leave to cross‑examine Mr Bryant, but did not. He was given an opportunity, albeit conditional, to have legal advice and assistance on this application. He refused that offer.
The court has a discretion as to whether to give directions to a liquidator and will generally give directions to resolve a difficulty that has arisen in the liquidation.[3] By giving a direction, the court does not finally determine the rights and liabilities of parties arising out of the subject-matter of the application for directions.[4] It is not the function of the court to make commercial judgements on behalf of liquidators or substitute its judgement for theirs. In Re Ansett Australia Ltd[5] Goldberg J said:
[3]Dean Wilox v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, 212.
[4]Re GB Nathan & Co Pty Ltd (in liquidation) (1991) 24 NSWLR 674, 677, 679–80.
[5][2001] FCA 1439, [65]–[68].
In a number of authorities, the courts have made it clear that courts should pay regard to the commercial judgment of liquidators when considering compromises of claims or causes of action made by liquidators in respect of which compromises the approval of the court is sought. The Act and its predecessors, entrust to liquidators and administrators the conduct of liquidations and administrations, albeit subject to the ultimate supervision of the court. The court will generally defer to the commercial judgment of liquidators and administrators. In Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, Giles J said at 85–6:
In any application pursuant to s 377(1) [equivalent to Corporations Act s 477(2A)] the court pays regard to the commercial judgment of the liquidator: Re Chase Corp (Australia) Equities Ltd (1990) 8 ACLC 1118. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231–2, the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis.
Put shortly, it is not the role of the court to make a commercial judgment for the liquidators or administrators or to substitute its judgment for their judgment. The court is not qualified to do so and it is not part of the judicial function to do so. Street CJ made this point in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 232:
When the court is required to pronounce upon the commercial prudence of a transaction, it enters upon a slippery and uncertain field. Apart from the lawyer's disclaimer of expert qualifications in matters of business prudence, the very process of litigation and the necessary limitations upon the scope of admissible evidence restrict the available material to far less than is necessary for the making of a commercial decision.
As I have pointed out earlier, although courts will not pronounce upon the commercial prudence of a particular transaction, they will act in an appropriate case to protect liquidators and administrators from claims that they have acted unreasonably in entering into particular transactions. That protection will remain so long as the liquidators or administrators have made a full and fair disclosure to the court of all facts material to the subject-matter under consideration: Re G B Nathan & Co Pty Ltd (in liq), above, at 679; Mentha v G E Capital Ltd (1997) 154 ALR 565 ; 27 ACSR 696 at 702.
In this consideration of relevant principles, I have considered the relevant principles as applying equally to court appointed liquidators and administrators appointed pursuant to Pt 5.3A of the Act.
There is a difference between court appointed liquidators and administrators appointed pursuant to the provisions of Pt 5.3A of the Act. Administrators are not officers of the court in the same way as court appointed liquidators are officers of the court. Part 5.3A of the Act enables an administrator of a company to be appointed by the company (s 436A), by a liquidator of a company (s 436B), by a person entitled to enforce a charge on the whole of the company's property (s 436C) and by the court where a company is under administration but no administrator is acting (s 449C(6)). There is a suggestion in some authorities that a voluntary liquidator not appointed by the court is not an officer of the court: Re London County Commercial Reinsurance Office [1922] 2 Ch 67 at 84; Re David A Hamilton & Co Ltd (in liq) [1928] NZLR 419 at 422, but see Re T H Knitwear (Wholesale) Ltd [1987] 1 WLR 371 at 377.
The liquidators also invoked r 54.02 of the Rules of Court as a mechanism by which they, as trustees of the fund held on behalf of growers, might seek a direction for the determination of a question.[6] Thus, should there be any doubt about the scope of the power under s 511 of the Corporations Act, there exists a broad power to enable the court in this instance to give appropriate directions to the liquidators as trustees.
[6]Macedonian Orthodox Community Church St Petka Inc (2008) HCA 42; (2008) 237 CLR 66.
The court will generally defer to the commercial judgment of liquidators. It will not interfere unless there is evidence of some lack of good faith, some error in law or principle, or a real and substantial ground for doubting the prudence of the liquidators’ conduct. It is not the role of the court to make a commercial judgment, and the court is not qualified to do so. It is not part of the judicial function.[7]
[7]Re Ansett Australia Ltd [2001] FCA 1439, [65]–[68].
In the absence of evidence that casts doubt upon the credibility of the URS report, it is not for the court to review the report, on a line by line basis. Criticisms advanced by Mr Musgrave and Mr Burdon were unsubstantiated. Had those criticisms either of themselves, or supported by evidence, disclosed circumstances that cast significant doubt on the reliability of the report, a question may have then arose as to whether it was prudent for the liquidators to rely upon it. No such question arose in this case. The contradictors have not established any proper basis upon which to conclude that the liquidators had not acted in good faith, or applied wrong principles of law or commercial practice, or in some way acted imprudently when deciding to allocate the proceeds on the basis recommended in the URS report. The proposed distribution is in accordance with the scheme documents for the distribution of harvest proceeds. While the contradictors advanced a preferred approach, they did not suggest that to follow the model of distribution prescribed in the scheme documents was wrong in principle or otherwise not justified.
In his affidavit affirmed on 5 June 2015, Mr Bryant deposed to the process by which growers were notified of this application. I am satisfied that the growers were notified in accordance with the orders made on 12 May 2015, and provided further information, in the nature of a grower information pack, which included an explanatory notice dated 15 May 2015.
Mr Bryant deposed to steps taken within his office to record responses from growers, by email, letter and telephone. Between 15 May and 3 June 2015 there were 215 responses, many of which were from growers updating their details or confirming their holdings. Of the 215 responses, only 17 expressed an opinion on the allocation. Of those, five supported the proposed allocation and 12 rejected it. Those rejecting the allocation were spread across the 2002, 2003, 2005, 2006 and 2008 woodlot schemes. Different reasons were given for rejecting the proposed allocation, including the liquidators’ costs, the small amount available for distribution, the unavailability of the URS report, and a proposal by some that costs should be distributed more equitably across all schemes. Other growers asked questions, requested forms, or engaged in general discussion. Some growers sought to ascertain why some Option 2 and 3 woodlots were excluded from the proposed allocation, while others were concerned to know and the timing of any payments.
The question before the court is whether there is any reason why the court should second‑guess the commercial judgment of the liquidators, or refuse to protect their decision, including their decision to rely upon the URS report and make the allocation and distribute the funds between growers as they propose. In the absence of any proper basis to conclude that the liquidators had not acted in good faith, or applied wrong principles of law or commercial practice, or in some way acted imprudently when deciding to allocate and distribute the proceeds, the court will pay due regard to their commercial judgment. On the evidence before the court, there is no reason why the liquidators ought not be entitled to rely upon the value allocations made by URS to inform them in their task of allocating the proceeds from the sale of the Tasmanian Forestry Estate land, and upon the distribution model in the scheme documents, to distribute proceeds to members.
SCHEDULE 1 - MANAGED INVESTMENT SCHEMES
1.Gunns Plantations Woodlot Project 2002 ARSN 099 584 675
2.Gunns Plantations Woodlot Project 2003 ARSN 104 213 710
3.Gunns Plantations Woodlot Project 2004 ARSN 108 690 080
4.Gunns Plantations Woodlot Project 2005 ARSN 113 092 854
5.Gunns Plantations Limited Woodlot Project 2006 ARSN 118 534 106
6.Gunns Plantations Limited Woodlot Project 2008 ARSN 128 933 237
7.Gunns Plantations Ltd Woodlot Project 2009 ARSN 135 490 292
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