Re Gunns Plantations Limited (No 6)
[2015] VSC 425
•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 |
| and | |
| 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 6) (Tumbarumba Estate) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 425 |
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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 |
| For the Second Plaintiff | Ms K Beattie | Ashurst Lawyers |
HIS HONOUR:
Gunns Plantations Limited (in liquidation) (receivers and managers appointed) was the responsible entity of nine managed investment schemes. Only three such schemes are relevant to this application. They are the Gunns Plantations Limited Woodlot Project 2006, Woodlot Project 2008 and Woodlot Project 2009.
The liquidators are Ian Menzies Carson, Craig David Crosbie and Daniel Mathew Bryant, all members of the firm PPB Advisory, specialising in corporate recovery, restructure and insolvency. They were appointed administrators of Gunns Plantations on 25 September 2012, and liquidators on 5 March 2013. The receivers are Mark Korda and Bryan Webster of the firm KordaMentha, appointed to entities in the Gunns Group, including Gunns Plantations and Gunns Limited, whose assets secured borrowings.
The receivers have entered into a contract to sell land owned by Gunns Limited in the Tumbarumba region of New South Wales. Some of the land was leased by Gunns to Gunns Plantations pursuant to Forestry Right Deeds and deployed for the purposes of the schemes. The land was sub‑leased under Forestry Right Deeds to scheme members, or growers, whose interests are affected by the sale. Option 2 growers in each scheme invested in plantations of radiata pine on the land.
The liquidators made application, by interlocutory process filed 19 May 2015, for a direction pursuant to s 511 of the Corporations Act 2001 (Cth), r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic), and the inherent jurisdiction of the court for approval to exercise powers under the relevant scheme constitutions to terminate grower rights in the trees to facilitate completion of the sale. They also sought directions for the allocation of sale proceeds between schemes and for the distribution to growers.
On 31 May 2013 the court gave directions that the liquidators were authorised in procuring Gunns Plantations to amend the constitutions of each scheme to permit termination, relinquishment or surrender of leases, subleases, Forestry Right Deeds, maintenance and management agreements and other project documents made between Gunns Plantations and growers. Consequential amendments were made to the relevant constitutions on 21 August 2013 under s 601GC(1)(b) of the Act to insert extinguishment powers. The liquidators were required to seek court approval before exercising the power. They now seek that approval.
This was not the first such application in relation to the winding up of the Gunns Schemes.[1] As a general rule, liquidators have sought court approval in two stages: first, to approve the exercise of the power of termination to complete a sale of assets; and second, to approve the allocation and distribution of sale proceeds between schemes and among members. In this case, the liquidators sought approval for both steps simultaneously.
[1]Re Gunns Plantations Limited [2014] VSC 239; [2014] VSC 267; [2014] VSC 369.
Background
The land at Tumbarumba is comprised of 10 agricultural properties extending over approximately 3,500 hectares. Gunns is the registered proprietor. Thus, the land is under the control of the receivers. There are some companies within the Gunns Group who claim ownership of trees planted on some parts of the properties. Those trees are also under the control of the receivers. A little less than half the area under plantation was dedicated to the relevant managed investment schemes. Approximately 1,518 hectares are planted out with trees of differing maturity under the three relevant schemes. The liquidators claim, on behalf of the growers, ownership of those trees.
The liquidators have been unable to fund the ongoing management of the schemes since July 2013. Between 1 October 2013 and 9 December 2013, they attempted to sell the trees, but did not receive any binding offers by the deadline, 9 December 2013. From early January 2014, the liquidators commenced negotiations with the receivers for a joint sale of land and trees. These negotiations were interrupted by the sale process for the Tasmanian Forestry Estate, on which other scheme trees were located, and suspended until that sale was completed.
Negotiations between the liquidators and receivers recommenced in October 2014. They agreed that the allocation of sale proceeds between the liquidators and receivers should be predetermined, subject to the liquidators’ right to withdraw the trees from sale if they were not satisfied with the price achieved for the land and trees. Thus, the crucial component of the negotiations was to reach agreement on the allocation of sale proceeds.
The liquidators were in a difficult negotiating position. The receivers controlled the land on which the plantations stood, and were contending that they had the right to terminate the head lease granted to Gunns Plantations for its failure to maintain the plantations. The sub‑lease, contained in each Forestry Right Deed between grower and Gunns Plantations, was susceptible to termination upon termination of the head lease. Upon termination of a grower lease, all right, title and interest in the trees on the land were deemed to be assigned and transferred to Gunns Plantations, whose head lease had been terminated.
Default notices under the head leases between Gunns and Gunns Plantations had been served by the receivers on Gunns Plantations on 12 November 2014, relying upon its failure to maintain and manage the plantations.
Negotiations between the liquidators and the receivers concluded with the execution of a Sale Process Deed on about 16 December 2014. Under that deed the receivers agreed to maintain the trees and refrain from exercising their claimed right to terminate the head leases.
The receivers offered 6.9 per cent of the total purchase price for the relevant land. The offer was rejected by the liquidators who made a counter‑offer. The parties eventually agreed that 15 per cent of the sale proceeds would be set aside for the growers to represent the value of the trees. Agreement was reached before the liquidators had an opportunity to obtain a report from URS on the value of the trees.
Under the Sale Process Deed the liquidators and the receivers had joint conduct of the sale process, although the receivers had the primary carriage of the sale. The liquidators retained the right to withdraw the trees from the sale in the event the price fell below a prescribed minimum. Any sale was to be made conditional on the liquidators obtaining directions from the court that they would be justified in exercising the termination rights under the scheme constitutions.
The receivers were required under s 420A of the Act to obtain a price for the land that was not less than the market value, or the best price that was reasonably obtainable, having regard to the circumstances existing when the property was sold. The sale process was described by Brian Webster in his affidavit affirmed on 10 July 2015. Potential purchasers were identified, based on the receivers’ knowledge of interested parties in previous forestry transactions, and by placing advertisements in newspapers. Fourteen potential purchasers executed confidentiality deeds and were invited to participate in a due diligence process, which included access to an information memorandum and an electronic data room.
Following the initial due diligence, six parties submitted indicative non‑binding offers for various assets. Five of the six offers were for all of the assets in the Tumbarumba Estate, while one offer was for a single property. Four parties were invited to participate in the next stage of the due diligence, in which they were provided with access to a comprehensive program of site visits. They were also provided with draft sale documentation. Following completion of that stage, three binding offers were received, including two unconditional offers.
The highest unconditional offer was made by Gunns Forest Products Pty Ltd, on behalf of the purchaser, Southern Cross Forests Pty Ltd, an entity established by Gunns Forest Products to purchase the assets. The receivers accepted its offer and a sale agreement between Southern Cross and the receivers was made on or about 3 March 2015. The purchase price was $9,705,000, with some adjustments to be made. The payment to the liquidators, as a proportion of the sale price, is to be based upon the adjusted purchase price of $9,750,000. The purchaser apparently required approval from ASIC and the Foreign Investment Review Board for the purchase. It was not entirely clear why approval from ASIC and FIRB was required. In any event, those approvals have been given.
Not surprisingly, the receivers are of the opinion that the sale process undertaken was robust and competitive. They support the liquidators’ application. The receivers submitted that a large proportion of the assets of the 2006, 2008 and 2009 Woodlot Schemes have already been realised with the sale of the Tasmanian Forestry Estate. The schemes were unable to continue, as there was no funding available to restructure them. They submitted that the sale process maximised value for all assets by combining the sale of trees with the land. The liquidators’ stand-alone sale process for the trees had been unsuccessful.
The receivers justified their negotiating position on the basis that Gunns Plantations was in breach of the head Forest Rights Deeds. They contended that the sale process was beneficial to growers, because it secured the maintenance of the trees pending sale and protected the growers against termination of the Forest Rights Deeds and repossession of the Tumbarumba Land.
The liquidators deposed that they had little choice but to agree upon an allocation of 15 per cent in the absence of the URS valuation. They were not prepared to lose the opportunity to accept the offer. There was a risk that the receivers might exclude the trees from the sale process. It was the opinion of the liquidators, based upon their experience, that if scheme trees were to be excluded from the sale, there would be few, if any, buyers for parts of the Tumbarumba Estate. They negotiated a backstop protection, enabling them to withdraw the trees from the sale if the price fell below an agreed point.
The liquidators received a draft valuation of the trees from URS on 11 December 2014. A final valuation was provided on 28 January 2015. There were no material changes. The valuation undertaken by URS provided the liquidators with tangible support for the allocation agreed with the receivers, based upon the sale price of the land.
The liquidators deposed, and I accept, that to defer price allocation between the receivers and liquidators until after a sale may disadvantage growers in a negotiation. In Re Gunns Plantations Limited (No 4),[2] I said in relation to the predetermined allocation of sale proceeds from the sale of Tasmanian Forestry Estate:
While Gunns Growers abandoned its initial complaint that the ex ante agreement was idiosyncratic, something must be said about what it described as a departure from conventional practice. In my opinion, there were sound reasons for the liquidators to attempt agreement in advance of sale of all assets. The sale of all assets would inevitably be under the control of the receivers. It made eminent sense for those with an interest in the sale of Gunns Group business assets to ensure that they be sold together. As the liquidators observed, to defer price allocation until after a sale may disadvantage growers in a negotiation.
There were a number of risks for growers, not the least of which was the bias that may arise from buyer price allocation. While agreement in advance may introduce complexity, as demonstrated in this case, it also encouraged and motivated the joint aspiration of the liquidators and receivers to obtain the highest possible price across the basket of assets.
[2][2014] VSC 369, [67]–[68].
The negotiations were no doubt influenced by a number of negative factors that militated against the position for the liquidators. These factors included the insolvency of the schemes, the absence of any replacement responsible entity, the fact that notices of default had been served by the receivers for breach of the head leases, risks associated with the assignability of the head leases, and the absence of any offers received by the liquidators for the trees. The liquidators required certainty, with a minimum floor price at which they could withdraw the trees from the sale process.
It was generally accepted that the value of the trees would be enhanced if they were sold together with land. They were immature. I am satisfied on the evidence that the 2006, 2008 and 2009 woodlot schemes are not viable. They are insolvent. Gunns Plantations was and is unable to perform its obligations as the responsible entity. There is no real prospect of a new responsible entity assuming the obligations of Gunns Plantations.
The liquidators are of the opinion that completion of the sale, with an allocation of 15 per cent of net proceeds for growers, is in the best interests of growers. There were plainly risks for the growers had the liquidators not reached agreement with the receivers and cooperated in the sale process. The liquidators are satisfied that the receivers conducted a competitive sale process, that the negotiations over the percentage allocation were genuine. They rely upon the URS valuation to validate the outcome.
Upon completion of the sale it will be necessary to allocate the proceeds between the three relevant Gunns woodlot schemes and then to distribute the net proceeds between growers. The liquidators are of the opinion that the proceeds from sale, attributable to the trees, ought to be allocated between schemes based on the proportionate market value of the trees in each scheme. While URS attributed a value to the trees, it did not allocate the value on a per scheme basis. The liquidators sought assistance from URS to undertake that allocation, which was provided on 24 April 2015. Based on the land area involved in each scheme, URS calculated a net present value for the trees on the land. The liquidators propose to apply those values as the basis to apportion the proceeds between schemes.
The liquidators then propose to distribute the proceeds allocated to each scheme between growers in proportion to the number of hectares held by each grower. That has been a common approach adopted by the liquidators in the past as fair and reasonable. It is consistent with the way in which proceeds of sale from harvest would be distributed under scheme documents. In my opinion, there is no reason for the liquidators to depart from that method of distribution. The liquidators propose to distribute proceeds to growers as soon as practicable following completion of the sale and receipt of funds.
Where liquidators have purported to exercise their commercial judgment, and seek approval from the court, the court should generally defer to their commercial judgment. After all, it is the liquidators who are entrusted with the conduct of the liquidation, subject to the supervision of the court. As a general rule, the court will not second‑guess the commercial judgment of liquidators and will not interfere with a commercial decision unless there is a lack of good faith, or the liquidators are shown to have made an error in law or principle, or there exists a real and substantial ground for doubting the prudence of their conduct. It is not the role of the court to substitute its commercial judgment for that of the liquidators. The court is not qualified to do so. It is not part of the judicial function.[3]
[3]Re Ansett Australia Ltd [2001] FCA 1439, [65]–[68].
No challenge has been made to the integrity of the liquidators’ decision making processes, and no material has been advanced that would justify this court in rejecting their commercial judgment.
By affidavit affirmed on 12 June 2015, Mr Bryant deposed to the means by which notice was given to growers of the hearing pursuant to orders made for that purpose on 22 May 2015. A communications report was prepared. As at the date of his affidavit, no email communications had been received, although he had received one letter providing a bank nomination form, and two telephone calls. One call was from a grower confirming holdings, and the other requesting an explanation of ‘grower update’ dated 29 May 2015. No request was received for a paper or electronic copy of court documents.
Mr Bryant filed a further affidavit dated 29 July 2015, in which he deposed that since his earlier affidavit, dated 12 June 2015, he had received some comments and questions in relation to this application. Between 12 June 2015 and 28 July 2015 there were six communications from growers updating details or concerning a grower loan. There was no request for information concerning this application. No grower has sought to appear on this application, nor has any material been filed on behalf of a grower.
In the circumstances, I am persuaded that the liquidators are justified in procuring Gunns Plantations to exercise its powers under the scheme constitutions to the extent necessary to allow completion of the sale agreement dated 11 March 2015 between Gunns and Southern Cross Forests Pty Ltd. I am also persuaded that the liquidators are justified in procuring Gunns Plantations to exercise its powers under the scheme constitutions to terminate such scheme documents as are necessary to allow completion of the sale. It follows that I am persuaded the liquidators were justified in reaching their agreement with the receivers recorded in the sale process deed, resulting in the allocation of an amount from the sale to be held by the liquidators for the benefit of growers. Further, the liquidators are justified in allocating those proceeds between the three schemes based upon the URS allocation dated 24 April 2015, and distributing the proceeds between growers in each scheme in proportion to the number of hectares held by each grower.
The liquidators also invoked r 54.02 of the Rules of Court as a mechanism by which they, as trustees of a fund held on behalf of growers, might seek a direction for the determination of a question.[4] 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. In my opinion there is adequate power under s 511 of the Act for the proposed directions.
[4]Macedonian Orthodox Community Church St Petka Inc (2008) HCA 42; (2008) 237 CLR 66.
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
0
4
0