Re Pindan Group Pty Ltd (Administrators Appointed) & Ors [No 4]
[2022] WASC 143
•28 APRIL 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE PINDAN GROUP PTY LTD (ADMINISTRATORS APPOINTED) & ORS [No 4] [2022] WASC 143
CORAM: STRK J
HEARD: 13 APRIL 2022
DELIVERED : 13 APRIL 2022
PUBLISHED : 28 APRIL 2022
FILE NO/S: COR 102 of 2021
(IN THE MATTER OF PINDAN GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) AND OTHERS)
BETWEEN: EX PARTE - VINCENT ANTHONY SMITH, COLBY RHYS O'BRIEN and SAMUEL JOHN FREEMAN, as joint and several deed administrators of PINDAN GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT), PINDAN CONTRACTING PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT), and as joint and several liquidators of PINDAN CAPITAL PTY LTD (IN LIQUIDATION), PINDAN CAPITAL INVESTMENTS PTY LTD (IN LIQUIDATION), PINDAN DEVELOPMENTS PTY LTD (IN LIQUIDATION), PINDAN CONSTRUCTIONS PTY LTD (IN LIQUIDATION), PINDAN PROJECTS (WA) PTY LTD (IN LIQUIDATION), PINDAN REALTY PTY LTD (IN LIQUIDATION), PINDAN HOMES PTY LTD (IN LIQUIDATION), PINDAN CONSTRUCTIONS (NSW) PTY LTD (IN LIQUDATION) AND MOSELLE HOLDINGS PTY LTD (IN LIQUIDATION)
Plaintiff
Catchwords:
Corporations law – External administration - Application by joint and several deed administrators and liquidators for orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) - Whether the external administrators would be justified in providing certain releases, the provision of which are conditions precedent to completion of deeds of company arrangement - Issue calls for the exercise of legal judgment
Legislation:
Corporations Act 2001 (Cth), Sch 2 (Insolvency Practice Schedule (Corporations)) s 90-15
Rules of the Supreme Court 1971 (WA) Order 67B r 5(b)
Supreme Court (Corporations) WA Rules 2014 (WA) r 11.3(7)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | J Hynes |
Solicitors:
| Plaintiff | : | Squire Patton Boggs |
Case(s) referred to in decision(s):
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524
Ex parte Frigger [2020] WASC 365
GDK Projects Pty Ltd, Re Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
In the matter of One.Tel Ltd [2014] NSWSC 457
Kelly, Re Halifax Investment Services Pty Ltd (in liq) (No 8) [2020] FCA 533; 144 ACSR 292
Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425
Krejci, in the matter of Union Standard International Group Pty Ltd (Admins Apptd) (No 2) [2020] FCA 1111
Nipps (Admin) v Remagen Lend ADA Pty Ltd, Adaman Resources Pty Ltd (Admin Apptd) (No 4) [2021] FCA 644
Pirina, in the matter of Fund Options (Australia) Pty Ltd (in liq) [2020] FCA 1256
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Re Broens Pty Ltd (in liq) [2018] NSWSC 1747
Re GB Nathan & Co Pty Ltd (In Liq) (1991) 24 NSWLR 674
Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex Parte Woodhouse [2019] WASC 167
Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312 [61]
Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 335; [2018] NSWSC 481
Re HIH Insurance and related matters [2004] NSWSC 5
Re Nexus Energy Ltd [2014] NSWSC 1041
Re Octiviar Administration Pty Ltd (in liq) (2015) 107 ACSR 1; [2015] NSWSC 516
Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347
Re Pindan Group Pty Ltd (Administrators Appointed) [No 2] [2021] WASC 358
Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [2021] WASC 480
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Rubix Investments Group Pty Ltd [2018] NSWSC 1184
Walley, in the matter of Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486
Table of Contents
Introduction
Evidence
The context in which the application was made
Proposed DOCAs
Acceptance of the revised DOCAs
Analysis of the consideration offered to the liquidation entities
Further improved terms
Estimated outcome
The plaintiffs' opinion
Court application
Urgency
Directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations) - applicable principles
Disposition
Confidentiality
Directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations)
Conclusion and orders
Sch A - Liquidation entities
Sch B - Orders made on 13 April 2022
STRK J:
Introduction
Samuel John Freeman, Colby Rhys O'Brien and Vincent Anthony Smith (together, the plaintiffs) are the joint and several deed administrators of Pindan Group Pty Ltd (subject to deed of company arrangement), and Pindan Contracting Pty Ltd (subject to deed of company arrangement). The plaintiffs are also the joint and several liquidators of the nine entities listed in sch A to these reasons (together, the liquidation entities). The 11 entities are described in these reasons as the Pindan entities.
By an interlocutory process filed on 8 April 2022, the plaintiffs sought relief in the form of an order pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations) concerning their decision to provide releases in respect of potential claims that may be available to the Pindan entities in consideration for receiving payments under the relevant deeds of company arrangement (DOCAs).
Some of the evidence relied upon and submissions made on behalf of the plaintiffs revealed information which was confidential. That confidential information was properly revealed to the court, providing the court with a full account of the circumstances surrounding the application, and the information and advice that the plaintiffs had had regard to in reaching conclusions as to the most appropriate course to adopt.
By the interlocutory process, the plaintiffs also moved for a confidentiality order, concerned that disclosure of the confidential information would seriously prejudice the DOCAs, the interests of the liquidation entities, and the interests of the creditors of the Pindan entities.
Upon reading the papers filed on behalf of the plaintiffs, I was satisfied of the urgency of the application. On 13 April 2022, I heard the application, made a confidentiality order and granted the primary relief sought by the plaintiffs. The orders that were made at the conclusion of the hearing are reproduced at sch B to these reasons.
Given the urgency, I delivered brief ex tempore reasons at the conclusion of the hearing. My reasons are now set out in further detail below, which include references in the form of schedules and footnotes. These reasons have been prepared so as to not disclose the substance of the confidential information which was before the court and which was weighed in the balance in the determination of the application.
Evidence
At the hearing of the application, the plaintiffs relied upon two affidavits of Mr Freeman, each sworn on 8 April 2022.
The longer affidavit of Mr Freeman did not contain confidential information and attached documents marked SJF1 to SJF16. In his 'open' affidavit, Mr Freeman deposed to his qualifications and experience; described the background to the application; provided an overview of potential financial outcomes; and described creditor engagement. All references to the affidavit of Mr Freeman in the footnotes of these reasons are references to Mr Freeman's 'open' affidavit.
Attachments to Mr Freeman's affidavit included his curriculum vitae; the statutory reports to creditors of the liquidation entities issued by the plaintiffs in their capacity as joint and several liquidators of the liquidation entities on 18 August 2021; the second reports to creditors of Pindan Group and Pindan Contracting issued on 27 October 2021 by the plaintiffs in their capacity as joint and several administrators of Pindan Group and Pindan Contracting, respectively; the supplementary reports to creditors issued by the plaintiffs on 25 November 2021 in their capacity as joint and several administrators of Pindan Group and Pindan Contracting, respectively; an update report issued to creditors of the liquidation entities on 29 March 2022 by the plaintiffs in their capacity as joint and several liquidators of the liquidation entities; and an update report issued to creditors of Pindan Group and Pindan Contracting on 29 March 2022 by the plaintiffs in their capacity as joint and several deed administrators of Pindan Group and Pindan Contracting.
The shorter of the two affidavits of Mr Freeman is entitled 'Confidential Affidavit of Samuel John Freeman'. The affidavit contains confidential information which includes communications and advice the subject of legal professional privilege; details of potential claims involving insolvent trading and/or misleading and deceptive conduct; and details regarding the plaintiffs' opinions and underlying financial calculations.
In addition to the affidavits of Mr Freeman, the plaintiffs read the confidential affidavit of Masiullah Zaki, solicitor for the plaintiffs, sworn 13 April 2022.
The application was also supported by a certificate of Mr Zaki dated 8 April 2022. Mr Zaki certified that the application was of such an urgent nature that it required to be listed and heard as soon as reasonably practicable and preferably by 13 April 2022. The primary reason for the urgency cited by Mr Zaki was that the plaintiffs have until 30 April 2022 to satisfy the conditions precedent of the terms of a DOCA in respect of each of Pindan Group and Pindan Contracting, subject to the relief sought on the application.
Finally, the plaintiffs relied upon a written outline of submissions filed on 11 April 2022, which also contained confidential information.
The context in which the application was made
The Pindan group of companies is primarily a Western Australian property and construction group. Oxley Sparkle Pty Ltd is the holding entity of various Pindan entities. Oxley Holdings Ltd holds all of the shares in Oxley Sparkle and is the ultimate parent company of each entity comprising the Pindan corporate group.
On 18 May 2021, the plaintiffs were appointed as joint and several administrators of Pindan Group and Pindan Contracting, among others. The plaintiffs were also appointed the joint and several liquidators of the liquidation entities. Since their appointment, the plaintiffs have sought various forms of relief and directions from the court.[1]
[1] Including orders made for the reasons published in Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347; Re Pindan Group Pty Ltd (Administrators Appointed)[No 2] [2021] WASC 358; and Re Pindan Group Pty Ltd (Administrators Appointed)[No 3] [2021] WASC 480.
With one exception, the entities which comprise the Pindan group of companies did not hold material financial resources at the time of the plaintiffs' appointment, and the financial position of each disclosed a material net deficiency. The plaintiffs cited Pindan Group by way of example, which reported a net current liability position of $8 million in the financial year prior to its external administration.
The exception was Pindan Asset Management Pty Ltd, which went through a change of control transaction by way of a DOCA which has now been fully effectuated. The relief sought by the plaintiffs by their application filed on 8 April 2022 did not concern Pindan Asset Management.[2]
[2] ts 178 (13 April 2022).
The plaintiffs in their capacity as joint and several liquidators issued their statutory report to creditors for each of the liquidation entities on 18 August 2021.
On 27 October 2021, the plaintiffs as joint and several administrators issued their second reports to creditors of Pindan Group and Pindan Contracting.
Proposed DOCAs
The second reports contained a proposal for a DOCA in respect of Pindan Group and Pindan Contracting received from Oxley Sparkle.
A second meeting of Pindan Group and Pindan Contracting creditors was scheduled to take place on 4 November 2021. The day prior to the scheduled second meeting, the plaintiffs received a revised proposal from Oxley Sparkle. Given the timing of receipt, the material changes proposed, and the complexities and interconnectedness of the various external administrations, the plaintiffs formed the view that it was necessary to adjourn the second meetings. At the second meetings convened on 4 November 2021, it was resolved to adjourn each for a maximum period of 45 business days pursuant to r 75‑140(3) of the Insolvency Practice Rules (Corporations) 2016.[3]
[3] Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [22].
In the period between 4 November 2021 and 25 November 2021, the plaintiffs facilitated various meetings with stakeholders, including Oxley Sparkle as the proponent of the DOCAs. The plaintiffs' efforts were aimed at facilitating receipt of a further revised proposal by the deed proponent which would further the objects of pt 5.3A of the Corporations Act. On 22 November 2021, Oxley Sparkle put forward a further revised DOCA proposal.[4]
[4] Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [23] - [24]. See also the affidavit of SJ Freeman par 14.
The second meeting of the creditors of Pindan Group and Pindan Consulting were scheduled to resume on 3 December 2021, and the notices of resumed meeting were issued on 26 November 2021. On 25 November 2021, in anticipation for the resumed meeting, the plaintiffs issued supplementary reports to creditors pursuant to r 75‑225(3) of the Insolvency Practice Rules (Corporations) 2016, which provided creditors with details of the revised DOCAs.[5]
Acceptance of the revised DOCAs
[5] Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [25] - [26]. See also the affidavit of SJ Freeman pars 15 & 16.
At the reconvened second meetings, creditors of Pindan Group and Pindan Contracting each voted to accept the revised DOCAs.[6]
[6] The affidavit of SJ Freeman pars 17 and 18. Details of the vote of Pindan Group creditors on the revised proposal is described at [36] - [37] of Re Pindan Group Pty Ltd (Administrators Appointed) [No 3].
By an interlocutory process provided to the court on 15 December 2021 and filed on 16 December 2021, the plaintiffs sought orders on an urgent basis. The purpose of the application was to give practical effect to a creditors' resolution for Pindan Group to execute a DOCA giving effect to the revised proposal, and to remedy an error made by the plaintiffs. That relief was granted on 16 December 2021: Re Pindan Group Pty Ltd (Administrators Appointed) [No 3].
On 23 December 2021, the plaintiffs entered into revised DOCAs for each of Pindan Group and Pindan Contracting, which in broad terms contemplated the liquidation entities providing releases to Oxley Holdings, Oxley Sparkle and its directors and shareholders in respect of all claims the liquidation entities may have had against those parties. Those claims include any claim arising out of a letter of support issued by Oxley Holdings dated 22 October 2020, insolvent trading and/or breach of directors' duties (together, the Releases). [7]
[7] The affidavit of SJ Freeman pars 19 & 20, SJF15.
Under the terms of the DOCAs, in return for the Releases, Oxley Sparkle agreed to contribute $1.5 million to the liquidation entities, to be allocated as follows: $25,000 to each of the liquidation entities; and the remaining balance allocated on a proportionate basis with reference to total priority (employee) claims. Additionally, the Pindan Group DOCA included:
(a)payment of $150,000 to the liquidators to assist with meeting their costs incurred in their capacity as liquidators of the liquidation entities;
(b)an indemnity of up to $350,000 for further reasonable costs of the liquidators to be incurred in drafting and implementing the DOCAs, seeking court approval for provision of the releases and the satisfaction of the conditions precedent under the DOCAs. The indemnity was also to be available to the deed administrators of Pindan Group and Pindan Contracting; and
(c)a loan pursuant to s 560 of the Corporations Act capped at $1.2 million to pay any priority entitlements of employees of the liquidation entities that had not been paid by the Attorney‑General's Department under the Fair Entitlements Guarantee Scheme (FEG). In the event completion under the DOCAs occurred and the releases were provided, the proponent of the DOCAs (Oxley Sparkle) would waive repayment of the loan.[8]
[8] The affidavit of SJ Freeman, SJF15, page 1160.
The DOCAs provided that they would terminate on the 'Sunset Date' (which was extended on a number of occasions by agreement), unless various conditions precedent were met. Such conditions precedent included relevantly the provision of the Releases.
Analysis of the consideration offered to the liquidation entities
The plaintiffs' analysis and modelling of the terms of the DOCAs approved by the creditors of Pindan Group and Pindan Contracting indicated that the terms fell short of an outcome that would be sufficient to satisfy the creditors' interests as a whole and across the Pindan entities.
The plaintiffs' preliminary analysis of the consideration offered to the liquidation entities in exchange for the Releases indicated that priority (employee) creditors would likely receive the material return on their outstanding claims, subject to the final adjudication of priority claims, and ordinary unsecured creditors would not receive a return.
As Oxley Sparkle's proposal was not expected to provide a return to any ordinary unsecured creditors of the liquidation entities, the plaintiffs formed the view that the provision of the Releases was not in the best interests of all creditors. In forming that view, the plaintiffs considered the estimated return to creditors in the event the claims against Oxley Holdings, Oxley Sparkle and the directors were successfully pursued through litigation, having regard to the interest in funding these claims from commercial litigation funders.[9]
[9] The affidavit of SJ Freeman, SJF15, page 1160.
The plaintiffs advised Oxley Sparkle of the view they had formed, and that they remained open to receiving a further improved proposal.
Further improved terms
Following negotiations, the plaintiffs received a further improved proposal from Oxley Sparkle on 23 February 2022. The DOCA terms were improved by an offer to make additional payment in the amount of $2 million, to be allocated as follows.
First, Oxley Sparkle increased its loan commitment to be provided pursuant to s 560 of the Corporations Act. Under the further improved proposal, the total commitment from Oxley Sparkle would be advancement of the amount required to pay employee entitlements in full (capped at $1.5 million). The amount of the increase was estimated to be $165,000, to be used to meet in full all then known and admissible employee entitlement claims.
Secondly, the balance (estimated at $1.885 million) to be paid to Pindan Contracting as further consideration for the Releases to be provided by that entity.[10]
[10] The affidavit of SJ Freeman, SJF15, page 1161.
In the update report issued to creditors of the liquidation entities on 29 March 2022, the plaintiffs informed creditors that in order to further enhance the return to them, the plaintiffs had held additional discussions with Oxley Sparkle and its representatives, as well as third parties, which successfully culminated in the following positive developments (which formed part of an in-principle agreement reached in relation to the provision of the Releases):
(a)Oxley Sparkle and Oxley Holdings conditionally agreed that they would not prove in respect to any claim they may have against any of the liquidation entities. The plaintiffs noted that this would reduce the admissible claims in the liquidations of Pindan Constructions Pty Ltd, Pindan Projects WA Pty Ltd, Pindan Homes Pty Ltd, Pindan Constructions (NSW) Pty Ltd and Moselle Holdings Pty Ltd (all liquidation entities), and would thereby improve the return to creditors of these entities;
(b)if the Releases were provided, Oxley Sparkle would waive the right to repayment of funds advanced to employees under the loan made pursuant to s 560 of the Corporations Act, which loan would otherwise rank ahead of the claims of unsecured creditors;
(c)the directors (Scott Davison and Tony Gerber) agreed to compromise their priority claims, with their priority claim to be limited to 25% of the aggregate priority amount. The plaintiffs noted that these claims reside in Pindan Group only, and this compromise would enhance the return to unsecured creditors of Pindan Group;
(d)a further contribution of $500,000 would be made, $300,000 of which would be directed to Pindan Capital Pty Ltd, and $200,000 to Pindan Projects WA Pty Ltd (both liquidation entities); and
(e)negotiations with various insurers which, subject to the execution of documentation, would reduce the admissible claims of those insurers by about $14.5 million across various liquidation entities.
Estimated outcome
In the update report issued to creditors of the liquidation entities on 29 March 2022, the plaintiffs informed creditors of the proposed additional terms (described as the 'Revised Oxley Offer'), and advised creditors as follows.
First, under the Revised Oxley Offer, priority (employee) creditors would likely receive a material return on their outstanding claims across the liquidation entities, which would include amounts owed to FEG.
Secondly, based on the priority claims known to the plaintiffs at that time and admitted, the plaintiffs expected employees would be paid the balance of their outstanding entitlements (not paid by FEG) by way of funds advanced under the loan made pursuant to s 560 of the Corporations Act, then estimated at about $1.3 million. However, the outcome was contingent upon the final adjudication of priority claims, with a very small number of claims to be finalised.
Thirdly, ordinary unsecured creditors of Pindan Constructions, Pindan Capital and Pindan Projects would likely receive a small distribution, which in the view of the plaintiffs reflected a reasonable return after taking into consideration (without limitation) litigation risk, litigation funding risk, litigation costs, the risk that Oxley Sparkle has a valid right of set‑off for amounts due to it, and time value of money.
Fourthly, ordinary unsecured creditors in the remaining liquidation entities would not receive a return. However, the plaintiffs noted that in a liquidation scenario (mid and low case), ordinary unsecured creditors of Pindan Capital Investments, Pindan Homes, Pindan Constructions (NSW), Pindan Developments, Pindan Realty and Moselle Holdings (all liquidation entities) were in any event unlikely to receive a return.
The plaintiffs' opinion
The plaintiffs informed creditors that they had considered the estimated return to creditors of the liquidation entities under two scenarios:
(a)under the Pindan Contracting and Pindan Group DOCAs, in light of the Revised Oxley Offer; and
(b)on the assumption that the DOCAs do not complete and the claims against Oxley Holdings, Oxley Sparkle and the directors are pursued through litigation in a liquidation scenario.
The plaintiffs annexed to the update report at Appendix B an 'Estimated Outcome Statement', in which they set out their estimate of the outcome under the Revised Oxley Offer and under low, mid and high litigation realisation scenarios.
In determining a course of action, the plaintiffs informed creditors of the liquidation entities that they had considered the costs and risks associated with any legal proceeding against the certainty of return to creditors (including priority creditors) under the Revised Oxley Offer. Based on the comments outlined in the report to creditors of the liquidation entities dated 29 March 2022, the plaintiffs informed the creditors of the liquidation entities that they considered it in the interests of creditors as a whole to provide the Releases sought by Oxley Sparkle, noting as follows:
(a)The offer from Oxley Sparkle provided certainty to priority (employee) creditors, who were likely to receive payment of the balance of their unpaid entitlements in full within 4 to 6 weeks, rather than being dependent on a successful litigation.
(b)In a liquidation scenario, employee creditors were likely to be impacted as their remaining entitlements would be paid pari passu with amounts owed in relation to superannuation and funds advanced under FEG, therefore reducing their return.
(c)The pursuit of Oxley Sparkle by litigation would be subject to a number of risks, including the uncertainty of success inherent in any complex litigation. A return to any class of creditor would be uncertain.
(d)The Revised Oxley Offer was made without the need to commence litigation and enter into a litigation funding agreement. Securing litigation funding would be expensive and would involve creditors forgoing a degree of upside along with costs to prepare for and commence any litigation.
(e)Ordinary unsecured creditors would likely receive a return that was largely comparable to what would be anticipated if the claims against Oxley Sparkle were pursued by litigation (in a mid to low case), considering litigation risk and timing (with any claims pursed by litigation, if successful likely to take several years).
(f)The 'global settlement' from Oxley Sparkle (including contributions relating to the Pindan Group and Pindan Contracting DOCAs), was in excess of the approximate $15 million that had been demanded from Oxley Sparkle on or about 13 May 2021. The plaintiffs further explained that the amount of the demand was the basis for their previous 'low' liquidation scenario but before any right to set off that Oxley Sparkle may have to funds owed to it by various Pindan entities.
By an update report issued to creditors on 29 March 2022 by the plaintiffs in their capacity as joint and several deed administrators of Pindan Group and Pindan Contracting, the creditors of those entities were informed of the improvements made to the terms of the offer by Oxley Sparkle, and that an in‑principle agreement had been reached regarding the provision of the Releases, subject to court approval.[11]
[11] The affidavit of SJ Freeman, SJF16.
The confidential affidavit of Mr Freeman disclosed that the plaintiffs had undertaken a detailed and careful analysis of the issues and had concluded, having regard to all of the circumstances, that the interests of creditors across all of the Pindan entities were to be best served by the provision of the releases contemplated by the DOCAs.
The Revised Oxley Offer had been memorialised in the following documents which I understood were agreed in‑principle but not yet executed:
(a)the Deed Poll of Release which appears at attachment SJF‑18 (pages 346 ‑ 354) to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022; and
(b)the Deed of Release which appears at SJF‑17 (pages 330 ‑ 345) to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022; and
(c)the Conditions Precedent Compliance Deed which appears at SJF‑16 (pages 307 ‑ 329) to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022.
Court application
The plaintiffs informed creditors that they had reached an in-principle agreement with Oxley Sparkle regarding the provision of the Releases, subject to receiving appropriate relief from the court that the plaintiffs were justified in granting the Releases.
It was the plaintiffs' position that even if a majority of creditors of the liquidation entities supported the provision of the Releases on the terms most recently proposed (that is, on the terms of the Revised Oxley Offer), given the various competing interests involved, it was appropriate that they secured approval from the court that they were justified in giving the Releases before formally issuing same.
The creditors were informed of the plaintiffs' opinion in clear terms, and were informed that they would have the opportunity to be heard at the hearing of the application.
Urgency
The Sunset Date under the Pindan Group and Pindan Contracting DOCAs had been extended to 31 March 2022. The court was informed that the Sunset Date had been further extended and the plaintiffs would have until 30 April 2022 to satisfy the conditions precedent of the terms of DOCAs in respect of each of Pindan Group and Pindan Contracting, subject to the relief sought on the application.
Directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations) - applicable principles
Division 90 of the Insolvency Practice Schedule (Corporations) concerns the review of an external administration of a company, which may be undertaken by the court (div 90 subdiv B), or by another registered liquidator (div 90 subdiv C).
The court is afforded wide powers to inquire into the external administration of a company and s 90‑15(1) of the Insolvency Practice Schedule (Corporations) provides a source of power for the court to make orders. An administrator of a deed of company arrangement executed by the corporation and a liquidator of a company have, among others, standing to apply for orders pursuant to s 90‑15.[12]
[12] Section 90-20(1)(d) of the Insolvency Practice Schedule (Corporations), read with s 9 of the Corporations Act (pars (e) and (f)) of the definition of 'officer').
The court's power under s 90‑15(1) of the Insolvency Practice Schedule (Corporations) is 'very broad'.[13] The court may make 'such orders as it thinks fit' in relation to the external administration of a company,[14] and s 90‑15(3) gives examples of the types of orders that the court may make under s 90‑15(1). This includes an order determining any question arising in the external administration of the company.[15]
[13] Kelly, Re Halifax Investment Services Pty Ltd (in liq) (No 8) [2020] FCA 533; 144 ACSR 292 [51] (Gleeson J), cited by Stewart J in Krejci, in the matter of Union Standard International Group Pty Ltd (Admins Apptd) (No 2) [2020] FCA 1111 [7].
[14] Section 90-15(1) of the Insolvency Practice Schedule (Corporations).
[15] Section 90-15(3)(a) of the Insolvency Practice Schedule (Corporations), see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524 [166] (Gordon J).
As noted by counsel for the plaintiffs, in GDK Projects Pty Ltd, Re Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [33], Farrell J recognised the power in s 90‑15(1) to be 'in its terms, unconstrained', but held that 'despite the breadth of the power … it is difficult to envisage circumstances where the power could be exercised if the court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration'.
As Banks-Smith J observed in Nipps (Admin) v Remagen Lend ADA Pty Ltd, Adaman Resources Pty Ltd (Admin Apptd) (No 4) [2021] FCA 644 at [23], while the power is very broad, when orders under s 90‑15 are sought in the context of an administration, such orders must be made in pursuit of the objects of pt 5.3A as set out in s 435A of the Corporations Act:
435A Object of Part
The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
When orders under s 90‑15 are sought, regard should also be had to the objects of the Insolvency Practice Schedule (Corporations) set out at s 1‑1, reproduced below:[16]
[16] Nipps (Admin) v Remagen Lend ADA Pty Ltd, Adaman Resources Pty Ltd (Admin Apptd) (No 4) [24] (Banks‑Smith J).
1-1 OBJECT OF THIS SCHEDULE
1-1(1)The object of this Schedule is to ensure that any person registered as a liquidator:
(a) has an appropriate level of expertise; and
(b) behaves ethically; and
(c) maintains sufficient insurance to cover his or her liabilities in practising as a registered liquidator.
1-1(2) The object of this Schedule is also:
(a) to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and
(b) to regulate the external administration of companies to give greater control to creditors.
As also observed by Banks-Smith J in Nipps (Admin) v Remagen Lend ADA Pty Ltd, Adaman Resources Pty Ltd (Admin Apptd) (No 4) at [37]:
Where judicial advice is sought in the context of an administration, the only statutory constraint on the exercise of that power is the need to consider whether or not the provision of that advice advances the objects of Part 5.3A set out in s 435A of the Corporations Act and is not inconsistent with the objects of the IPS. Section 90-15(3)(a) accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties: Hill, in the matter of Autocare Services at [44].
Section 90-15(4) contains a non-exhaustive list of matters that the court may take into account in exercising the discretion under s 90‑15.
Section 90-15 confers power on the court to give directions to administrators that was previously conferred by the now repealed s 477D(1) of the Corporations Act, and to liquidators that was previously conferred by the now repealed s 479(3) of the Corporations Act. As observed by Stewart J in Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) at [8]:[17]
The court's power under s 90-15(1) includes a power to give directions about a matter arising in connection with the performance or exercise of an administrator's functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26] - [27] (Yates J). In this respect, s 90-15(1) confers a power to give directions that was previously conferred by ss 447D(1) and 479(3) of the Act concerning administrators and liquidators, respectively: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 93 ALJR 807 at [166] (Gordon J); Reidy at [27] (Yates J); and Kelly (liquidator), in the matter of Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 780 at [30] (Gleeson J). The principles governing directions to administrators and those governing directions to liquidators are relevantly analogous: Re Ansett Australia Ltd (No 3) [2002] FCA 90; 115 FCR 409 at [43] (Goldberg J).
[17] See also Rubix Investments Group Pty Ltd [2018] NSWSC 1184 [31] - [32] (Gleeson JA), citing Re HIH Insurance and related matters [2004] NSWSC 5 and Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, which were referenced on behalf of the plaintiffs.
As to the function of and scope of s 90‑15 of the Insolvency Practice Schedule (Corporations), I adopt the observation made by Stewart J in Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) at [9], which follows the decision of Goldberg J in Re Ansett Australia Ltd (No 3):[18]
The function of a judicial direction of this kind is not to determine rights and liabilities arising out of a particular transaction, but to confer a level of protection on the administrator. An administrator who acts in accordance with a judicial direction, having made full and fair disclosure to the court of the material facts, has 'protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct' proposed.
[18] Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 [44] (Goldberg J). See also In the matter of One.Tel Ltd [2014] NSWSC 457 [32] (Brereton J); followed in Pirina, in the matter of Fund Options (Australia) Pty Ltd (in liq) [2020] FCA 1256 (Farrell J).
Whether to exercise the power under s 90‑15 will often be informed by the principles that applied on such an application to the court for directions.[19] The approach of the court on an application for directions by an external administrator are well-established. The court will not give an administrator or a liquidator a direction if the direction relates to the making of a business or commercial decision. There must be something more before the court will give a direction. The 'something more' may be a legal issue of substance or procedure or an issue of power, propriety or reasonableness. Put differently, there must exist some issue calling for the exercise of legal judgment.[20]
[19] Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex Parte Woodhouse [2019] WASC 167 [18] (Vaughan J), citing Re Broens Pty Ltd (in liq) [39] (Gleeson J). See also Walley, in the matter of Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486 [41] (Gleeson J); and Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 [45] ‑ [47] (Gleeson J).
[20] Re Ansett Australia Ltd (No 3) [65] (Goldberg J); adopted in Re Nexus Energy Ltd [2014] NSWSC 1041 [12] ‑ [13] (Black J); Nipps (Admin) v Remagen Lend ADA Pty Ltd, Adaman Resources Pty Ltd (Admin Apptd) (No 4) [38] (Banks‑Smith J); and in Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex parte Woodhouse [19] - [20]. See also In the matter of One.Tel Ltd [33] (Brereton J).
In Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2), Stewart J at [10] ‑ [11] further noted:
… As Black J observed in In the matter of RCR Tomlinson Ltd (administrators appointed) [2018] NSWSC 1859, a decision may have a 'commercial character' but nonetheless be amendable to judicial direction. His Honour said (at [41]) of the application before him (which sought a direction as to whether a company should borrow loan funds):
The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.
Because the effect of a direction under s 90-15 is to exonerate the liquidator or administrator if full disclosure is made, it will usually necessitate consideration by the court of the liquidator's or administrator's reasons and decision making process: see Re ONE.TEL Ltd [2014] NSWSC 457; 99 ACSR 247 at [36] per Brereton J (referring to former s 511 of the Act).
The value of a direction is to protect the administrator from liability for breach of duty or unreasonable behaviour provided full disclosure has been made to the court.[21]
[21] Re Ansett Australia Ltd (No 3) [65] (Goldberg J); Re Nexus Energy Ltd [12] ‑ [13]; Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 4) [38]; and Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex parte Woodhouse [21], citing Re GB Nathan & Co Pty Ltd (In Liq) (1991) 24 NSWLR 674, 679 - 680 (McLelland J).
The ambit of s 90‑15 has not yet been fully considered by the authorities.[22] However, I accept that the court's power under s 90‑15(1) to make orders extends, in appropriate circumstances, to giving directions of the kind sought by the plaintiffs by this application. That is, in the context of a proposed release or compromise, by giving a direction as to whether the external administrator is justified in agreeing to a proposal, notwithstanding that a commercial judgment may be involved.[23] Such a direction will be appropriate where the external administrators' proposed decision risks being subjected to criticism by a particular creditor or creditors as being unreasonable or made in bad faith.[24]
[22] Re Broens Pty Ltd (in liq) [2018] NSWSC 1747 [39] (Gleeson J); see also Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 335; [2018] NSWSC 481 [7] ‑ [8] (Gleeson JA), cited in Ex parte Frigger [2020] WASC 365 [12] (Allanson J).
[23] See for example Re Octiviar Administration Pty Ltd (in liq) (2015) 107 ACSR 1; [2015] NSWSC 516 [13] (Stevenson J).
[24] Re Octiviar Administration Pty Ltd (in liq) [13] (Stevenson J), citing Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312 [61] (Pritchard J).
Disposition
Confidentiality
I was satisfied that three of the documents relied upon by the plaintiffs at the hearing of the application contained confidential information, and the application for a confidentiality order was appropriately made. In all of the circumstances, I was satisfied that it was appropriate to restrict access to the following documents, which shall be treated as confidential and not be published or disclosed except pursuant to an order of the court pursuant to r 11.3(7) of the Supreme Court (Corporations) WA Rules 2014 (WA) and O 67B r 5(b) of the Rules of the Supreme Court 1971 (WA):
(a)the affidavit titled 'Confidential Affidavit of Samuel John Freeman' sworn on 8 April 2022, together with its annexures;
(b)the affidavit titled 'Confidential Affidavit of Masiullah Zaki' sworn on 13 April 2022, together with its annexures; and
(c)the plaintiff's submissions for hearing filed 11 April 2022.
Directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations)
After undertaking a thorough analysis, the plaintiffs considered it to be in the interests of creditors as a whole to provide the Releases on the basis of the Revised Oxley Offer. The plaintiffs sought an order pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations), that they would be justified in:
(a) providing the releases in the same or substantially the same form as set out in:
(i) the Deed Poll of Release, a copy of which was attached to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022 at attachment SJF-18 (pages 346 ‑ 354); and
(ii) the Deed of Release, a copy of which as attached to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022 at SJF-17 (pages 330 ‑ 345); and
(b) entering into and effectuating a deed in the same or substantially the same form as set out in the Conditions Precedent Compliance Deed, a copy of which was attached to the confidential affidavit of Samuel John Freeman sworn on 8 April 2022 at SJF-16 (pages 307 ‑ 329).
The evidence disclosed several competing tensions in the circumstances faced by the plaintiffs which gave rise to the appropriateness of the call for directions under s 90‑15 of the Insolvency Practice Schedule (Corporations). The matter was not one that solely concerned the making or implementation of a commercial decision such that the court's involvement in the matter was not appropriate. Given the significant compromise that an acceptance of the Revised Oxley Offer would represent (which could attract criticism) together with the relative complexity of the proposed resolution which required various 'moving parts' to be carefully coordinated, I accepted that the circumstances presented an appropriate occasion for directions under s 90‑15.
Further, I accepted the submission made by counsel for the plaintiffs that the evidence demonstrated a careful and thorough consideration of the issues by the plaintiffs, including by reference to legal advice from independent legal counsel on the competing aspects.
Counsel for the plaintiffs particularly drew my attention to the following, said to provide a proper basis for the plaintiffs' view:
(a) acceptance of the Revised Oxley Offer would provide certainty to priority creditors who under the terms of the offer will receive payment of the balance of their unpaid entitlements;
(b) the pursuant of litigation is inherently uncertain, subject to a number of risks and a return to any class of creditor is not certain;
(c) absent funding there are insufficient funds to pursue litigation and there is no certainty that funding can be secured; and
(d) under the Revised Oxley Offer, unsecured creditors will likely receive a return that is largely comparable to what would be anticipated if the claims against Oxley Holdings were pursed by litigation (in a mid to low case), without the need to absorb litigation risk and timing, with any claims pursued by litigation, if successful likely to take several years.
I weighed in the balance the advice received by the plaintiffs and the significant analysis undertaken, in a context where the proposal, if effected, would result in an immediate and guaranteed result for creditors.
I was satisfied that the plaintiffs had adduced evidence of circumstances in which the court could be satisfied that it would be just to grant the relief sought, and had by that evidence also demonstrated sufficient utility to the external administration. In all of the circumstances, I was satisfied that there was a proper evidentiary basis to conclude that the plaintiffs would be justified in providing releases substantially in the forms appearing in the Deed of Release and the Deed Polls, and entering into the Conditions Precedent Compliance Deed. Further, that the grant of relief in the form sought on behalf of the plaintiffs was appropriate.
Finally, I note that the plaintiffs gave notice to creditors and to key stakeholders (including FEG and the Australian Taxation Office) of the substance of the relief sought by the application, and called for responses including any indication of opposition. No person sought to be heard and I was informed that the plaintiffs were not aware of any person who wished to be heard in relation to the relief sought.
In any event, the orders sought on behalf of the plaintiffs included a regime which would enable any person who could demonstrate sufficient interest to modify or discharge the orders to apply to the court. The plaintiffs proposed orders which required the plaintiffs to give notice to all creditors of the orders within two days of their making; and included a prohibition on them enter into, or give effect to, any of the deeds the subject of the proposed relief before 22 April 2022.
On behalf of the plaintiffs, it was submitted that in the circumstances, this course together with the notification already provided, would be the most efficient and cost‑effective approach to allow any aggrieved persons sufficient opportunity to raise any objection. I was satisfied that this was an appropriate course and made orders in the terms proposed on behalf of the plaintiffs.[25]
[25] ts 177 (13 April 2022).
While I was satisfied that it was prudent to make orders 3 to 5, I did not do so because of any concern as to whether there had been timely or sufficient disclosure to creditors of the various Pindan entities, and interested parties. The evidence revealed the plaintiffs had consistently and comprehensively kept the creditors of the Pindan entities informed of the status of their negotiations with Oxley Holdings, Oxley Sparkle and other stakeholders, and also of their actions, plans, opinions and reasons for action throughout the term of their appointment.
Conclusion and orders
After considering all of the evidence and upon hearing counsel for the plaintiffs, I was satisfied that there was a proper basis to conclude that the plaintiffs would be justified in providing releases substantially in the forms appearing in the Deed of Release and the Deed Polls and entering into the Conditions Precedent Compliance Deed, and that the grant of relief in the form sought on behalf of the plaintiffs was appropriate. I also ordered that the plaintiffs' costs of an incidental to this interlocutory process be costs and expenses in the external administrators of each of the Pindan entities, and be paid out of the assets of those companies.
Sch A - Liquidation entities
Pindan Capital Pty Ltd (in liquidation) ACN 139 599 625
Pindan Capital Investments Pty Ltd (in liquidation) ACN 615 672 225
Pindan Developments Pty Ltd (in liquidation) ACN 611 922 555
Pindan Constructions Pty Ltd (in liquidation) ACN 159 837 500
Pindan Projects (WA) Pty Ltd (in liquidation) ACN 611 922 475
Pindan Realty Pty Ltd (in liquidation) ACN 009 372 847
Pindan Homes Pty Ltd (in liquidation) ACN 612 210 643
Pindan Construction (NSW) Pty Ltd (in liquidation) ACN 612 479 115
Moselle Holdings Pty Ltd (in liquidation) ACN 009 338 318
Sch B - Orders made on 13 April 2022
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LP
Associate to the Honourable Justice Strk
28 APRIL 2022
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