Re SJ Traffic Management Pty Ltd (Administrators Appointed)
[2022] WASC 279
•26 AUGUST 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE SJ TRAFFIC MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED) [2022] WASC 279
CORAM: STRK J
HEARD: 16 AUGUST 2022
DELIVERED : 16 AUGUST 2022
PUBLISHED : 26 AUGUST 2022
FILE NO/S: COR 139 of 2022
MATTER: IN THE MATTER OF SJ TRAFFIC MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED)
EX PARTE
ROBERT MICHAEL KIRMAN as joint and several administrator of GEOGRAPHE WORKFORCE PTY LTD (ADMINISTRATORS APPOINTED) ACN 630 339 758 AND SJ TRAFFIC MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED) ACN 613 399 163
First Plaintiff
ROBERT CONRY BRAUER as joint and several administrator of GEOGRAPHE WORKFORCE PTY LTD (ADMINISTRATORS APPOINTED) ACN 630 339 758 AND SJ TRAFFIC MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED) ACN 613 399 163
Second Plaintiff
Catchwords:
Corporations law - External administration - Application by the administrators pursuant to the Corporations Act 2001 (Cth) s 447A seeking an order as to how Pt 5.3A is to operate in relation to a particular company in administration - Book debts - Invoice finance arrangement and liability under the Corporations Act 2001 (Cth) s 443A - Application for directions pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) that the administrators are and were justified in causing the company in external administrators to enter into invoice financing documents
Legislation:
Corporations Act 2001 (Cth), s 447A
Insolvency Practice Schedule (Corporations), s 90 -15
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | L Bone |
| Second Plaintiff | : | L Bone |
Solicitors:
| First Plaintiff | : | HWL EBSWORTH LAWYERS |
| Second Plaintiff | : | HWL EBSWORTH LAWYERS |
Cases referred to in decision:
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24
Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8
Re Geographe Workforce Ltd [2022] WASC 250
Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432
TABLE OF CONTENTS
Introduction
Evidence
Affidavit of Robert Conry Brauer sworn on 26 July 2022
Confidential affidavit of Robert Conry Brauer sworn on 26 July 2022
Affidavit of Julia Abbott Vincent sworn on 2 August 2022
Further confidential affidavit of Robert Conry Brauer sworn on 9 August 2022
Affidavit of Christopher James Simpson sworn on 11 August 2022
Submissions
Urgency
Application pursuant to s 447A of the Corporations Act
Applicable principles
Disposition
Directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations)
Applicable principles
Disposition
Confidentiality
Costs
Conclusion and orders
Sch A - Minute of proposed orders filed on 10 August 2022
Sch B - Orders made on 16 August 2022
STRK J:
Introduction
On 4 July 2022, Robert Conry Brauer and Robert Michael Kirman (together the plaintiffs) were appointed as joint and several administrators of Geographe Workforce Pty Ltd (administrators appointed) ACN 630 339 758 and SJ Traffic Management Pty Ltd (administrators appointed) ACN 613 399 163.
By an originating process filed on 27 July 2022, the plaintiffs sought orders pursuant to s 447A of the Corporations Act 2001 (Cth) and s 90‑15 of the Insolvency Practice Schedule (Corporations) 2016, sch 2 of the Corporations Act. While the originating process had a broader ambit, at the hearing on 3 August 2022, the plaintiffs pressed only for orders that concerned the administration of Geographe Workforce. I was informed by counsel that the plaintiffs were not then in a position to advance that aspect of the application that concerned SJ Traffic Management, and orders in relation to the administration of SJ Traffic Management would be sought at a later time.
At the hearing on 3 August 2022, the plaintiffs sought first to obtain protection from the personal liability that would otherwise arise by reason of s 443A of the Corporations Act. That protection was sought in relation to past and future conduct of the plaintiffs in causing Geographe Workforce to enter into a funding deed on or about 5 July 2022 for the purpose of funding the continued trade of the Geographe Workforce business. Secondly, the plaintiffs sought advice that they are and were justified in causing Geographe Workforce to enter into the funding deed. Further, the plaintiffs moved for a confidentiality order in relation to certain affidavit evidence filed in the proceeding. On 3 August 2022, I granted the plaintiffs' application with respect to Geographe Workforce and published my reasons for the same: Re Geographe Workforce Ltd [2022] WASC 250. I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporate my earlier reasons.
The plaintiffs sought the relisting of this matter on 16 August 2022, seeking orders with respect to the administration of SJ Traffic Management.
SJ Traffic Management, like Geographe Workforce, is an entity within the 'BCP Group', a related group of companies that ultimately fall under the control and ownership of Kyle Jackson. The BCP Group operates a civil contracting business in the southwest of Western Australia.
SJ Traffic Management has and continues to operate what the plaintiffs describe as a 'stand-alone' traffic management business, trading from rented premises in Bunbury, Western Australia and a satellite yard in Albany, Western Australia. In contrast to Geographe Workforce, SJ Traffic Management does not solely provide 'internal' services to other entities within the BCP Group. It provides traffic management services to external customers, although it also provides traffic management services to entites of the BCP Group on terms that appear to the plaintiffs, based on their investigations to date, to be at arm's length. SJ Traffic Management directly employs the employees engaged in the SJ Traffic Management business, rather than sourcing labour from Geographe Workforce.
As at the time of the plaintiffs' appointment, SJ Traffic Management was servicing, and post-appointment continued to service a number of customers, including Fulton Hogan Industries Pty Ltd; South32 Worsley Alumina Pty Ltd; Fulcher Contractors; Colas Solution Pty Ltd; Arc Infrastructure Pty Ltd; and around 15 to 20 smaller customers.
The unaudited management accounts of SJ Traffic Management disclosed that the SJ Traffic Management business generated $9.9 million in revenue during the financial year ending 30 June 2022. As at the date of the plaintiffs' appointment, SJ Traffic Management employed approximately 100 staff with an annual payroll of approximately $7.2 million. SJ Traffic Management also had significant unsecured and secured liabilities.
For the purposes of funding the continued trade of the SJ Traffic Management business, the plaintiffs considered that it was in the best interest of the creditors of SJ Traffic Management:
(a)to cause SJ Traffic Management to enter into a deed of variation dated 8 August 2022 with Cashflow Finance Australia Pty Ltd ACN 093 756 524 (CFA); and
(b) for the plaintiffs to enter into a deed of indemnity dated 8 August 2022 with CFA,
(together, the Invoice Financing Documents).
At the hearing on 16 August 2022, the plaintiffs moved for orders in terms of the minute of proposed orders filed on 10 August 2022, a copy of which is reproduced at sch A to these reasons.
In summary, the plaintiffs sought first to obtain protection from the personal liability pursuant to the Invoice Financing Documents that would otherwise arise by reason of s 443A of the Corporations Act. Secondly, the plaintiffs sought advice that they are and were justified in causing SJ Traffic Management to enter into the Invoice Financing Documents.
The plaintiffs also moved for a further confidentiality order in relation to affidavit evidence filed in the proceeding.
In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing granting the relief sought and said that I would publish my reasons for decision. These are my reasons. The orders made are reproduced at sch B.
Evidence
At the hearing of the application, counsel read five affidavits.
Affidavit of Robert Conry Brauer sworn on 26 July 2022
The first was the affidavit of Mr Brauer sworn on 26 July 2022, to which he attached 11 documents. Among other things, in his first affidavit, Mr Brauer deposed to his and Mr Kirman's appointment as joint and several voluntary administrators of Geographe Workforce and SJ Traffic Management; to the incorporation of SJ Traffic Management; and to the relationship of SJ Traffic Management with other entities within the BCP Group.
Mr Brauer further deposed to the business operated by SJ Traffic Management; the context in which the plaintiffs' had decided to continue to trade the SJ Traffic Management business after their appointment; the work undertaken by the plaintiffs since their appointment; the financial position of SJ Traffic Management; invoice finance facilities that were entered into by SJ Traffic Management and BCP Materials Pty Ltd ACN 602 859 496 with CFA prior to the plaintiffs' appointment, and to the security provided in relation to the same; the plaintiffs' negotiations with CFA in relation to making funds available for purposes of funding the continued trade of the SJ Traffic Management business post-appointment; and to the plaintiffs' view as to the impact of this application on creditors of SJ Traffic Management.
Key matters deposed to by Mr Brauer in his first affidavit are further detailed below.
The proposed DOCA and the continuation of the SJ Traffic Management business
At par 17 of Mr Brauer's first affidavit, he deposed that shortly following his and Mr Kirman's appointment, Mr Jackson informed them (directly as well as via his solicitors) that he or another entity within the BCP Group intended to make a proposal for a deed of company arrangement (DOCA) with respect to each of Geographe Workforce and SJ Traffic Management. Mr Brauer deposed that while no specific details of that intended proposal were provided at that time, Mr Jackson had indicated that any proposal would include the continuation of the Geographe Workforce business and the SJ Traffic Management business, and the continued employment of the employees of Geographe Workforce and SJ Traffic Management.
In relation to SJ Traffic Management, Mr Brauer further deposed that after being informed of Mr Jackson's intention, the plaintiffs formed the view that:
(a) the continued trade of the SJ Traffic Management business during the administration period would facilitate the preservation of the value of the business, making it more attractive for the presentation of a proposal for a DOCA by Mr Jackson, but also by any other person that might be interested in making such a proposal;[1] and
(b) given Mr Jackson's indication that he (or an entity within the BCP Group) intended to submit a proposal for a DOCA for SJ Traffic Management on terms that would see the continued employment of the employees of that entity, this would likely represent a better return to creditors as it would:
(i) avoid the incurrence of certain employee entitlements (such as annual leave and long service leave entitlements and those entitlements that crystallise upon on termination such as redundancy and payments in lieu of notice); and
(ii) provide a more certain and/or timely return to creditors on their admitted claims.[2]
[1] First affidavit of RC Brauer par 18(a).
[2] First affidavit of RC Brauer par 18(b).
On 11 July 2022, Busselton Civil Pty Ltd ACN 601 554 956 (an entity within the BCP Group) presented a draft DOCA proposal to the plaintiffs, which among other things contemplated the continued employment of the employees of SJ Traffic Management; the full payment of outstanding superannuation contributions; and the preservation of all other accrued employee entitlements of those employees for payment by SJ Traffic Management in the ordinary course of business post-completion of the DOCA (draft DOCA proposal).[3]
[3] First affidavit of RC Brauer pars 19, 20(a).
Mr Brauer deposed at par 20(b)(ii) of his first affidavit that the plaintiffs had estimated that the draft DOCA proposal, if accepted, would potentially result in creditor claims in SJ Traffic Management being reduced by approximately $330,000 (being the plaintiffs' then estimate of the annual leave and retrenchment entitlements of the employees of SJ Traffic Management, which were proposed to be preserved post-DOCA and which would otherwise be payable in a liquidation of SJ Traffic Management).
Mr Brauer deposed that while the plaintiffs had not then formed a view as to whether they would recommend that creditors accept any formal DOCA proposal made by Busselton Civil on the terms of, or similar to, the draft DOCA proposal submitted on 11 July 2022, the plaintiffs considered that the draft DOCA proposal was worthy of further consideration; and it remained the case that it was in the interests of the creditors that the plaintiffs continue to trade the SJ Traffic Management business to enable the draft DOCA proposal to be further considered and developed with a view to it being formally submitted.[4]
Financial position of SJ Traffic Management
[4] First affidavit of RC Brauer par 21.
As to the assets of SJ Traffic Management, Mr Brauer deposed at par 30 of his first affidavit that based on the plaintiffs' investigations, they understood that SJ Traffic Management's assets included cash at bank, trade receivables and plant and equipment.
Mr Brauer deposed that approximately $75,000 was held as cash at bank, which the plaintiffs were securing and transferring to a bank account established by them for SJ Traffic Management.
Mr Brauer deposed that SJ Traffic Management held trade receivables in the amount of approximately $1 million, although the trade receivables had been assigned to CFA and had been funded to a value of approximately $450,000. In this regard, Mr Brauer deposed to his belief that equity in the debtor book in the amount of approximately $550,000 may be available, but would be subject to, among other things, debtor recoverability and CFA's security position and exposure to the broader BCP Group.
Mr Brauer deposed that SJ Traffic Management held plant and equipment with a written down book value of approximately $650,000. In relation to the same, Mr Brauer deposed that the plaintiffs were in the process of obtaining an independent valuation, but based on his experience as a registered liquidator, he expected that the liquidation value of these assets would be in the vicinity of approximately $300,000.
As to the liabilities of SJ Traffic Management, Mr Brauer deposed that the plaintiffs understood that the company had unsecured liabilities of approximately $3.07 million,[5] and secured liabilities of approximately $1.5 million. As to the secured indebtedness, SJ Traffic Management owed CFA approximately $500,000, and Gordon Brothers Pty Ltd approximately $1 million, which indebtedness was secured by, among other things, general security interests over all present and after acquired property of SJ Traffic Management.
Pre-appointment invoice finance arrangements
[5] First affidavit of RC Brauer par 31, RCB10.
At par 43 of his first affidavit, Mr Brauer deposed to his belief that:
(a)prior to the plaintiffs' appointment, SJ Traffic Management, BCP Materials Pty Ltd and Busselton Civil (together the CFA borrowers) each entered into separate invoice finance facilities with CFA (together the pre-appointment invoice finance facilities);
(b)prior to the plaintiffs' appointment, each of the CFA borrowers granted general security interests to CFA to secure their obligations to CFA under the pre-appointment invoice finance facilities; and
(c)as all debtors of the CFA borrowers were assigned to CFA under the terms of the pre-appointment invoice finance facilities, a deemed security interest arises in favour of CFA with respect to the book debts of each of the CFA borrowers.
He further deposed that various entities within the BCP Group, including Geographe Workforce, guaranteed the obligations of each of the CFA borrowers' in favour of CFA; and each of the guarantors granted general security interests to CFA to secure their obligations to CFA under the guarantees.[6] Further, pursuant to a deed of cross-collateralisation, each of the securities granted by (or deemed to have been granted by) the guarantors and the CFA borrowers were cross-collateralised.
[6] First affidavit of RC Brauer par 44.
As to the respective security position of CFA and Gordon Brothers, Mr Brauer deposed that on or about 28 June 2019, CFA and Gordon Brothers entered into a deed of priority pursuant to which they agreed to regulate the priorities between them in respect of their respective security over SJ Traffic Management.
The effect of the deed of cross-collateralisation
Subject to the securities granted in favour of CFA in fact being valid and enforceable, Mr Brauer at par 48 of his first affidavit explained what he understood to be the effect of the deed of cross-collateralisation (insofar as the plaintiffs considered the deed to be relevant to this application), in the following terms:
(a)the book debts of SJ Traffic Management, including those that existed prior to the plaintiffs' appointment and all future book debts generated by SJ Traffic Management as a result of its ongoing trading, are the subject of a deemed security interest in favour of CFA;
(b)that deemed security interest may secure all of SJ Traffic Management's obligations to CFA, including those arising by virtue of the deed of cross-collateralisation, which may include CFA's exposure with respect to the pre-appointment invoice finance facilities entered into by BCP Materials and Busselton Civil; and
(c)as such, until such time as the whole of the BCP Group's debt owing to CFA is repaid, the future book debts generated from SJ Traffic Management's trading during the administration period would be applied in reduction of that broader BCP Group debt (subject to the priority arrangement between CFA and Gordon Brothers under the deed of priority); and
(d)as a result of the above:
(i)the 'equity' in SJ Traffic Management's debtor book was diminished;
(ii)the trading receipts generated from SJ Traffic Management's ongoing trading during the administration period would not benefit any unsecured creditors of SJ Traffic Management to the extent that CFA had first priority to them, because the book debts are a non-circulating asset of SJ Traffic Management in the hands of CFA as transferee; and
(iii)the plaintiffs will not be able to use the post‑appointment receipts to fund any of the costs of the administration.
Status of negotiations with CFA
Mr Brauer deposed that in light of the above, as at the date of his first affidavit, the plaintiffs and CFA were in the process of negotiating the terms on which CFA might be prepared to:
(a)provide a separate invoice finance facility to the plaintiffs or, alternatively, a variation to SJ Traffic Management's pre-appointment invoice finance facility; and
(b)treat the trading receipts generated during the administration of SJ Traffic Management as debts the subject of this separate invoice finance facility rather than SJ Traffic Management's pre-appointment invoice finance facility, or as debts the subject of a varied facility.[7]
[7] First affidavit of RC Brauer par 49.
At the time of swearing his first affidavit, Mr Brauer noted that the plaintiffs and CFA had not yet reached final agreement on the structure of any revised invoice finance arrangement and had not executed any facility deed, variation deed or security documents with CFA to give effect to the same.[8]
[8] First affidavit of RC Brauer par 50.
Mr Brauer deposed that it was the plaintiffs' intention to ensure that any documents executed to give effect to a revised arrangement would provide that:
(a)the assignment of the debtors generated by SJ Traffic Management's trading during the administration period would not be security for CFA's existing BCP Group exposure (or at least that CFA's interest would be subordinated to that of the plaintiffs in respect of the expenses of the administration); and
(b) the plaintiffs' personal liability under the invoice finance facility would be limited to the extent of the plaintiffs' indemnity under section 443D of the Corporations Act.
Plaintiffs' opinion as to the best interests of creditors
Mr Brauer deposed that the plaintiffs considered it was in the best interests of creditors for revised invoice finance arrangements to be entered into with CFA for the purposes of funding the continued trade of the SJ Traffic Management business. In this regard, Mr Brauer noted that without such revised arrangements, SJ Traffic Management would be operating with limited capital, and should the plaintiffs 'draw down' on the pre-appointment invoice finance facility, they may be exposed to personal liability. He also deposed to his concern that the funds available to SJ Traffic Management for use in the SJ Traffic Management business could be impacted by the position and actions of the other entities of the BCP Group (which I understood to be a reference to the potential effect of the deed of cross‑collateralisation).
Mr Brauer further deposed that without such revised arrangements, neither he nor Mr Kirman would be prepared to continue to trade the SJ Traffic Management business. He and Mr Kirman considered that these matters would limit their ability to procure the DOCA proposal.[9]
[9] First affidavit of RC Brauer, pars 53 - 54.
As to the potential benefits to the creditors of SJ Traffic Management of entering into revised arrangements which reflected the plaintiffs' intentions as summarised at [34] above, Mr Brauer deposed that he and Mr Kirman considered that such arrangements would:
(a) allow the SJ Traffic Management business to be traded in the short term (and for so long as the plaintiffs' considered it to be in the interests of creditors to do so);
(b) facilitate the development of draft DOCA proposals; and
(c) preserve the possibility of a sale of the SJ Traffic Management business on a going concern basis, even if the draft DOCA proposal promoted by Busselton Civil did not result in the submission of a formal DOCA proposal in relation to SJ Traffic Management, and also make it more attractive for the presentation of a proposal for a DOCA by another proponent.
Mr Brauer deposed that if revised invoice finance arrangements were not entered into, he and Mr Kirman considered that:
(a) the SJ Traffic Management business would be unable to continue operating as a going concern;
(b) SJ Traffic Management's secured creditors might elect to appoint receivers to SJ Traffic Management; and
(c) further claims from unsecured creditors would likely arise by virtue of SJ Traffic Management being unable to comply with its obligations as a result of SJ Traffic Management having no working capital.
Impact on creditors
In his first affidavit, Mr Brauer deposed that neither he nor Mr Kirman were aware, nor could they conceive, of any prejudice or injustice that would ensue for any party in the event that orders were made by the court in the terms of this application, especially given the likely benefit to creditors as a result of entry into post-appointment invoice finance arrangements.
Confidential affidavit of Robert Conry Brauer sworn on 26 July 2022
In his second affidavit sworn on 26 July 2022, Mr Brauer attached a copy of the various facility and security documents that relate to the pre-appointment invoice finance facility, together with the deed of cross-collateralisation and the deed of priority referred to at [29] to [31] above. Mr Brauer's second affidavit was the subject of the application by the plaintiffs for a confidentiality order, which was granted on 3 August 2022 for reasons now published: Re Geographe Workforce Ltd [85].
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 this application.
Affidavit of Julia Abbott Vincent sworn on 2 August 2022
The third was the affidavit of Julia Abbott Vincent, a solicitor employed by HWL Ebsworth who acts on behalf of the plaintiffs, deposed on 2 August 2022. Ms Vincent attached to her affidavit three documents, marked JAV1 to JAV3.
Ms Vincent attached to her affidavit a copy of a circular to the creditors of SJ Traffic Management dated 29 July 2022, by which notice was given of this application made pursuant to s 447A of the Corporations Act and s 90‑15 of the Insolvency Practice Schedule (Corporations), by which the plaintiffs seek among other things to limit the liability of the plaintiffs pursuant to (the then yet to be finalised) revised invoice finance arrangements.[10] A copy of the originating process dated 27 July 2022 was provided to creditors with the circular. Ms Vincent also attached to her affidavit confirmation of the issue of the circular to creditors of SJ Traffic Management.[11]
[10] Affidavit of JA Vincent, JAV1.
[11] Affidavit of JA Vincent, JAV2.
Although later adjourned to 17 August 2022, the second meeting of the creditors of SJ Traffic Management was scheduled to take place on 8 August 2022.[12] Ms Vincent attached to her affidavit a copy of the plaintiffs' report to creditors of SJ Traffic Management pursuant to s 75‑225 of the Insolvency Practice Rules (Corporations) 2016.[13]
[12] Affidavit of JA Vincent, JAV3 (page 55).
[13] Affidavit of JA Vincent, JAV3 (pages 55 - 144).
As was noted in the plaintiffs' report to creditors:
(a)the business of SJ Traffic Management had been traded under the control of the plaintiffs for a period of approximately four weeks and was expected to generate a small lost for the administration period on a profit and loss basis;[14]
(b)Busselton Civil had submitted a formal DOCA proposal to be considered by creditors, which broadly contemplated:[15]
(i)a contribution of $214,731 to be paid shortly after execution for the benefit of participating creditors, predominately being statutory creditors. In exchange, participating creditors would release SJ Traffic Management from all and any claims on receipt of their dividend entitlement;
(ii)the positions of continuing creditors and secured creditors being preserved, and that they would be paid by SJ Traffic Management in the ordinary course of business, post-completion of the DOCA. These parties would not receive a dividend contribution and would not release their claims against SJ Traffic Management; and
(iii)outstanding superannuation contributions would be paid in full. However, all employees would be retained by SJ Traffic Management and the balance of their entitlements and ongoing wages would be preserved and paid by SJ Traffic Management in the ordinary course of business, post-completion of DOCA;
(c)the formal DOCA proposal contemplated the plaintiffs making a draw down pursuant to revised invoice finance arrangements in order to constitute the DOCA fund which was to include an amount equal to 80% of the receivables invoiced in the administration period; and
(d)the plaintiffs stated that they were of the opinion that it would be in the interests of SJ Traffic Management's creditors for the company to execute a DOCA substantially on the terms set out in the DOCA proposal. [16]
[14] Affidavit of JA Vincent, JAV3 (page 64).
[15] Affidavit of JA Vincent JAV3 (page 65).
[16] Affidavit of JA Vincent, JAV3 (cl 6 and page 99).
The report to creditors attached to Ms Vincent's affidavit also confirmed that the DOCA was conditional upon, among other things, the plaintiffs obtaining the orders and directions pressed in this application.[17]
Further confidential affidavit of Robert Conry Brauer sworn on 9 August 2022
[17] Affidavit of JA Vincent, JAV3 (page 100).
The fourth was a further affidavit of Mr Brauer, which affidavit was also the subject of the application by the plaintiffs for a confidentiality order, which for the reasons set out below was granted.
Again, 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.
Without disclosing the substance of the confidential information, I note that Mr Brauer by his second confidential affidavit:
(a)deposed to the adjournment of the second meeting of creditors of SJ Traffic Management that had been scheduled to take place on 8 August 2022 to 17 August 2022;
(b)put before the court a copy of the documents which recorded the agreed revised invoice finance arrangements, being the deed of variation dated 8 August 2022 entered into by SJ Traffic Management and CFA, the deed of indemnity dated 8 August 2022 as between the plaintiffs and CFA (together the Invoice Financing Documents, referred to a [9] above), and an associated letter of undertaking;[18]
(c)deposed to the need to utilise the revised facility made available to the plaintiffs pursuant to the Invoice Financing Documents so as to access the trading revenue generated during the administration period to ensure the continued ability to trade the business of SJ Traffic Management until such time as creditors either approved Busselton Civil's DOCA proposal, or resolved that the company be liquidated;
(d)deposed that the plaintiffs on 9 August 2022 had requested from CFA an interim draw down under the terms of the Invoice Financing Documents in the amount of $400,000, which request was pending at the time Mr Brauer swore his second confidential affidavit; and
(e)deposed to the plaintiffs' expectation that Busselton Civil's finalised DOCA proposal would, if accepted by the creditors of SJ Traffic Management, require the plaintiffs to draw down on the revised facility to the extent not already drawn prior to acceptance of the DOCA.
Affidavit of Christopher James Simpson sworn on 11 August 2022
[18] Second confidential affidavit of RC Brauer, RCB18, RCB19 and RCB20.
The fifth was the affidavit of Christopher James Simpson, a law graduate employed by HWL Ebsworth, sworn on 11 August 2022.
Mr Simpson attached two documents to his affidavit marked CJS1 and CJS2, respectively. He attached a circular to the creditors of SJ Traffic Management dated 10 August 2022, giving notice to creditors of the hearing of this application on 16 August 2022;[19] and confirmation of the issue of the same.[20]
Submissions
[19] Affidavit of CJ Simpson, CJS1.
[20] Affidavit of CJ Simpson, CJS2.
At the hearing of the application, counsel also relied upon the outline of submissions filed on 2 August 2022 and the supplementary outline of submissions filed on 10 August 2022.
Urgency
On 9 August 2022, the plaintiffs requested that the court relist this matter prior to 17 August 2022, in circumstances where:
(a)the plaintiffs were required to request an interim draw down on the revised facility to access the trading revenue generated during the administration to enable them to continue to trade the business of SJ Traffic Management; and
(b)the second meeting of the creditors of SJ Traffic Management had been adjourned to 17 August 2022.
I was satisfied of the urgency and the matter was relisted on 16 August 2022.
Application pursuant to s 447A of the Corporations Act
Applicable principles
This application was made pursuant to s 447A of the Corporations Act, which empowers the court to make such orders as it thinks appropriate about how pt 5.3A is to operate in relation to a particular company. Section 447A gives the court broad powers, including the power to alter what would otherwise be the operation of pt 5.3A in relation to a particular company.[21]
[21] Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24, 26 - 27; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270; Re Bosnjak Holdings Pty Ltd [2005] FCA 275; (2005) 53 ACSR 8 [9]; plaintiffs' submissions pars 12 - 13.
In Re Geographe Workforce Ltd at [35] - [45], I set out the principles to be applied in the disposition of an application made pursuant to s 447A of the Corporations Act, and I adopted and applied these principles in the determination of this application.
Disposition
Standing
By operation of s 447A(4)(c), the plaintiffs had standing to apply for an order pursuant to s 447A(1).
Power
As was the case in Re Geographe Workforce Ltd, the provision in pt 5.3A the operation of which was sought to be modified by this application was s 443A of the Corporations Act. Section 443A(1) provides that an administrator of a company is liable for debts he or she incurs in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for services rendered; or goods bought; or property hired, leased, used or occupied; or the repayment of money borrowed; or interest in respect of money borrowed; or borrowing costs.
Section 443A(2) of the Corporations Act provides that the liability of an administrator under s 443A(1) of the Corporations Act cannot be excluded by any agreement; and s 443A(1) of the Corporations Act does not otherwise prejudice an administrator's rights to bring an action or make a claim as against the company or anyone else.
The Invoice Financing Documents contain provisions directed at limiting the plaintiffs' personal liability and CFA's recourse to the plaintiffs with respect to that liability. However, since the plaintiffs cannot contract out of their personal liability under s 443A(1) of the Corporations Act, they remain exposed to the possibility that the quantum of their personal liability under the Invoice Financing Documents may exceed the extent to which their statutory lien over SJ Traffic Management's assets secures their right of indemnity under s 444D.
In the disposition of this application, I accepted that the court has the power to make the first order promoted on behalf of the plaintiffs, which has a clear nexus with how pt 5.3A was to operate in relation to SJ Traffic Management. Further, having had regard to the evidence of Mr Brauer and the second report to creditors attached to Ms Vincent's affidavit, I accepted that the first order was in the interests of the company's creditors and was consistent with the objectives of pt 5.3A as stated in s 435A of the Corporations Act.
In this regard, Mr Brauer deposed in his first affidavit that without the revised invoice finance arrangements then contemplated (now documented in the Invoice Financing Documents), the plaintiffs were not prepared to continue to trade the SJ Traffic Management business, notwithstanding it was their view that it was in the interests of the creditors that the business continue to trade during the administration period and that the arrangements would be necessary for there to be a successful DOCA.[22] I was also cognisant that it was a condition of the proposed DOCA the intended to be put to creditors that the plaintiffs obtain the orders now pressed, including the first making of the order.[23] I was satisfied having regard to the evidence read that the Invoice Financing Documents and the first order promoted the administration of the affairs of SJ Traffic Management in a way that maximised the chances of the company continuing in existence.[24]
Discretion
[22] First affidavit of RC Brauer pars 53 - 54.
[23] Affidavit of JA Vincent, JAV3 (page 100).
[24] Corporations Act s 435A(a).
There did not appear to be any significant discretionary factors which counted against making an order under s 447A of the Corporations Act.
As was the case in Re Spyglass Management Group Pty Ltd [2004] FCA 1469; (2004) 51 ACSR 432, the order sought was for the plaintiffs' benefit, having the effect of converting the moneys drawn down under the Invoice Financing Documents into a 'non-recourse' advance.
As a party to the Invoice Financing Documents, the protection of the plaintiffs from personal liability was clearly within CFA's knowledge and contemplation. Further counsel for the plaintiffs noted that notice of the application had also been given to all those who may be affected by the order.[25] I had particular regard to the affidavit of Mr Simpson, who attached to his affidavit a statement of posting of the circular to creditors dated 10 August 2021, by which creditors of SJ Traffic Management were given notice of the hearing on 16 August 2022. The statement of posting contained a list of all creditors and those persons claiming to be creditors of SJ Traffic Management, which included the employee creditors; CFA; Gordon Brothers; and Mr Jackson as representative of Busselton Civil and Geographe Hire Pty Ltd. At the hearing of the application, no creditor sought to be heard in relation to the relief pressed on behalf of the plaintiffs.
[25] ts 18 (16 August 2022).
At the hearing of the application, I raised with counsel my concern that by operation of the pre-appointment invoice finance arrangements, including the deed of cross-collateralisation and the deed of priority, there may be third parties whose interests might be adversely impacted by CFA and SJ Traffic Management entering into the revised arrangements, particularly the limitation of personal liability in favour of the plaintiffs under those arrangements.[26] In light of this concern, out of an abundance of caution, orders 5 and 6 were included in the orders made on 16 August 2022. That is, it was ordered that the operation of orders 1 and 2 be stayed until 4pm on 19 August 2022; and by no later than 10am on 17 August 2022 the plaintiffs were required to give notice of the orders to:
(a) the creditors of SJ Traffic Management by way of a further circular emailed to any email address previously notified by a creditor to the plaintiffs;
(b) Gordon Brothers by way of emailing a copy of these orders to Gordon Brothers' solicitors;
(c) CFA, by way of emailing a copy of these orders to CFA's solicitors;
(d) Geographe Workforce, Energia Holdings Pty Ltd, Busselton Civil, BCP Materials, BCP Contractors Pty Ltd, Geographe Hire, Bluewater PE Pty Ltd, by way of emailing a copy of these orders to the director of each of those companies, Mr Jackson; and
(e) Mr Jackson, by way of emailing a copy of these orders to him.
[26] ts 16 - 17 (16 August 2022).
Counsel for the plaintiff did not oppose the making of orders 5 and 6. Counsel also noted that there was no evidence of any prejudice to the creditors of SJ Traffic Management, and that through Mr Brauer, there was evidence before the court that the plaintiffs do not consider that the making of the orders sought in the application cause prejudice or injustice to any party.[27] I bore this evidence in the balance and took comfort from the inclusion of orders 5 and 6 in the orders made on 16 August 2022.
[27] First affidavit of RC Brauer par 58; plaintiffs' supplementary submissions par 7.
In circumstances where the plaintiffs had reasonably formed the view that the revised invoice finance arrangements (now documented in the Invoice Financing Documents) were in the best interests of the creditors, I was satisfied that it was appropriate for the court's discretion to be exercised to make the first order promoted by the plaintiffs.
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).
In Re Geographe Workforce Ltd at [56] - [72], I set out the principles to be applied in the disposition of an application for directions made pursuant to s 90‑15(1) of the Insolvency Practice Schedule (Corporations), and I adopted and applied these principles in the determination of this application.
Disposition
Standing
An administrator of a company has, among others, standing to apply for orders pursuant to s 90‑15.[28]
Power
[28] 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').
Again, I had regard to Mr Brauer's evidence that in the absence of the revised invoice finance arrangements, SJ Traffic Management did not (and would not) have sufficient working capital (or certainty of working capital) to continue trading the SJ Traffic Management business during the administration period, notwithstanding the plaintiffs' view that it is in the interests of the creditors of SJ Traffic Management that the SJ Traffic Management business continue to trade during the administration period. I was satisfied that the Invoice Funding Documents promoted the administration of the affairs of SJ Traffic Management in a way that maximised the chances of the company continuing in existence.
Discretion
After undertaking a thorough analysis, the plaintiffs considered it to be in the interests of creditors as a whole to cause SJ Traffic Management to enter into a deed of variation dated 8 August 2022 with CFA; and for the plaintiffs to enter into a deed of indemnity dated 8 August 2022 with CFA.
The plaintiffs' reasons and decision making process were comprehensively detailed in Mr Brauer's first affidavit. In particular, I weighed in the balance those matters deposed to by Mr Brauer summarised at [35] to [39] above. Further, on the evidence before me, I accepted the submission made by counsel that:[29]
(a)it is, and was, in the best interests SJ Traffic Management's creditors, in particular, its unsecured creditors, for the plaintiffs to cause SJ Traffic Management to enter into the deed of variation dated 8 August 2022, and for the plaintiffs to enter into the deed of indemnity of the same date; and
(b) entry into the Invoice Financing Documents would facilitate the DOCA Proposal promoted by Busselton Civil if the creditors of SJ Traffic Management resolved to accept it.
[29] Plaintiffs' supplementary submissions par 9.
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.
I was satisfied that the direction was necessary so as to address the issue of reasonableness, which called for the exercise of legal judgment which related to more than the making of a commercial decision.
I was satisfied on the evidence that the plaintiffs had given full and frank disclosure as well as adequate notice to all the affected parties despite the urgency of the application. I was informed that the plaintiffs were not aware of any person who wished to be heard in relation to the relief sought.[30]
[30] ts 15 (16 August 2022).
I note that the plaintiffs through various circulars to creditors had given notice of this application to all creditors of SJ Traffic Management.[31] I repeat what I said at [66] above and took comfort from the inclusion of orders 5 and 6 in the orders made on 16 August 2022.
[31] Affidavit of JA Vincent, JAV1, JAV3; affidavit of CJ Simpson, CJS1.
In all of the circumstances, I was satisfied that there was a proper evidentiary basis to conclude that the plaintiffs would be justified in entering into and causing SJ Traffic Management to enter into the Invoice Funding Documents, and that the grant of relief in the form sought on behalf of the plaintiffs was appropriate.
Confidentiality
I was satisfied that the second confidential affidavit deposed to by Mr Brauer 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 second confidential affidavit pursuant to O 67B r 5(1)(b) of the Rules of the Supreme Court 1971 (WA), which shall be treated as confidential and not be published or disclosed except pursuant to an order of the court.
Costs
It was appropriate that the plaintiffs' costs of and incidental to this application be costs and expenses in the external administration of SJ Traffic Management, and I ordered that such costs and expenses be paid out of the assets of that company.[32]
[32] Order 4 of the orders made on 16 August 2022.
Conclusion and orders
For these reasons, I determined it was appropriate for the court to grant to the plaintiffs the relief sought, with the variations to the orders promoted on behalf of the plaintiffs described at [66] above. The final form of the orders made are reproduced at sch B to these reasons.
Sch A - Minute of proposed orders filed on 10 August 2022
Sch B - Orders made on 16 August 2022
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AI
Associate to the Honourable Justice Strk
26 AUGUST 2022
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