Re Wiluna Mining Corporation Ltd

Case •

[2023] WASC 194

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE WILUNA MINING CORPORATION LTD; EX PARTE MICHAEL JOSEPH RYAN as administrator of WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED) [2023] WASC 194

CORAM:   ACTING MASTER MCDONALD

HEARD:   27 APRIL 2023

DELIVERED          :   6 JUNE 2023

FILE NO/S:   COR 63 of 2023

MATTER:   IN THE MATTER OF WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED) AND OTHERS

EX PARTE

MICHAEL JOSEPH RYAN as administrator of WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED)

First Plaintiff

MICHAEL JOSEPH RYAN as administrator of WILUNA OPERATIONS PTY LTD (ADMINISTRATORS APPOINTED)

Second Plaintiff

MICHAEL RYAN RYAN as administrator of WILUNA GOLD PTY LTD (ADMINISTRATORS APPOINTED)

Third Plaintiff

MICHAEL JOSEPH RYAN as administrator of KIMBA RESOURCES PTY LTD (ADMINISTRATORS APPOINTED)

Fourth Plaintiff

MICHAEL JOSEPH RYAN as administrator of ZANTHUS ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Fifth Plaintiff

MICHAEL JOSEPH RYAN as administrator of LIGNITE PTY LTD (ADMINISTRATORS APPOINTED)

Sixth Plaintiff

MICHAEL JOSEPH RYAN as administrator of SCADDAN ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Seventh Plaintiff

DANIEL HILLSTON WOODHOUSE as administrators of WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED)

Eighth Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of WILUNA OPERATIONS PTY LTD

Ninth Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of WILUNA GOLD PTY LTD (ADMINISTRATORS APPOINTED)

Tenth Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of KIMBA RESOURCES PTY LTD (ADMINISTRATORS APPOINTED)

Eleventh Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of ZANTHUS ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Twelfth Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of LIGNITE PTY LTD (ADMINISTRATORS APPOINTED)

Thirteenth Plaintiff

DANIEL HILLSTON WOODHOUSE as administrator of SCADDAN ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Fourteenth Plaintiff

IAN CHARLES FRANCIS as administrators of WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED)

Fifteenth Plaintiff

IAN CHARLES FRANCIS as administrators of WILUNA OPERATIONS PTY LTD (ADMINISTRATORS APPOINTED)

Sixteenth Plaintiff

IAN CHARLES FRANCIS as administrator of WILUNA GOLD PTY LTD (ADMINISTRATORS APPOINTED)

Seventeenth Plaintiff

IAN CHARLES FRANCIS as administrator of KIMBA RESOURCES PTY LTD (ADMINISTRATORS APPOINTED)

Eighteenth Plaintiff

IAN CHARLES FRANCIS as administrator of ZANTHUS ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Nineteenth Plaintiff

IAN CHARLES FRANCIS as administrator of LIGNITE PTY LTD (ADMINISTRATORS APPOINTED)

Twentieth Plaintiff

IAN CHARLES FRANCIS as administrator of SCADDAN ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Twenty First Plaintiff

KATHRYN GUINIVERE WARWICK as administrator of WILUNA MINING CORPORATION LTD (ADMINISTRATORS APPOINTED)

Twenty Second Plaintiff

KATHRYN GUINIVERE WARWICK as administrator of WILUNA OPERATIONS PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Third Plaintiff

KATHRYN GUINIVERE WARWICK as administrator of WILUNA GOLD PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Fourth Plaintiff

KATHRYN GUINIVERE WARWICK as administrator of KIMBA RESOURCES PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Fifth Plaintiff

KATHRYN GUINIVERE WARWICK as administrator of ZANTHUS ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Sixth Plaintiff

KATHRYN GUINIVERE WARWICK as administrators of LIGNITE PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Seventh Plaintiff

KATHRYN GUINIVERE WARWICK as administrators of SCADDAN ENERGY PTY LTD (ADMINISTRATORS APPOINTED)

Twenty Eighth Plaintiff


Catchwords:

Corporations - Voluntary administration - Application under s 447A Corporations Act 2001 (Cth) - Payment of employee entitlements during administration - Objects of Part 5.3A - Order that pt 5.3A operates to empower administrators to pay employees in accordance with s 433, s 556 and s 561 of Corporations Act 2001 (Cth)

Legislation:

Corporations Act 2001 (Cth), s 433, s 435A, s 444DA, s 447A, s 556, s 561
Corporations Regulations 2001 (Cth), reg 5.3A.06

Result:

Application granted

Category:    B

Representation:

Counsel:

First Plaintiff : P Edgar
Second Plaintiff : P Edgar
Third Plaintiff : P Edgar
Fourth Plaintiff : P Edgar
Fifth Plaintiff : P Edgar
Sixth Plaintiff : P Edgar
Seventh Plaintiff : P Edgar
Eighth Plaintiff : P Edgar
Ninth Plaintiff : P Edgar
Tenth Plaintiff : P Edgar
Eleventh Plaintiff : P Edgar
Twelfth Plaintiff : P Edgar
Thirteenth Plaintiff : P Edgar
Fourteenth Plaintiff : P Edgar
Fifteenth Plaintiff : P Edgar
Sixteenth Plaintiff : P Edgar
Seventeenth Plaintiff : P Edgar
Eighteenth Plaintiff : P Edgar
Nineteenth Plaintiff : P Edgar
Twentieth Plaintiff : P Edgar
Twenty First Plaintiff : P Edgar
Twenty Second Plaintiff : P Edgar
Twenty Third Plaintiff : P Edgar
Twenty Fourth Plaintiff : P Edgar
Twenty Fifth Plaintiff : P Edgar
Twenty Sixth Plaintiff : P Edgar
Twenty Seventh Plaintiff : P Edgar
Twenty Eighth Plaintiff : P Edgar

Solicitors:

First Plaintiff : King & Wood Mallesons
Second Plaintiff : King & Wood Mallesons
Third Plaintiff : King & Wood Mallesons
Fourth Plaintiff : King & Wood Mallesons
Fifth Plaintiff : King & Wood Mallesons
Sixth Plaintiff : King & Wood Mallesons
Seventh Plaintiff : King & Wood Mallesons
Eighth Plaintiff : King & Wood Mallesons
Ninth Plaintiff : King & Wood Mallesons
Tenth Plaintiff : King & Wood Mallesons
Eleventh Plaintiff : King & Wood Mallesons
Twelfth Plaintiff : King & Wood Mallesons
Thirteenth Plaintiff : King & Wood Mallesons
Fourteenth Plaintiff : King & Wood Mallesons
Fifteenth Plaintiff : King & Wood Mallesons
Sixteenth Plaintiff : King & Wood Mallesons
Seventeenth Plaintiff : King & Wood Mallesons
Eighteenth Plaintiff : King & Wood Mallesons
Nineteenth Plaintiff : King & Wood Mallesons
Twentieth Plaintiff : King & Wood Mallesons
Twenty First Plaintiff : King & Wood Mallesons
Twenty Second Plaintiff : King & Wood Mallesons
Twenty Third Plaintiff : King & Wood Mallesons
Twenty Fourth Plaintiff : King & Wood Mallesons
Twenty Fifth Plaintiff : King & Wood Mallesons
Twenty Sixth Plaintiff : King & Wood Mallesons
Twenty Seventh Plaintiff : King & Wood Mallesons
Twenty Eighth Plaintiff : King & Wood Mallesons

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

Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) [2010] FCA 1355; (2010) 190 FCR 474

Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310

Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99

Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735

Re Albarran, Kijurina and Shaw as Joint and Several Administrators of Cooper and Oxley Builders Pty Ltd (admins apptd) [2018] WASC 161

Re Ansett Australia Ltd (all administrators apptd) and Mentha (as administrator) [2001] FCA 1806

Re BCA National Training Group Pty Ltd (in liq) [2023] NSWSC 366

Re GBS Gold Australia Pty Ltd; Ex parte Saker [2009] WASC 25

Re Great Southern Ltd (Receivers and Managers Appointed) (in liq); Ex Parte Thackray [2012] WASC 59

Re Maria's Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899

Re Sons of Gwalia Ltd; Ex parte Love [2008] WASC 75; (2008) 66 ACSR 253

Saker, Re Great Southern Ltd [2014] FCA 771

Viscariello v Macks [2014] SASC 189

Table of Contents

Application

Orders Sought

Background

Employees

Funds held by the administrators

Notice

The legislative scheme

Legal Principles

Section 447A

Disposition

Power to make an order under s 447A

Discretion

Records of the Companies

Notice

Proposed Orders

ACTING MASTER MCDONALD:

  1. The plaintiffs are the administrators of a group of companies. To date there have been three extensions of the time in which to convene a second meeting of creditors, the last of which extended time until 30 June 2023. The administrators are currently unable to pay any amounts owing to current and former employee creditors until after that meeting (assuming a further extension is not sought). The administrators have brought this application for an order (among other ancillary orders) pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (the Act) that pt 5.3A of the Act is to operate such that s 433, s 556 and s 561 of the Act apply to the plaintiffs so that the plaintiffs are empowered to pay, during the administration period, employee entitlements.

Application

  1. This application was brought by originating process filed on 21 April 2023 which was amended on 26 April 2023.  The application was supported with a Certificate of Urgency and listed for hearing on 27 April 2023.  The urgency arises by virtue of the administrators wanting to pay the employees as soon as possible.  There have been three previous extensions of time to convene a meeting pursuant to s 439A of the Act and consequently there are now approximately $4.6 million in pre‑appointment employee entitlements owing.[1]

    [1] Affidavit of Kathryn Guinivere Warwick filed 21 April 2023 (open) [15], [22].

  2. The application is supported by an affidavit of Kathryn Guinivere Warwick, one of the administrators, filed on 21 April 2023 (Open Warwick Affidavit), a further confidential affidavit of Kathryn Guinivere Warwick filed on 21 April 2023 (Confidential Warwick Affidavit) and an affidavit of Samuel James Dundas, a partner of the solicitors acting for the administrators, filed on 26 April 2023, (Dundas Affidavit).

  3. In addition, the plaintiffs seek orders that the evidence in the actions previously brought in this court, namely COR 151 of 2022, COR 221 of 2022 and COR 25 of 2023 (Previous Actions) be evidence in these proceedings.  The Previous Actions were brought to seek orders extending time for the period to convene the second creditors' meeting.  The evidence sought to be relied upon in the Previous Actions is the open affidavit of Michael Joseph Ryan filed 12 December 2022 in COR 221 of 2022 (First Ryan Affidavit), the open affidavit of Michael Joseph Ryan filed 10 February 2023 in COR 25 of 2023 (Second Ryan Affidavit), and the affidavit of Mr Daniel Hillston Woodhouse filed 15 August 2022 in COR 151 of 2022 (Open Woodhouse Affidavit) all of whom were appointed, with Ms Warwick, as administrators of the group of companies.

  4. It is appropriate when seeking orders in an ex parte application that all the relevant information is before the court.  I granted leave to the plaintiffs to rely on their affidavits filed in the Previous Actions and I have referred to those affidavits which have been read in these proceedings.

Orders Sought

  1. By way of an amended minute of proposed orders dated 26 April 2023 (Amended Minute) the plaintiffs sought the following orders:

    1.The plaintiffs have leave to amend the Originating Process in terms of the Minute of Amended Originating Process dated 26 April 2023.

    2.The evidence in the proceedings of COR 151 of 2022, COR 221 of 2022 and COR 25 of 2023 be evidence in these proceedings.

    3.An order that the Originating Process be made returnable instanter.

    Payment of Employee Creditor entitlements

    4.An order pursuant to s 447A(1) of the Act, that Part 5.3A of the Act is to operate such that provisions 433, 556 and 561 of the Act apply to the plaintiffs such that the plaintiffs are empowered to pay, during the administration period, the Employee Creditors of the Companies their entitlements as at 31 March 2023 as defined in the confidential affidavit of Kathryn Guinivere Warwick dated 21 April 2023.

    5.An order pursuant to s 447A(1) of the Act, that the plaintiffs are to rely on the books and records of the Companies in calculating the employee entitlements as at 31 March 2023.

    Costs and other orders

    6.Any application for access pursuant to Order 67B rule 11 of the Rules of the Supreme Court 1971 (WA) to inspect the confidential affidavit of Kathryn Guinivere Warwick affirmed 21 April 2022 and filed in these proceedings on 21 April 2022, and the annexures referred to therein:

    (a)be referred to the Court; and

    (b)not be determined until notice of the application is given to the deponent, by her solicitor, and the deponent has reasonable opportunity to be heard in opposition to the application for inspection.

    7.The plaintiffs' costs of and incidental to this application be costs and expenses in the administration of each of the Companies, and to be paid out of the assets of the Companies.

    8.Any other order that the Court considers fit.

  2. On 27 April 2023 I made the orders sought in terms of proposed orders 1, 2, 3 and 6 of the Amended Minute and reserved on the question of orders 4 and 5 relating to payment of employee creditor entitlements during the administration period.

  3. I have decided to make the remaining orders 4, 5 and 7 of the Amended Minute for the following reasons.

Background

  1. On 20 July 2022, pursuant to s 436A(1) of the Act, Mr Michael Joseph Ryan, Mr Ian Charles Francis, Ms Kathryn Guinivere Warwick and Mr Daniel Hillston Woodhouse were appointed as joint and several voluntary administrators of the following companies:[2]

    (a)Wiluna Mining Corporation Ltd (Wiluna Mining);

    (b)Wiluna Operations Pty Ltd  (Wiluna Operations);

    (c)Wiluna Gold Pty Ltd (Wiluna Gold);

    (d)Kimba Resources Pty Ltd (Kimba);

    (e)Zanthus Energy Pty Ltd (Zanthus);

    (f)Lignite Pty Ltd (Lignite);

    (g)Scaddan Energy Pty Ltd (Scaddan) (the Companies).

    [2] Open Woodhouse Affidavit [9].

  2. Wiluna Mining is a listed resources company on the Australian Securities Exchange.  Wiluna Mining is the ultimate holding company of Scaddan and Wiluna Gold, which are in turn 100% owners of Lignite and Zanthus, and Wiluna Operations and Kimba respectively.[3]

    [3] Open Woodhouse Affidavit [12].

  3. Since 1894 the Wiluna mine has been mined under various ownership structures and business plans.  Wiluna Operations and Kimba have extensive gold mining operations with a number of key agreements, including offtake agreements.[4]  The Companies have a number of inter‑company loans.[5] 

    [4] Open Woodhouse Affidavit [13], [15].

    [5] Open Woodhouse Affidavit [14].

  4. Mercuria Energy Trading Pte Ltd (Mercuria) has a registered security interest on the Personal Property Securities Register (PPSR) in respect of a US$42 million facility agreement with the Companies.[6]  Despite embarking on various capital raising measures to complete the Companies' projects, due to various external pressures there was insufficient working capital.  This resulted in the administrators being appointed.[7] 

    [6] Open Woodhouse Affidavit [16].

    [7] Open Woodhouse Affidavit [17] ‑ [19].

  5. Mercuria is the Companies' major secured creditor.[8]  Mercuria also holds various mining mortgages over various mining tenements granted by Wiluna Operations and Kimba.[9]  There is also a prior in time secured creditor, Franco‑Nevada Australia Pty Ltd, which also has a registered all present and after-acquired property security interest on the PPSR against Kimba and a number of registered mortgages over mining tenements held by Wiluna Operations and Kimba.[10]

    [8] Open Woodhouse Affidavit [21].

    [9] Open Woodhouse Affidavit [22].

    [10] Open Woodhouse Affidavit [23]; First Ryan Affidavit [10(b)]; Open Warwick Affidavit [11(b)].

  6. As at 9 February 2023 the total unsecured creditors' claims are estimated to be $43.8 million excluding related party inter-company loans.[11] 

    [11] Second Ryan Affidavit [12(c)].

  7. The court has on three occasions ordered that the convening period of the second meeting of creditors be extended.  The third extension was granted on 16 February 2023 which extended the convening period to 30 June 2023.[12]  The applications for the extensions were brought to allow adequate time for the administrators to explore and implement viable options to extract value from the Companies and engage with key stakeholders in relation to the draft deed of company arrangement proposal[13] and form the opinion required under s 75‑225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth).[14]

Employees

[12] Open Warwick Affidavit [22].

[13] First Ryan Affidavit [28] ‑ [31].

[14] Plaintiffs' submissions filed 24 April 2023 [6].

  1. As at the date the administrators were appointed, 189 people were employed by the Companies with total outstanding employee entitlements of approximately $2.4 million (subject to adjudication and excluding any retrenchment provisions yet to crystallise) comprising of outstanding leave.[15]

    [15] Open Warwick Affidavit [12].

  2. As at 31 March 2023, pre‑appointment employee entitlements owed by the Companies to former and current employees had increased to $4,600,470, comprising:

    (a)$285,008 in superannuation guarantee charges for employees who have been terminated or resigned;

    (b)$1,293,541 in retrenchment and leave entitlements for employees who have been terminated or resigned (including superannuation on payments in lieu of notice);

    (c)$842,601 in pre‑appointment leave entitlements for employees currently employed by the Companies; and

    (d)$2,179,320 in redundancy payments for current employees (yet to crystallise given these people are still employed with the Companies).[16]

    [16] Open Warwick Affidavit [15].

  3. As at 21 April 2023 there were 70 employees employed by the Companies.[17]

    [17] Open Warwick Affidavit [13].

  4. The administrators have paid wages and leave entitlements accrued to all employees who were terminated or resigned during the administration.[18]

    [18] Open Warwick Affidavit [16].

  5. Ms Warwick undertook a review of the Companies' books and records detailing employee entitlements and determined that these books and records were well maintained and reliable.[19]  The details of the exact amount owing to individual employees are attached to the Confidential Warwick Affidavit.[20]

Funds held by the administrators

[19] Open Warwick Affidavit [35].

[20] Confidential Warwick Affidavit 'KGW-1'.

  1. Ms Warwick deposes that based on the administrators' investigations to date, there are sufficient circulating assets to pay the potential priority claims of employees of the Companies, subject to adjudication and subject to change over the course of the administration.[21]

    [21] Open Warwick Affidavit [18].

  2. Ms Warwick further states that if the administrators were to pay all priority claims of employees, the administrators would still hold sufficient funds to meet the current and likely future costs of the administration and any subsequent form of external administration.[22]

    [22] Open Warwick Affidavit [19].

  3. The administrators are currently unable to pay any amounts owing to current and former employee creditors until sometime after the second meeting of creditors, assuming that the administrators are not required to obtain any further extension to the convening period.[23]

Notice

[23] Open Warwick Affidavit [24].

  1. Ms Warwick deposes that following a meeting of the Committee of Inspection for Wiluna Mining and Wiluna Operations on 21 March 2023, at which representatives for Wiluna's secured creditors were present, no objections were raised by those in attendance to the administrators' proposal to set aside funds in accordance with the report of outstanding employee entitlements circulated at that meeting.[24] 

    [24] Open Warwick Affidavit [36] ‑ [38]; Confidential Warwick Affidavit [12] 'KGW-2'.

  1. Further to the Committee of Inspection meeting held on 21 March 2023, on 3 April 2023 the administrators separately gave Mercuria notice of this application and received Mercuria's consent to the application.[25]  Ms Warwick deposes that verbal consent from Franco‑Nevada, the other secured creditor, has also been obtained.[26]  At the hearing on 27 April 2023, counsel made the qualification that the consent by Franco‑Nevada was by way of a phone call with one of the administrators and the date on which that discussion took place and the detail of that discussion was not known.[27]

    [25] Open Warwick Affidavit [40]; Confidential Warwick Affidavit [12] 'KGW- 2'.

    [26] Open Warwick Affidavit [28]; Confidential Warwick Affidavit [12].

    [27] ts 5.

The legislative scheme

  1. The plaintiffs seek an order pursuant to s 447A(1) of the Act, that pt 5.3A of the Act is to operate such that s 433, s 556 and s 561 of the Act apply to the plaintiffs such that the plaintiffs are empowered to pay during the administration period, the employee creditors of the Companies their entitlements as at 31 March 2023.

  1. Part 5.3A of the Act establishes the regime for the voluntary administration of a corporation. Section 435A of the Act states that the objects of pt 5.3A are to maximise the chances of the company, or as much as possible of its business, continuing in existence or, if that object is not possible, to provide a better return to the company's creditors and members than would result from an immediate winding up of the company. Part 5.3A provides for a meeting of creditors to decide the company's future[28] namely, whether the company execute a deed of company arrangement, the administration end or the company be wound up.[29]

    [28] The Act s 439A.

    [29] The Act s 439C.

  2. Section 437A of the Act describes the role of an administrator as follows:

    437ARole of administrator

    (1) While a company is under administration, the administrator:

    (a)has control of the company's business, property and affairs; and

    (b)may carry on that business and manage that property and those affairs; and

    (c)may terminate or dispose of all or part of that business, and may dispose of any of that property; and

    (d)may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.

    (2)Nothing in subsection (1) limits the generality of anything else in it.

  3. Section 442A(d) of the Act provides that without limiting s 437A, the administrator of a company under administration has power to do 'whatever else is necessary for the purposes of this Part'.

  4. Section 444DA requires any deed of company arrangement to contain a provision that eligible employee creditors will be entitled to a priority at least equal to what they would have been entitled if the property were applied in accordance with s 556, s 560 and s 561 of the Act. Section 556, s 560 and s 561 afford priority in a winding up to various categories of creditors and claimants. Those priority creditors include creditors who meet the criteria to be an 'eligible employee creditor',[30] defined in s 9 of the Act as 'in relation to a company, means a creditor whose debt or claim would, in a winding up of the company, be payable in priority to other unsecured debts and claims in accordance with paragraph 556(1)(e), (g) or (h) or section 560 or 561'.

    [30] Re Albarran, Kijurina and Shaw as Joint and Several Administrators of Cooper and Oxley Builders Pty Ltd (admins apptd) [2018] WASC 161 [2].

  5. Section 444DA of the Act is consistent with legislative policy to entrench in a deed of company arrangement the priorities that would otherwise prevail for eligible employees in a winding up, in recognition of the view that insolvency 'works undue hardship on employees to fail to afford them priority'.[31]

    [31] Re Albarran, Kijurina and Shaw as Joint and Several Administrators of Cooper and Oxley Builders Pty Ltd (admins apptd) [40] ‑ [41].

  6. That policy is likewise expressed in s 561 which postpones the secured creditor's claims to the employees' claims where a company's business is conducted such that the circulating assets are augmented by the employees' efforts.[32]

    [32] Re BCA National Training Group Pty Ltd (in liq) [2023] NSWSC 366 [20].

  7. In this case the administrators are seeking to pay employee entitlements during the administration process in accordance with the priority afforded by s 433, s 556 and s 561 of the Act.

  1. Section 433 of the Act determines the priority of employee entitlements in receivership. Section 433 relevantly provides:

    433Property subject to circulating security interest—payment of certain debts to have priority

    (2)This section applies where:

    (a)a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a circulating security interest, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a circulating security interest; and

    (b)at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

    (i) the company or registered body has not commenced to be wound up voluntarily; and

    (ii) the company or registered body has not been ordered to be wound up by the Court.

    (3)In the case of a company, the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

    (a)first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;

    (b)next, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had refused that consent before the relevant date — the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;

    (c)subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

    …

    (5)The receiver or other person taking possession or assuming control of property must pay debts and amounts payable pursuant to paragraph (3)(c) or (4)(b) in the same order of priority as is prescribed by Division 6 of Part 5.6 in respect of those debts and amounts.

    …

    (9)For the purposes of this section, the references in Division 6 of Part 5.6 to the relevant date are to be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be.

  2. Section 556 of the Act determines the priority of employee entitlements in liquidation and relevantly provides:

    556Priority payments

    (1)Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

    …

    (e)subject to subsection (1A) — next:

    (i)  wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date; or

    (ii)  liabilities to pay the amounts of estimates under Division 268 in Schedule 1 to the Taxation Administration Act 1953 of superannuation guarantee charge mentioned in subparagraph (i);

    …

    (g)  subject to subsection (1B) — next, all amounts due:

    (i)  on or before the relevant date; and

    (ii) because of an industrial instrument; and

    (iii)  to, or in respect of, employees of the company; and

    (iv)  in respect of leave of absence;

    (h)  subject to subsection (1C) — next, retrenchment payments payable to employees of the company.

  3. Section 561 of the Act provides:

    561Priority of employees' claims over circulating security interests

    So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of:

    (a)any debt referred to in paragraph 556(1)(e), (g) or (h); and

    (b)any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and

    (c)any amount in respect of which a right of priority is given by section 560;

    payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest.

  4. Therefore s 433 requires receivers to pay certain employee entitlements as a priority from funds realised from the sale of property coming into the receiver's hands. Only after these priority entitlements have been met will a secured creditor have a right to be paid any balance in reduction of its secured debt.

  5. In identifying which employee entitlements are to be prioritised by a receiver, s 433 refers to those given priority in a winding up. These entitlements are listed at s 556(1)(e), s 556(1)(g) and s 556(1)(h) of the Act and comprise:

    (1)wages and superannuation payable by the company in respect of services rendered by employees before the date of the appointment of receivers;[33]

    (2)amounts owed by the company to employees by way of leave of absence which have become due and payable on or before the date of the appointment of receivers;[34] and

    (3)retrenchment payments payable to employees of the company, whether the amount becomes payable before, on or after the date of the appointment of receivers.[35]

    [33] The Act s 556(1)(e).

    [34] The Act s 556(1)(g).

    [35] The Act s 556(1)(h).

  6. The administrators submit that s 561 of the Act supplements the reference to s 556 of the Act, as s 561 of the Act provides for the priority regime as between a secured creditor and preferred creditors in respect of access to circulating assets, as distinct from the priority regime between those who receive priority and unsecured creditors governed by s 556 of the Act.[36]

    [36] Plaintiffs' supplementary submissions filed 26 April 2023 [7]; Re BCA National Training Group Pty Ltd (in liq) [2023] NSWSC 366 [33].

  7. In Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) [2010] FCA 1355; (2010) 190 FCR 474 Finkelstein J explained the interaction between s 433 and s 561:[37]

    How do ss 561 and 433 interact? In Stein v Saywell (1969) 121 CLR 529 Barwick CJ (at 545) described earlier equivalents of ss 561 and 433 as 'complementary'. Section 433 becomes enlivened upon the appointment of a receiver or agent in possession prior to the commencement of a winding up. Section 561 is triggered upon the company being wound up, regardless of whether s 433 already applies. The operation of s 433 continues notwithstanding the subsequent winding up of the company. See also Re Custom Card (NSW) Pty Ltd[1979] 1 NSWLR 241; Perrins v State Bank of Victoria [1991] 1 VR 749.

    Although the sections are 'complementary', there is a disconformity in the way that they operate. Section 433 imposes an obligation on the receiver or agent in possession which, unlike s 561, is not conditional on the free assets of the company being insufficient to meet priority debts. …

    [37] Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) [74] ‑ [75].

  8. In order to pay the employee entitlements during the administration process, the administrators propose to incorporate the priority given to employee creditors during receivership and liquidation by seeking orders pursuant to s 447A of the Act. Section 447A of the Act provides:

    447AGeneral power to make orders

    (1)  The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

    (2)  For example, if the Court is satisfied that the administration of a company should end:

    (a) because the company is solvent; or

    (b) because provisions of this Part are being abused; or

    (c)  for some other reason;

    the Court may order under subsection (1) that the administration is to end.

    (3)  An order may be made subject to conditions.

    (4)  An order may be made on the application of:

    (a)  the company; or

    (b)  a creditor of the company; or

    (c)in the case of a company under administration--the administrator of the company; or

    (d)in the case of a company that has executed a deed of company arrangement--the deed's administrator; or

    (e)ASIC; or

    (f)any other interested person.

Legal Principles

  1. Section 433 and s 561 provide for certain priorities as concern debts or claims within s 556(1). In Re Great Southern Ltd (Receivers and Managers Appointed) (in liq); Ex Parte Thackray [2012] WASC 59; (2012) 260 FLR 362, Master Sanderson held:[38]

    The statutory purpose of s 433 and s 561 is readily identifiable. The legislation is intended to benefit the employees of companies which cannot pay their debts in full: see Stein v Saywell [1969] HCA 16; (1969) 121 CLR 529, 544, 550. The provisions establish a potential priority right to payment out of floating charge assets. The provisions recognise the efforts of employees can enhance the floating charge assets and the employees as thus entitled to a priority: see Re Lewis Merthyr Consolidated Collieries Ltd (1929) 1 Ch 498, 507.

    [38] Re Great Southern Ltd (Receivers and Managers Appointed) (in liq); Ex Parte Thackray [7].

  2. With the introduction of the Personal Property Securities Act 2009 (Cth), the reference to floating charge assets has been replaced with circulating security interests.

  3. In Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) Finkelstein J referred to some of the difficulties in assessing the sufficiency of a company's assets in advance of any winding up.  His Honour held:[39]

    The right to have recourse to charged assets under s 561 is conditional on there being insufficient property of the company available to meet preferential debts. When is this assessment of the company's property to be made? …

    In my view, there is to be only one assessment of the sufficiency of a company's assets and that is to be made when enough is known about the company's affairs.  The assessment must take into account all actual and potential realisations.  That is to say, the liquidator should not, as has occurred here, make an interim assessment of the company's financial position, an assessment which only looks at the position at a single point in time.  This is for several reasons.

    First, arbitrary or even perverse results can arise if the sufficiency of the company's assets is for the purposes of s 561 assessed on an interim basis. It is clear that, at the very least, the assessment cannot take place until the value of the priority debts payable under s 561 is known, as well as the value of those priority debts which, under s 556, have precedence over debts payable under s 561. The necessary information may be readily available or it may take some time to obtain. When the information is at hand, the company's assets may not have been fully realised or, indeed, might not be fully known. To ignore possible future realisations and to take assets away from a secured creditor only to realise later that the secured creditor was not required to pay out particular creditors is, to say the least, unjust.

    Second, the reference in s 561 to property being 'available' for payment to creditors other than secured creditors does not connote property being 'at hand'. Rather, it distinguishes between property which is available for general creditors (ie the company's free assets) and charged assets. ….

    It follows that s 561 only mandates payment of priority claims out of floating charge assets when it is clear that the liquidation will not realise free assets sufficient to meet those claims (after taking into account other claims which, under s 556, have precedence). In some windings up, it may become obvious at an early stage that there will be a deficiency in the company's free assets. In other windings up, it may take much longer. In those cases the controller of the floating charge assets must make adequate provision for the payment of the priority debts before making any payment to the secured creditor.

    [39] Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) [69] ‑ [73].

  4. In Saker, Re Great Southern Ltd [2014] FCA 771 McKerracher J referred to the above passages in Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) in relation to the difficulty with interim assessments of the financial affairs of a company for the purposes of payments pursuant to s 433, s 556 and s 561 of the Act. In Saker, Re Great Southern Ltd the secured creditors had been paid out in full by receivers and the balance of the company's funds, less the receivers' fees, had been transferred to the liquidators. The fees proposed to be charged by the liquidators exceeded the cash available and those fees would be paid in priority to the employee entitlements. The question before McKerracher J was whether the funds remitted by the receivers to the liquidator were held on trust for the purpose of satisfying the priority given to employee entitlements or if they could be applied to meet the unsecured debts and claims against the company in order of the priority set out in s 556 of the Act.[40]  McKerracher J held:[41]

    The key point made concerning the need to make the assessment only when the affairs of the company are sufficiently well known must make sound commercial sense, with respect. How else can compliance with s 561 be guaranteed? The difficulty with the present situation is that, although enough provision was made for the priority creditors (the employees), that provision is insufficient once the costs of the liquidation are first paid as the legislation dictates. It is not clear on the evidence that sufficient inquiry was made to take this into account before payment out in full was made by the receivers to the Club Banks and for their own fees and expenses.

    [40] Saker, Re Great Southern Ltd [17].

    [41] Saker, Re Great Southern Ltd [25].

  5. No authority was provided to support the submission that an order could be made pursuant to s 447A to enable the payment of employee entitlements during the administration process. However, counsel did refer to a similar application which was made in Re GBS Gold Australia Pty Ltd; Ex parte Saker [2009] WASC 25. In that case the administrators sought directions pursuant to s 447D of the Act[42] to determine whether the administrators are empowered to pay the employee creditors their entitlements during the administration period.[43] 

    [42] Section 447D permitted an administrator to seek directions and was repealed by the Insolvency Law Reform Act 2016 (No 11. ,2016).

    [43] Re GBS Gold Australia Pty Ltd; Ex parte Saker [1].

  6. If the answer to that question was 'no' the administrators sought an order pursuant to s 447A of the Act that they were so empowered to pay, during the administration period, the employee creditors, with retrospective effect to apply to any prior payments made by the administrators to the employee creditors.[44]

    [44] Re GBS Gold Australia Pty Ltd; Ex parte Saker [1].

  7. In that case Master Sanderson did not need to rely on s 447A as he found that s 437A and s 442A of the Act prima facie empowered the administrators to pay entitlements during the administration period, provided those powers were exercised for the purposes of carrying pt 5.3A into effect.[45]  Section 437A of the Act provides:

    Under s 437A(1), the administrator (among other things):

    …

    (c) may terminate or dispose of all or part of that business, and may dispose of any of that property;

    (d) may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.

    [45] Re GBS Gold Australia Pty Ltd; Ex parte Saker [19] ‑ [20].

  1. Under s 442A(d), the administrator has power to 'do whatever else is necessary for the purposes of [pt 5.3A]'. 

  2. Master Sanderson found that it was proper to allow the administrators to exercise their powers and pay the employee creditors their entitlements by reference to a specific date for the following reasons:[46]

    (a)the administrators were experienced and considered that it was in the best interests of the creditors (particularly the preferred employee creditors) that a relevant portion of the funds held by the administrators be applied to pay all the creditors' entitlements during the administration;

    (b)the interests of the secured creditors and other unsecured creditors were unlikely to be prejudiced by the payment of the employee entitlements during the administration period;

    (c)the secured creditors and the committee of creditors were supportive of payments of the employee entitlements being made during the administration period; and

    (d)the administrators held more than sufficient funds to meet all of the employee entitlements and provide a significant buffer for future requirements.

    [46] Re GBS Gold Australia Pty Ltd; Ex parte Saker [23].

  3. Counsel made it clear at the hearing of the present application that the orders sought by the administrators are different to those sought before Master Sanderson in Re GBS Gold Australia Pty Ltd; Ex parte Saker. The administrators in the present application are not seeking a direction that the administrators are justified in making the payments, but that they are compelled to pay in accordance with s 433 and s 561 as if the Companies were in receivership or liquidation.[47] It is for that reason they seek an order pursuant to s 447A of the Act that pt 5.3A operates as if s 433, s 556 and s 561 apply.

Section 447A

[47] ts 9.

  1. Section 447A of the Act 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.

  2. Section 447A has been interpreted liberally by the High Court in Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270. In Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453, Austin J helpfully set out a number of propositions that arose from Australasian Memory Pty Ltd v Brien and other cases in relation to s 447A including the following:[48]

    (a)the section gives the court a broad power which is an integral part of the legislative scheme provided by pt 5.3A, not to be read down or confined to curing defects or remedying consequences of departures from other provisions of pt 5.3A;

    (b)the section permits the court to make orders with respect to a particular provision of pt 5.3A, altering the operation of that provision, even where the provision would on its separate construction exclude such an order;

    (c)the section may be used to overcome a failure to comply with a requirement of pt 5.3A;

    (d)the section is not confined to filling the gaps in the legislative scheme of pt 5.3A, and may be used to exonerate a person from what would otherwise be a contravention of a provision of that Part;

    (e)the section permits a much wider class of orders than some other provisions of pt 5.3A;

    (f)the section does not empower the court to make a declaration as to how pt 5.3A does operate, only how it is to operate;

    (g)by empowering the court to make order about 'how this Part is to operate', the section looks to the future rather than the past, but the temporal requirement is satisfied if the orders have effect from the time of their making; it is permissible for the court to make an order with future effect in respect of past matters or events; and

    (h)in the exercise of its discretion under the section, the court must consider whether any interested party would suffer prejudice if an order were made.

    [48] Deputy Commissioner of Taxation v Portinex Pty Ltd [30].

  3. In Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 the appeal division of Victoria referred to s 447A as an unusual section that was available to fill gaps in pt 5.3A 'by the exercise by the court of wide powers to make such orders as it thinks appropriate about how the Part is to operate in relation to a particular company'.[49]

    [49] Brash Holdings Ltd v Katile Pty Ltd [26].

  4. That is not to say s 447A of the Act is without limits. In Australasian Memory Pty Ltd v Brienthe High Court held:[50]

    The considerations we have mentioned suggest that the powers under s 447A are wide but they do not compel the conclusion that they are entirely without limit. Some particular limitations, suggested in the course of argument, must be examined: first, that s 447A does not permit a court to make an order altering the times fixed by those provisions of Pt 5.3A which contain express provision for variation of the time so fixed; second, that it permits only orders having prospective effect; third, that it does not permit the making of orders affecting vested rights; and, fourth, that it does not apply unless there is a continuing administration (or, presumably, an extant deed of company arrangement).

    [50] Australasian Memory Pty Ltd v Brien [20].

  5. Further, s 447A must have a nexus with how pt 5.3A is to operate in relation to a particular company.[51]

    [51] Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 [66]; Re Maria's Farm Veggies Pty Ltd (admins apptd) [2016] NSWSC 1899 [21].

  6. Barrett JA in Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 [4] observed:

    … The 'nexus' with the operation of Pt 5.3A to which reference is made in the decided cases must be understood accordingly.  The relevant purpose is to be ascertained by reference to the language of the statute, its subject matter and objects and the consequences of a decision that the power has been exceeded: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355. The principal source of constraint and limitation upon the power is therefore the statement of the object of Pt 5.3A in s 435A, coupled with the nature, incidents and aims of the particular form of external administration as gathered from the provisions of Pt 5.3A as a whole.

  7. Any order granted pursuant to s 447A therefore must be designed to achieve in relation to a particular company the objects of pt 5.3A as stated in s 435A of the Act.

  8. In Re Ansett Australia Ltd (all administrators apptd) and Mentha (as administrator) [2001] FCA 1806; (2001) 115 FCR 376 (Re Ansett)  an application was made by the administrators under s 447A and the now repealed s 447D of the Act to approve a deed between the administrators of Ansett and the Commonwealth in respect of which the Commonwealth would pay employee entitlements during the administration process. However, such payments would be treated as debts incurred by the administrators so that pt 5.3A would operate so that repayment of those debts would have priority equal to the priority under s 556 and s 560 in the winding up.[52]  The effect of the proposal was to give the Commonwealth priority in terms of  the repayment of any advances made by it to the administrators for employee entitlements as if it stood in the shoes of the employees to whom the payments were made.[53]

    [52] Re Ansett [2] ‑ [3].

    [53] Re Ansett [12].

  9. The purpose of the advances by the Commonwealth was to alleviate the hardship to employees given the realisation of Ansett's assets was estimated to take up to two years.[54] Goldberg J was initially concerned the making of the orders sought would deny the unsecured creditors the opportunity to vote against a deed of company arrangement that gave the Commonwealth priority in respect of payments advanced under the proposal equal to the priority received under s 560 of the Act.[55] 

    [54] Re Ansett [9].

    [55] Re Ansett [39].

  10. Goldberg J, referring to Australasian Memory Pty Ltd v Brien, considered whether the approval of an agreement pursuant to s 447A might impact the rights of unsecured creditors found in pt 5.3A:[56]

    The High Court made it clear (at 279) that s 447A(1) empowers the Court to make orders which may alter the operation of other provisions of Pt 5.3A. An analysis of the High Court's consideration of the particular limitations on the power under s 447A suggested to it in the course of argument, leads me to the conclusion that it is not a limitation on the power which may be exercised under s 447A that such exercise must not impinge upon or affect the rights of unsecured creditors found in Pt 5.3A.

    Goldberg J further held:[57]

    … there is no limitation on the power under s 447A that the alteration to the way in which Pt 5.3A is to operate cannot affect or impinge upon creditors. Of course, whether the power under s 447A should be exercised in a way that may affect or impinge upon creditors will depend upon the particular circumstances of the case. But that issue raises matters as to the exercise of discretion, rather than the existence of the power.

    [56] Re Ansett [53].

    [57] Re Ansett [53].

  11. Goldberg J ultimately found that s 447A empowered the court to approve the agreement proposed to be entered into by the administrators as advancing the objects of pt 5.3A by assisting a substantial body of the creditors of the Ansett group who would otherwise suffer great hardship if the advances were not made as soon as practicable [58]

    [58] Re Ansett [49].

  12. The nature of the scheme in Re Ansett was different to that proposed in the present application.  In providing a safety net for the employees of Ansett, the Commonwealth was providing funds that otherwise would not have been available to the administrators.  If the Commonwealth was not given priority for repayment of the sums it advanced for the benefit of the employees, it would give unsecured creditors a greater return than under the terms of any deed of company arrangement that did not have the benefit of the Commonwealth proposal.[59]

    [59] Re Ansett [38].

  13. There are no extra funds available to the administrators in the present application. The unsecured creditors will be in the same position regardless of when the employee creditors are paid. That is because by virtue of the provisions of s 444A(5) of the Act, reg 5.3A.06 of the Corporations Regulations 2001 (Cth) and par 4 of sch 8A to those regulations, the provisions of s 556(1) of the Act would be incorporated as a term of any deed of company arrangement.[60] Section 444A(5) provides that where the creditors at a meeting convened under s 439A resolve that the company execute a deed of company arrangement, the deed is taken to include the prescribed provisions, except so far as the deed provides otherwise. The prescribed provisions are set out in sch 8A to the Corporations Regulations 2001 (Cth) and cl 4 of that schedule provides:

    Priority

    The administrator must apply the property of the company coming under his or her control under this deed in the order of priority specified in section 556, 560 or 561 of the Act.

    [60] Re Ansett [27].

  14. Therefore, the principal difference between making an order allowing the administrators to pay employee entitlements prior to the meeting of creditors convened pursuant to s 439A of the Act and allowing the administration to take its course, is one of timing.  The priority regime will continue to apply whether as part of any deed of company arrangement or following a decision to wind up the Companies.

Disposition

Power to make an order under s 447A

  1. There is no express provision empowering the administrators to pay the eligible employee creditors, namely those whose debts or claims would in winding up be payable in priority to the other unsecured debts and claims made in accordance with s 556(1)(e), (g) or (h) or s 560 or s 561, during the administration process under pt 5.3A. However, s 447A is not confined to a curial determination of what is the effect of existing provisions of the Part on a particular company but contemplates orders that alter how the Part is to operate in relation to a particular company.[61]

    [61] Australasian Memory Pty Ltd v Brien [18].

  2. While the other powers in div 13 pt 5.3A, in which s 447A is contained, are directed at protecting creditors and the validity of the administrator's appointment, s 447F makes it clear nothing in div 13 limits the generality of anything else in it.

  3. However, s 447A is not without limits. It is limited by the objects of pt 5.3A. Those objects provide the parameters by which the power must be exercised. Any orders made must be done for the purpose of carrying pt 5.3A into effect. In other words, the powers are to be exercised towards maximising the chances of the company, or as much as possible of its business, continuing in existence, or if that is not possible, result in a better return to the Companies' creditors and members than would result from an immediate winding up of the Companies.

  4. Part 5.3A is calculated to provide an expeditious and inexpensive response to corporate insolvency.[62]  In this case, the scale of the business, the number of companies and the complexities of the administration has meant that process has gone on well beyond the time prescribed in the rules.  While a slow and judicious realisation of assets or lengthy negotiations for a restructure or sale may be warranted in complex administrations, the hardship and prejudice to the preferred employee creditors that the priority regime in the legislation was intended to address is undermined by a prolonged process. 

    [62] Viscariello v Macks [2014] SASC 189; (2014) 103 ACSR 542 [53].

  5. The relevant nexus between the orders sought and the objects of pt 5.3A lies in the fact that the continued employment of employees may assist with any proposal to restore and rehabilitate the Companies to allow them or a version of any restructure to remain in business which is more likely to result in a better return for the Companies' creditors.

  6. I am therefore satisfied that there is the power to make an order pursuant to s 447A to require the administrators to pay the employee entitlements in accordance with the priority regime under the Act during the administration process: there is a gap in pt 5.3A to deal with payments to employees in priority during voluntary administration; none of the limitations of s 447A identified by the High Court in Australasian Memory Pty Ltd v Brien apply; and, there is an appropriate nexus between the orders sought and the objects of pt 5.3A as described in s 435A of the Act. The question therefore becomes whether in the exercise of discretion it is appropriate to do so.

Discretion

  1. The administrators are still investigating potential options for the sale and recapitalisation of the Companies.[63]  The employee creditors have not been paid their entitlements since the commencement of the administration process in July 2022.  The administrators believe that it would be in the best interests of the employee creditors to pay their entitlements during the administration.

    [63] Second Ryan Affidavit [28] - [36].

  2. If this application is not granted, the administrators expect that they will be unable to pay any amount owing to employee creditors until sometime after the second meeting of creditors. 

  3. In terms of how s 433, s 556 and s 561 might be applied during the administration process, Mr Dundas deposes that he has been informed by the administrators: [64]

    that there are no amounts owing, pursuant to s 433(3)(a) and (b) of the Corporations Act 2001 (Cth):

    (a)to any third party under a contract of insurance where the Companies have been paid any amounts by an insurer, under a contract of insurance, for the purposes of paying liability incurred to a third party under that contract of insurance; or

    (b) to any auditor of the Companies where that auditor has applied to the Australian Securities & Investments Commission (ASIC) for consent to their resignation and ASIC has refused that consent.

    [64] Dundas Affidavit [8].

  4. In relation to employee entitlements Mr Dundas deposes that he has been informed by the administrators:[65]

    [That] in respect of terminated or resigned employees, [the administrators] intend to pay employee entitlements that have crystalised to date, which include:

    (a)superannuation guarantee charge;

    (b) all leave entitlements, including annual leave and long service leave; and

    (c) all redundancy and payment in lieu of notice.

    [T]hat the Administrators, in respect of all current employees, intend to pay current employees their superannuation guarantee charge.  The Administrators also intend to pay current employees their leave entitlements.  However, on the basis that these employees are still currently employed, they can take their leave entitlements in the ordinary course.  In that respect, these amounts would only be paid out in the event their employment ceases.

    [65] Dundas Affidavit [9] - [10].

  5. Mr Dundas further deposes in relation to s 560 of the Act:[66]

    [T]hat no advance under s 560 of the Corporations Act 2001 (Cth) has been made to the Administrators for the purposes of paying employee entitlements

    [66] Dundas Affidavit [11].

  6. Unlike in Saker, Re Great Southern Ltd the secured creditors have not been paid out.  The administrators have deposed to the fact that there are sufficient circulating assets to pay priority claims of employee creditors and there are also funds available to meet the current and likely future costs of the administration and any subsequent form of external administration.[67]

    [67] Open Warwick Affidavit [18] - [19].

  7. In any event I do not read Saker, Re Great Southern Ltd or Cook (Liquidator), Re Italiano Family Fruit Company Pty Ltd (in liq) as precluding an interim assessment of the financial affairs for the purpose of making payments to employee creditors in advance, in accordance with s 556 and s 561 of the Act. Rather, in making an interim assessment of the Companies' affairs for that purpose, the administrators or any liquidators will need to ensure compliance with the priority provisions prescribed under the Act.

  8. The creditors of the Companies are either supportive of the application or do not object to it in that:

    (a)in respect of the major secured creditors of the Companies, Mercuria have provided their consent and it is said Franco‑Nevada do not object to the application;[68] and

    (b)at the Committee of Inspection meeting held on 21 March 2023, the administrators notified those present of the proposal and have not received any objections to the application.[69]

    [68] Open Warwick Affidavit [28], [40] - [41]; Second Ryan Affidavit [49].

    [69] Open Warwick Affidavit [36] - [37]; Second Ryan Affidavit [51].

  9. The alternative course open to the administrators is to wait until the end of the sale and recapitalisation process and execution of a deed of company arrangement, or transition of the Companies into liquidation if applicable, in which case the employee entitlements would be paid after assessing proofs of debt.  It has been nearly a year after the Companies were placed in administration and the value of the employee entitlements has now nearly doubled in value.  The various affidavits filed in the Previous Actions demonstrate the complexity of this administration and, in light of the reasons given, I am not satisfied that there is any benefit in waiting for the outcome of vote on the proposed deed of company arrangement or following any winding up.

  10. The prejudice and hardship suffered by the employees and former employees to date must be weighed up against any prejudice suffered by the creditors if the administration were to run its course.

  11. The employee entitlements have been identified and confirmed.  There are sufficient assets to both pay the priority employee claims and meet the likely future costs of administration and any subsequent form of external administration. Experienced administrators have formed the view it is in the best interests of creditors that a portion of the Companies' funds now be applied to pay all priority claims of employees of the Companies.  It is difficult to see what prejudice would be suffered by the secured and unsecured creditors to allow the payments to the employees to be made in advance of any deed of company arrangement or winding up. 

Records of the Companies

  1. In terms of ascertaining what entitlements are owed, the administrators seek to rely on the books and records of the Companies.  The administrators have between them many decades of experience.[70]  Ms Warwick is the managing director of FTI Consulting, has been a registered liquidator of 18 years, has had 25 years' experience in corporate restructuring and turnaround for a large range of entities and has acted in numerous voluntary administrations, receiverships and liquidations across a range of industries.[71] Ms Warwick has undertaken a review of the books and records of the Companies in relation to employee entitlements and is satisfied that they are well maintained and reliable.[72] 

    [70] Open Woodhouse Affidavit [2] - [5].

    [71] Open Warwick Affidavit [2].

    [72] Open Warwick Affidavit [35].

  2. Ms Warwick deposes that the employee entitlements have all been identified and confirmed; the administrators currently hold more than sufficient funds to meet all the employee entitlements; and, there is no prejudice to the secured creditors and other unsecured creditors.[73]

Notice

[73] Open Warwick Affidavit [33].

  1. Orders made under s 447A determine how the legal rights and obligations arising under pt 5.3A operate in relation to a particular company and are enforceable by the court.[74]  The administrators depose that the secured creditors are aware of the proposal to set aside funds for the purpose of paying employee entitlements.  It is not obvious from the attendances recorded in the minutes of the meeting of the Committee of Inspection on 21 March 2023 that Franco‑Nevada was in attendance.[75] As raised by Counsel there is also some ambiguity about what details were given to Franco‑Nevada about the proposal and they do not appear to have been given notice of this application. 

    [74] Re Sons of Gwalia Ltd; Ex parte Love [2008] WASC 75; (2008) 66 ACSR 253 [71].

    [75] Confidential Warwick Affidavit, 'KGW-3'. 

  2. In the circumstances, I will hear the plaintiffs about the form of orders to make to ensure the secured creditors or at least Franco-Nevada is given notice of the orders I propose to make, with liberty to apply.

Proposed Orders

  1. I am satisfied that for the purposes of carrying out pt 5.3A of the Act its objects will be served by making the following orders:

    1.Pursuant to s 447A(1) of the Act, pt 5.3A of the Act is to operate such that s 433, s 556 and s 561 of the Act apply to the plaintiffs such that the plaintiffs are empowered to pay, during the administration period, the employee creditors of the Companies their entitlements as at 31 March 2023 as defined in the Confidential Affidavit of Kathryn Guinivere Warwick dated 21 April 2023.

    2.Pursuant to s 447A(1) of the Act, the plaintiffs are to rely on the books and records of the Companies in calculating the employee entitlements as at 31 March 2023.

    3.The plaintiffs' costs of and incidental to this application be costs and expenses in the administration of each of the Companies, and to be paid out of the assets of the Companies.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MM

Associate

6 JUNE 2023


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