RICHARD SCOTT TUCKER as joint and several administrator of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
[2019] WASC 355
•3 OCTOBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RICHARD SCOTT TUCKER as joint and several administrator of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) [2019] WASC 355
CORAM: VAUGHAN J
HEARD: 20 SEPTEMBER 2019
DELIVERED : 20 SEPTEMBER 2019
PUBLISHED : 3 OCTOBER 2019
FILE NO/S: COR 185 of 2019
BETWEEN: RICHARD SCOTT TUCKER as joint and several administrator of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Second Plaintiff
RICHARD SCOTT TUCKER as joint and several administrator of LITHCO NO.2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Third Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of LITHCO NO.2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Fourth Plaintiff
RICHARD SCOTT TUCKER as joint and several administrator of TAWANA RESOURCES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Fifth Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of TAWANA RESOURCES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Sixth Plaintiff
RICHARD SCOTT TUCKER as joint and several administrator of ALLIANCE MINERAL ASSETS EXPLORATION PTY LTD (ADMINISTRATORS APPOINTED)
Seventh Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of ALLIANCE MINERAL ASSETS EXPLORATION PTY LTD (ADMINISTRATORS APPOINTED)
Eighth Plaintiff
RICHARD SCOTT TUCKER as joint and several administrator of TAWANA GOLD PTY LTD (ADMINISTRATORS APPOINTED)
Ninth Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of TAWANA GOLD PTY LTD (ADMINISTRATORS APPOINTED)
Tenth Plaintiff
RICHARD SCOTT TUCKER as joint and several administrator of WABA HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED)
Eleventh Plaintiff
JOHN ALLAN BUMBAK as joint and several administrator of WABA HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED)
Twelfth Plaintiff
Catchwords:
Corporations Law – Voluntary Administration – Application for extension of time for second meeting of creditors - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 439A(6), s 447A
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | T J Porter |
| Second Plaintiff | : | T J Porter |
| Third Plaintiff | : | T J Porter |
| Fourth Plaintiff | : | T J Porter |
| Fifth Plaintiff | : | T J Porter |
| Sixth Plaintiff | : | T J Porter |
| Seventh Plaintiff | : | T J Porter |
| Eighth Plaintiff | : | T J Porter |
| Ninth Plaintiff | : | T J Porter |
| Tenth Plaintiff | : | T J Porter |
| Eleventh Plaintiff | : | T J Porter |
| Twelfth Plaintiff | : | T J Porter |
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 |
Cases referred to in decision:
Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611
NewSat Ltd [2015] FCA 435
Re ABC Learning Centres Ltd (No 8) [2009] FCA 994; (2009) 73 ACSR 478
Re Autodom Ltd [2012] FCA 1393
Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446
Re Diamond Press Australia Pty Ltd [2001] NSWSC 313
Re LED Builders Pty Ltd [2008] NSWSC 633
Re Palandri Ltd [2008] WASC 68
Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352
Re South Burnett Wines Ltd [2004] NSWSC 1239; (2004) 52 ACSR 298
RiverCity Motorway Pty Ltd v Madden (No 5) [2013] FCA 1443
South Wagga Sports and Bowling Club Ltd [2009] FCA 25
VAUGHAN J:
(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)
Introduction
By originating process dated 19 September 2019 the plaintiffs, Richard Scott Tucker and John Allan Bumbak in their capacities as voluntary administrators of Alita Resources Ltd and other companies (Companies), seek an extension of the convening period for the second meetings of creditors in relation to the Companies. The application is supported by an affidavit of Mr Bumbak sworn 19 September 2019.
Mr Bumbak deposes that:
1.The Companies are members of a group.
2.The parent of the group is Alita Resources Ltd (Alita Resources). Alita Resources is a dual listed resources company on the Australian Stock Exchange and the Singapore Stock Exchange. One of its significant projects is the Bald Hill Project - comprising the Bald Hill Lithium and Tantalum Mine - where Alita Resources and one of its subsidiaries produce lithium concentrate. That project has been operating at a loss.
3.On 14 August 2019 Alita Resources was suspended from trading.
4.Certain of the Companies are parties to a general security deed. The general security deed secures an amount of some $45 million. Following a novation effected on 27 August 2019 the secured creditor is Galaxy Resources Ltd (Galaxy).
5.On 28 August 2019 the plaintiffs were appointed as voluntary administrators of the Companies.
6.Following the appointment of the plaintiffs as voluntary administrators, Galaxy moved to appoint receivers and managers to Alita Resources and two of the other Companies, namely Lithco No. 2 Pty Ltd and Tawana Resources Pty Ltd. The appointment of the receivers and managers occurred on 29 August 2019.
Mr Bumbak goes on to depose to the financial position of the Companies.
On a consolidated basis the Companies have some $101 million in liabilities and $28 million in current assets. The $101 million in liabilities is made up of the secured creditor's debt in the amount of approximately $45 million, 98 claims from ordinary unsecured creditors totalling approximately $50 million (based on unadjudicated claims), liabilities to the West Australian government estimated at $3 million and 68 employees owed approximately $2.9 million in accrued and outstanding priority entitlements.
More generally Mr Bumbak deposes to the steps taken in the voluntary administrations.
A circular was sent to creditors on 2 September 2019. Thereafter, on 9 September 2019, the first meeting of creditors was held. A committee of inspection was appointed in relation to Alita Resources and Lithco No. 2. A number of tasks have been undertaken by the voluntary administrators. Of course, where the receivers and managers have been appointed, the voluntary administrators have handed over day‑to‑day control to the receivers and managers.
The voluntary administrators have investigated potential options to recapitalise and restructure the Companies through a deed of company arrangement (DOCA). A number of possible DOCA proponents have been identified. However, negotiations are at a preliminary stage. Mr Bumbak informs the court that the extension of time sought in this application is intended, among other things, to provide the voluntary administrators with additional time to carefully consider the DOCA proposals received and potentially to finalise a DOCA proposal.
The possibility of a DOCA is more than remote: Mr Bumbak deposes to having received 11 unsolicited approaches. Mr Bumbak, based on his experience as a registered liquidator, deposes to a belief that at least some of those potential third party proponents have access to sufficient resources and technical expertise to put forward a viable DOCA proposal that would warrant further investigation.
Legal principles
Under s 439A(6) of the Corporations Act 2001 (Cth) the court may extend the convening period on application made during the convening period.
This application is made during the convening period, which expires on 25 September 2019.
The voluntary administrators seek:
1.An order under s 439A(6) of the Act extending the convening period by approximately three months to 25 December 2019.
2.A Daisytek order - named after Re Daisytek Australia Pty Ltd[1] - under s 447A of the Act allowing the meeting to be held at any time between the date of the order and the date ending five days after the end of the extended convening period.
[1] Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446.
It is appropriate to extend the convening period where the circumstances are such that strict compliance with the time limit under s 439A of the Act would make it difficult for a voluntary administrator to give a meaningful account of the administration to creditors.[2]
[2] Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611, 612.
In Re Diamond Press Australia Pty Ltd[3] Barrett J stated:
The function of the Court on an application such as this is, as I see it, to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.
[3] Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 [10].
The power given to the court to grant an extension should be exercised with the overriding objectives of pt 5.3A of the Corporations Act 2001 (Cth) (as stated in s 435A) firmly in view; that is, to maximise the chances of the company continuing existence, or alternatively, terminating its existence in the most appropriate way.[4]
[4] Re Palandri Ltd [2008] WASC 68 [5].
In Daisytek, in addition to making orders extending the convening period under s 439A, Lindgren J made orders under s 447A of the Act providing that the second creditors' meeting may be held at any time within the extended convening period or the period of five business days thereafter, notwithstanding the effect of s 439A(2). Daisytek orders are now considered to be sensible and almost routine.[5]
[5] Re LED Builders Pty Ltd [2008] NSWSC 633 [2].
In Re Riviera Group Pty Ltd[6] Austin J grouped the reasons given for an extension into the following categories:
[6] Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 [13] - [14].
1.The size and scope of the business.
2.Substantial offshore activities.
3.Large number of employees with complex entitlements.
4.Complex corporate group structure and intercompany loans.
5.Complex transactions.
6.Complex prospects of recovery proceedings.
7.The time needed to execute an orderly process for disposal of assets.
8.The time needed for a thorough assessment of a proposal for a deed of company arrangement.
9.Whether the extension will allow the sale of the business as a going concern.
10.Generally, whether additional time is likely to enhance the return for the creditors.
The authorities indicate that the court tends to exercise its discretion to extend the convening period where there is a substantial issue in relation to any one of those categories.[7]
[7] Re Riviera Group Pty Ltd [14]; NewSat Ltd [2015] FCA 435 [64].
The consent of the creditors to an extension is a relevant factor in the court's discretion.[8] The interests of those whose claims are affected by the statutory moratorium are relevant, though not decisive.[9]
[8] Re South Burnett Wines Ltd [2004] NSWSC 1239; (2004) 52 ACSR 298 [14]; Re Autodom Ltd [2012] FCA 1393 [20] [20].
[9] South Wagga Sports and Bowling Club Ltd [2009] FCA 25 [9]; Re ABC Learning Centres Ltd (No 8) [2009] FCA 994; (2009) 73 ACSR 478.
Weight should be given to the considered judgment of the voluntary administrators.[10]
[10] RiverCity Motorway Pty Ltd v Madden (No 5) [2013] FCA 1443 [25].
Consideration
Mr Bumbak believes that, absent an extension of the convening period, it is likely that the Companies will be placed in liquidation at the second meetings. In that case, there will not be an opportunity to obtain and consider substantive DOCA proposals. On the basis of the voluntary administrators' investigations to date the administrators do not expect there to be any distribution payable to the Companies' ordinary unsecured creditors in a liquidation scenario.
In support of the extension application, Mr Bumbak deposes as follows:
I consider that the extension application is in the interests of creditors of the Companies and is necessary to:
(a)provide adequate time for the Administrators to undertake and conclude negotiations with potential DOCA proponents, in particular with Galaxy;
(b)avoid the value destruction which I expect to be inherent in the immediate liquidation of the Companies; and
(c)conclude the Administrators' statutory investigations to enable the Administrators to make a recommendation to creditors as required by section 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth).
Further, I consider that the extension of the convening period sought is necessary not merely to facilitate effective reporting to the creditors, but also to maximise the value of the Companies' assets available for the benefit of creditors, and in this regard, the extension of the convening period sought is likely to increase the possibility of a greater return to the majority of the creditors by allowing sufficient time for all stakeholders to explore and negotiate any DOCAs.
One matter of relevance to the application is the attitude of those affected by any extension - particularly those who will be adversely affected.
The possibility of the extension application was raised at the first creditors' meetings on 9 September 2019. No objections were received. Subsequently, the voluntary administrators have communicated with a number of affected parties. Galaxy, the secured creditor, has confirmed that it supports an application for the extension of the convening period for up to three months. So too the receivers and managers support the extension. Importantly, the voluntary administrators have raised the extension application with the landlord of leased premises occupied by one of the subsidiary Companies. The landlord is adversely affected by any extension of the convening period as the extension will prolong the moratorium period. Notwithstanding that it is adversely affected, the landlord has said that it has no objection to the proposed extension.
There has, however, been three concerns raised in response to a 13 September 2019 circular that the voluntary administrators sent to all known creditors. The circular informed the creditors of the intention to make this application.
Those concerns have, quite properly, been drawn to my attention as attachments to Mr Bumbak's affidavit (see attachments JAB‑14, JAB‑15 and JAB‑16). Two of the responses constitute objections to the application for an extension. The third is a query as to timing. All are sent by former employees who are concerned as to the effect of a proposed extension and what that might mean for payment of employee entitlements.
The email at attachment 'JAB‑14' is representative of the concerns that have been expressed by the former employees. It provides:
I have an objection to the 3 month delay for two reasons:
In the site meeting, we were told employees would take priority for payment of annual leave, notice period and redundancy payment. This 3 month delay suggests that we are not a priority.
Secondly, in the same meeting we were told the longest period we would have to wait for payment would be at the worst case before Christmas. This delay is until Christmas day which is in breach of what we were promised.
In my view, the concern as so expressed is misplaced.
An extension of the convening period will not affect the former employees' statutory priorities. It is true that in some external administrations an extension of the convening period may prolong the time for payment of employee entitlements. Here, however, the former employees were employed by two of the Companies that are now in receivership. Mr Bumbak has liaised with the receivers and managers to determine their intentions in making payment in accordance with s 433 of the Corporations Act 2001 (Cth). The receivers and managers have stated the following in correspondence dated 19 September 2019:
As you are aware, section 433 of the Act requires that Receivers are to pay priority creditors ahead of secured parties holding a circulating security interest. Based on our preliminary analysis of the Companies financial accounts to date, the Receivers consider that there are sufficient circulating assets within each relevant employer company in the group to cover all potential priority employee claims.
While there is no prescribed timeframe within the Corporations Act in which Receivers must pay priority creditors pursuant to section 433 of the Act, we consider that we will be in a position to complete our assessment and make payment to priority creditors by no later than 31 October 2019.
The correspondence received from the receivers and managers then goes on to explain the matters that must be attended to before those payments are made.
In short, the receivers and managers have determined that the Companies have sufficient circulating assets to meet all the priority claims of the former employees. Moreover, the likelihood is that the outstanding entitlements will be paid by 31 October 2019. And, in any case, the priority and timing of the payments will not be affected by an extension of the convening period.
The three former employees have been provided with a copy of the receivers and managers' correspondence. They have also been notified of this hearing. The three former employees have not appeared at today's hearing.
Conclusion and orders
I am satisfied that this is an appropriate case in which to extend the convening period.
In my opinion the extension is justified on three bases. First, it will allow the voluntary administrators to explore the possibility of the Companies executing a DOCA and thereby fulfil the objects of pt 5.3A. Second, it will allow the voluntary administrators to conduct their statutory investigations and provide a satisfactory report to creditors. Third, the extension has the support of the secured creditor and, with limited exceptions, other affected persons do not oppose.
The opposition and concern on the part of the three former employees is, in my view, based on a misconception. Their statutory priority and the likely timing of the payment of their entitlements will be unaffected by the extension of the convening period.
The only concern I have is the period of the extension.
The plaintiffs seek an extension to 25 December 2019. That is Christmas Day. It might be that the second meetings are convened before then, because I will make a Daisytek order. But were I to make the orders in the form sought, it might be that the actual extension would be to the first business day after 25 December - that is, Friday, 27 December 2019 - with a meeting then to be held in early 2020. The practical reality is that this will be a very difficult time for any creditors' meeting. The Christmas break will be in full swing. It would be preferable for a creditors' meeting to be held before the Christmas break.
Mr Bumbak deposes that it would be feasible to issue the report to creditors by 6 December 2019.[11] If that were done a meeting could be held before Christmas. Accordingly, I am minded to extend the convening period to Wednesday, 11 December 2019.
[11] See the affidavit of John Allan Bumbak sworn 19 September 2019 at [47(e)].
I will make orders extending the convening period to 11 December 2019. I will give liberty to apply to seek a further extension if it is required. Otherwise I will make orders in the terms of the minute of proposed orders dated 20 September 2019.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ZC
Associate to the Honourable Justice Vaughan3 OCTOBER 2019
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