ROBERT MICHAEL KIRMAN AND ROBERT CONRY BRAUER AS JOINT AND SEVERAL DEED ADMINISTRATORS OF ALITA RESOURCES LIMITED (ACN 147 393 735) (RECEIVERS AND MANAGERS APPOINTED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
[2021] WASC 315
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: ROBERT MICHAEL KIRMAN AND ROBERT CONRY BRAUER AS JOINT AND SEVERAL DEED ADMINISTRATORS OF ALITA RESOURCES LIMITED (ACN 147 393 735) (RECEIVERS AND MANAGERS APPOINTED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) [2021] WASC 315
CORAM: MASTER SANDERSON
HEARD: 1 SEPTEMBER 2021
DELIVERED : 1 SEPTEMBER 2021
PUBLISHED : 17 SEPTEMBER 2021
FILE NO/S: COR 112 of 2021
MATTER: IN THE MATTER OF ALITA RESOURCES LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT (ACN 147 393 735)
EX PARTE
ROBERT MICHAEL KIRMAN AND ROBERT CONRY BRAUER AS JOINT AND SEVERAL DEED ADMINISTRATORS OF ALITA RESOURCES LIMITED (ACN 147 393 735) (RECEIVERS AND MANAGERS APPOINTED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
First Plaintiffs
Catchwords:
Corporations Law - Application to transfer shares pursuant to s 444GA - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiffs | : | S Penglis SC & W Zappia |
| First Interested Party | : | R Newlinds SC & P Edgar |
| Second Interested Party | : | J Scovell |
Solicitors:
| First Plaintiffs | : | Clayton Utz |
| First Interested Party | : | Lavan |
| Second Interested Party | : | Blackwall Legal LLP |
Case(s) referred to in decision(s):
Nil
MASTER SANDERSON:
By originating process filed 1 July 2021, the plaintiffs' sought orders under s 444GA of the Corporations Act 2001 (Cth) allowing them to transfer 100% of the capital of Alita Resources Limited (Receivers and Manager appointed) (subject to deed of company arrangement) from the members to Austroid Corporation. On 1 September at a hearing of the matter, I made orders to that effect. These orders were subsequently amended (in a way that is not presently relevant) on 7 September 2021. I indicated I would publish reasons for my decision. These are those reasons.
The application was supported by an affidavit of Robert Michael Kirman sworn 1 July 2021. The primary question relating to the transfer of shares is whether or not the shares have any value. That being so, the background facts are of limited relevance. However, a brief summary of these facts is useful to put the application in context.
By deed of appointment dated 4 December 2020, Austroid appointed administrators to Alita and two of its subsidiaries Tawana Resources Proprietary Limited and Lithco No. 2 Proprietary Limited. This appointment was made pursuant to a loan facility agreement. Alita was in default under the loan and triggered enforcement of the security granted by the loan. The appointment of the administrators was made pursuant to s 436C(1) of the Corporations Act.
On 16 December 2020, the administrators issued a report to creditors. That report relied in part upon a report prepared by former administrators KordaMentha. Mr Richard Tucker and Mr John Bumbak of KordaMentha had been appointed administrators of Alita and its subsidiaries on 28 August 2019. The report paints a bleak picture. In summary, Alita was clearly insolvent and had no means of funding its day to day operations. On 4 December 2020, the plaintiffs received a proposal from Austroid for two interrelated deeds of company arrangement - one in relation to Alita (the 'Parent DOCA') and another in relation to Tawana and Lithco (the 'Subsiduary DOCA'). At around the same time, Astroid proposed a Loan Facility Agreement to meet the cost and expenses of the administration of Alita. After some negotiation the parties entered into the Loan Facility Agreement and on 8 December 2020, I made orders to the effect that the administrators would be justified in entering into the LFA. The second meeting of creditors was subsequently held and on 23 December 2020. Both the Parent DOCA and the Subsiduary DOCA were executed. There followed some litigation in which parties attempted to restrain the implementation of both DOCAs. I need not detail the nature of that litigation. It is sufficient if I say that the actions were settled and provide no impediment to the making of the orders sought.
In support of their application, the plaintiffs' relied on an affidavit of Deborah Lord sworn 20 August 2021. Ms Lord is a qualified geologist and principal of Valuation and Resource Management. In June 2021, she was engaged to provide an expert report as to the fair market value of the main assets of Alita, being, the Bald Hill Lithium Mine, exploration assets and plant and equipment. Ms Lord provided a comprehensive report. Relevantly it reads as follows:
1.10For the Bald Hill Mine, I identified three properties to form my opinion of the fair market value considering comparable transactions relating to similar lithium deposits with Mineral Resource estimates at the time of the transaction. These were Lynas Find, Mt Holland and Mt Marion. The normalised price paid per tonne of lithium Mineral Resource was calculated and resulted in a wide range of comparable transaction values being AUD$86.69, AUD$123.88 and AUD$642.03, respectively, for these properties. As Mt Marion was an operating mine at the time of the transaction, I consider it to be a more advanced stage project than the Bald Hill Mine at the Valuation Date. I therefore selected the average of the other two transactions of AUD$105.28 per tonne contained lithium in Mineral Resource to calculate the Preferred Valuation. The lower and upper values were determined as being +/- 30% reflecting, in my opinion, the typical level of uncertainty associated with Inferred and Indicated Mineral Resource estimates. This results in a valuation range for the Mineral Resource estimate at the Bald Hill Mine (on care and maintenance) from a Low Value of AUD$18.8 million to a High Value of AUD$34 .9 million, with a Preferred Value of AUD$26.9 million.
1.11Also within the Bald Hill Mine area, Alita - formerly known as Alliance Mineral Assets (Alliance) - reported an Exploration Target estimate that has had limited drill testing. While there is significant risk that this may not convert to a Mineral Resource and considerable drilling will be required to determine whether a Mineral Resource can be estimated, this represents an immediate target for future exploration. I have therefore assigned a 25% likelihood of that conversion and have therefore applied a 75% discount to the comparable transaction metrics to generate a valuation for the Exploration Target1.12 This results in a valuation range for the Exploration Target at the Bald Hill Mine estimate from a Low Value of AUD$5.1 million to a High Value of AUD$9.4 million, with a Preferred Value of AUD$7.2 million.
1.13This results in a total valuation for the Bald Hill Mine from a Low Value of AUD$23.9 million to a High Value of AUD$44.3 million, with a Preferred Value of AUD$34.1 million (see paragraphs 6.25 to 6.29 of this Report).
1.14A secondary method, based on a yardstick approach, was used to value the Bald Hill Mine Mineral Resource and Exploration Targets estimate. This is somewhat higher than the comparable transactions valuation as the results were from a Low Value of AUD$28.6 million to a High Value of AUD$52.8 million, with a Preferred Value of AUD$40.7 million (see paragraphs 6.37 to 6.38, including Table 15 of this Report). In my opinion the valuation based on comparable transactions is more valid as this reflects what has been tested in the market.
1.15To value the surrounding exploration ground I have undertaken comparable transactions analysis based on information supplied by the S&P Global database. Eight transactions were identified that related to properties I considered Early Stage to Advanced Exploration Projects with sufficient information to undertake an analysis. The eight transactions were for the Kathleen Valley, Nardoo, Poona, Mallina (two transactions), Cowan, Lake Cowan and Greenbushes South properties. I have applied the median value from the eight transactions of AUD$1,848 per square kilometre (as set out further in 6.24 and Table 16 of this Report) to the total tenement area of 743 square kilometres to calculate a Preferred Value of AUD$1.4 million. The lower and upper values were determined as being +/ - 50% of this as this is the level of uncertainty I believe is typically associated with exploration assets. This results in a valuation range for the Alita exploration assets from a Low Value of AUD$0.7 million to a High Value of AUD$2.1 million, with a Preferred Value of AUD$1.4 million.
1.16An alternate method was used to value the surrounding exploration ground, based on a geoscientific/Kilburn approach (see paragraphs 6.46 to 6.48 and Table 18 of this Report). This resulted in a somewhat higher valuation compared to the comparable transactions (area based) valuation as the results were from a Low Value of AUD$1.9 million to a High Value of AUD$4.5 million, with a Preferred Value of AUD$3.2 million. In my opinion the valuation based on a geoscientific approach is more valid as this reflects the prospectivity of the exploration ground rather than simply the area of the licences.
1.17The value of the process plant, plant infrastructure and camp was prepared by Peter Rooke of Dalesford Pty Ltd, Associate to VRM, as I am not expert in this area. The estimates are based on a market-based method bearing in mind the condition of the facilities that were inspected on 13 July 2021. The costs for refurbishment or upgrade of the facilities were not estimated, nor were the costs of replacing missing facilities or items of equipment or store stocks. The upgrade and replacement equipment will require a more detailed study over a longer period of time by Management Process and Maintenance personnel with appropriate engineering support. The Process Design has not been reviewed (see paragraph 6.49 and Appendix C of this Report).
1.18I am providing an independent objective unbiased opinion in relation to matters within my area of expertise in relation to the review. The fair market value of the Bald Hill Mine, the exploration assets and the plant and equipment is summarised in Table ES-1.
1.19This results in a total valuation estimate for the Bald Hill Mine, exploration assets, plant and equipment (going concern basis) from a Low Value of AUD $33.9 million to a High Value of AUD$65.7 million, with a Preferred Value of AUD$49.8 million or a total valuation estimate for the Bald Hill Mine, exploration assets, plant and equipment (salvage basis) from a Low Value of AUD$27.2 million to a High Value of AUD$51.8 million, with a Preferred Value of AUD$39.5 million.
The paragraphs I have quoted above are taken from a section of Ms Lord's report headed 'Executive Summary'. These conclusions are backed up by a detailed analysis of the Bald Hill Mine's geology and its past operating history. The report is extensively cross referenced where necessary, and is both thorough and detailed. I have no hesitation in accepting Ms Lord's evidence.
The plaintiffs also relied on an expert report from Matthew James Donnelly. Mr Donnelly is a registered liquidator and a partner in the firm of Deloitte Financial Advisory Proprietary Limited. As Mr Donnelly notes in his executive summary, the purpose of his expert report was to provide detailed information as to the value of the company's shares and liquidation. Mr Donnelly is not a valuer. The value of the assets is the province of Ms Lord. What Mr Donnelly's report does is look at the financial history of Alita which is of course necessarily dependant on its trading history. He then looks at the indebtedness and estimates what he believes would be the net realisable value of the assets. In doing so, Mr Donnelly gives careful consideration to Alita's debts. He concludes the total indebtedness in a liquidation will be between $68.8 million and $72.3 million. Of that amount, between $65 and $66 million (rounding out the figures) will be secured.
Mr Donnelly then undertakes a detailed assessment of the assets of Alita. He does so in an attempt to assess what a potential buyer of the assets will obtain and what that buyer might be prepared to pay for the future potential - the 'blue sky' aspect of any purchase. This exercise is in no way intended to encroach upon the ground covered by Ms Lord. It is looking at what a potential purchaser may pay in a liquidation scenario through the prism of Mr Donnelly's experience. He reaches the following conclusion:
7.1Asset Summary
Set out below is a summary of the Company's estimated assets on a fair market value basis as at 25 June 2021;
Table 26 - Estimated total asset summary
Please refer to the sections as noted above for further particulars with respect to specific assets.
7.2Total Indebtedness
Set out below is an estimate of the Company's total indebtedness in a liquidation scenario:
Table 27 - estimated total indebtedness summary
Further details of the above assumptions are provided in Section 4 of this report.
7.3Opinion
Based on my analysis, the Company's total indebtedness range of $68.8m to $72.3m materially exceeds the highest fair market value estimate of its assets of $66.4m, with asset and liability images summarised below:
While all of the above scenarios produce a deficiency to shareholders, I consider the analysis is inherently conservative due to a number of factors discussed in Section 6.4 of this Report that would further increase the deficit.
Consequently, I consider the Company's shares in a liquidation scenario to have nil value.
Summarising Mr Donnelly's opinion as I have, does not do justice to the detail it contains and the careful analysis which is evident from the supporting documentation. The report runs to almost 2200 pages and each one of Mr Donnelly's conclusion is supported by reference to materials annexure to the report. That said, and as Mr Donnelly acknowledges, the report is his opinion. The only way to definitively determine what the valuation of an asset might be is to put that asset on the market, and after a reasonable marketing campaign sell it by an auction process. If that is done, the price that is paid is a value of the asset - no one can take issue with that claim. What Mr Donnelly has done is to take all of the information he has available to him, weigh that information, and in the light of his experience provide an opinion.
In accepting Mr Donnelly's opinion (and Ms Lord's opinion for that matter), it is not a matter of accepting the only evidence which was put before the court. It is always open to a court to reject an opinion of an expert. It may be the report is logically inconsistent; it maybe the report lacks supporting materials to justify the conclusions reached by the expert. The evidence must be approached critically. That is the way I have assessed the evidence of both Ms Lord and Mr Donnelly. I am satisfied both reports are robust and the conclusions are reasonable. Accordingly, I am satisfied the shares have nil value.
After the reports of Mr Donnelly and Ms Lord, there was evidence to suggest the existence of a royalty agreement and a purchase option. Details of these matters were commercially sensitive, and I ordered that supplementary affidavits of both Ms Lord and Mr Donnelly dealing with these issues should be confidential. Accordingly, it is inappropriate to provide any detail in relation to these matters. However, it is clear both experts gave careful consideration to what, if any, difference this further information would have on their valuations. The end result is neither concluded the shares had any value. I am satisfied at the integrity and robustness of the analysis by both experts and I accept their opinion.
There is one finally matter which deserves mention. On 6 August 2021, Ms Jayde Michelle Williams, a shareholder of Alita, gave notice of her intention to oppose the orders sought. She was quite entitled to do so under s 444GA(2)(a) of the Corporations Act. Ms Williams was provided with the opportunity to file evidence and lodge with the court an affidavit of Jeremy Joseph Nipps sworn 27 August 2021. Mr Nipps is an experienced liquidator. In summary, he disagreed with Mr Donnelly and concluded the Alita's shares had value. When this matter was programmed for hearing, it was anticipated Ms Williams would be represented by counsel, Mr Nipps would be called to give evidence, and both Ms Lord and Mr Donnelly would be cross examined on their evidence. In the event, when the matter was called on, counsel for Ms Williams indicated she intended to take no part in the proceedings. Counsel did not seek to tender Mr Nipps' report. As it was not formally part of the court record, I have not considered its contents in formulating my reasons. It would have been inappropriate to do so.
Given that I have accepted the evidence of Ms Lord and Mr Donnelly, it is unnecessary for me to undertake any consideration of the relevant legal principles in this matter. Pursuant to s 444GA(3), I have to determine whether the transfer of the shares would 'unfairly prejudice' shareholders. Having concluded the shares were of no value, their transfer cannot adversely affect a shareholder. Accordingly, the provisions of the subsection are satisfied and the making of the orders was appropriate.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MM
Court Officer
17 SEPTEMBER 2021
0
0
0