Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (No 3)
[2023] FCA 1002
•11 August 2023
FEDERAL COURT OF AUSTRALIA
Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (No 3) [2023] FCA 1002
File number(s): QUD 155 of 2023 Judgment of: ANDERSON J Date of judgment: 11 August 2023 Date of publication of reasons for judgment 24 August 2023 Catchwords: CORPORATIONS – application under s 447A(1) of
the Corporations Act 2001 (Cth) (Act) to further extend the convening period of second creditors meeting – application allowedCORPORATIONS – application by administrators for
direction under s 90-15 of the Insolvency Practice Schedule
(Corporations) being Sch 2 to the Act that administrators are justified in entering into remittance deed – application allowedCORPORATIONS – application by administrators for
orders under s 447A(1) of the Act to limit personal liability
of administrators in entering into remittance deed –application allowedPRACTICE AND PROCEDURE – application by
administrators for suppression orders – Federal Court of
Australia Act 1976 (Cth), s 37AE, s 37AF and s 37AG –
whether necessary for the proper administration of justice –
application grantedLegislation: Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth)
Insolvency Practice Rules (Corporations) 2016 (Cth)
Cases cited: Hutton, in the matter of Triple MMM Holdings Pty Ltd (admins apptd) [2023] FCA 124
Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469
Re RCR Tomlinson Ltd [2018] NSWSC 1859
Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493
Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636
Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (Admins Appointed) [2023] FCA 403
Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd [2023] FCA 538
Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717
Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 7) [2020] FCA 1182
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 73 Date of hearing: 11 August 2023 Counsel for the Plaintiffs: Mr S J Maiden KC and Mr C Hibbard Solicitor for the Plaintiffs: Gilbert + Tobin ORDERS
QUD 155 of 2023 IN THE MATTER OF IN THE MATTER OF IG ENERGY HOLDINGS (AUSTRALIA) PTY LTD ACN 090 996
GRANT DENE SPARKS AND RICHARD JOHN HUGHES IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF EACH OF THE SECOND TO FIFTH PLAINTIFFS
First Plaintiff
IG ENERGY HOLDINGS (AUSTRALIA) PTY LTD ACN 090 996 142 (ADMINISTRATORS APPOINTED)
Second Plaintiff
IG POWER HOLDINGS PTY LTD ACN 082 413 876 (ADMINISTRATORS APPOINTED)
Third Plaintiff
IG POWER MARKETING PTY LTD ACN 082 413 867 (ADMINISTRATORS APPOINTED)
Fourth Plaintiff
IG POWER (CALLIDE) LTD ACN 082 413 885 (ADMINISTRATORS APPOINTED)
Fifth Plaintiff
ORDER MADE BY:
ANDERSON J
DATE OF ORDER:
11 AUGUST 2023
THE COURT ORDERS THAT:
1.The plaintiffs’ application made under rule 17.01(3) of the Federal Court Rules 2011 (Cth) (FCR) to amend the interlocutory process filed 8 August 2023 pursuant to rule 1.32 of the FCR is granted, and the interlocutory process is amended in the form found at pages 22 to 26 of the annexure bundle marked “RHC-1” to the affidavit of Rebecca Hinkley Cartoon affirmed 10 August 2023.
2.The amended interlocutory process be made returnable at 9.30am on 11 August 2023.
Further extension of convening period
3.Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act), Pt 5.3A of the Act is to operate in relation to the second to fifth plaintiffs (companies) as if the period for the first plaintiffs (administrators) to convene the second meeting of creditors under s 439A of the Act (second meeting) is the period ending at 11.59 pm on 1 March 2024.
4.Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the companies so that the second meeting may be held at any time during the period up to, or within 5 business days after the end of, the convening period as extended in paragraph 3 above.
Judicial advice
5.The Court determines, pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), that the administrators are justified and acting reasonably in entering into, and causing the fifth plaintiff (IGPC) to enter into, a remittance deed that is or is substantially in the form of the remittance deed annexed to the affidavit of Rebecca Hinkley Cartoon affirmed 10 August 2023 (Remittance Deed).
Limitation of administrators’ liability
6.Pursuant to s 447A(1) of the Act and s 90-15 of the IPS, Part 5.3A of the Act is to operate in relation to IGPC as if s 443A(1) of the Act provides that:
(a)the liabilities of the administrators (in their capacity as administrators of IGPC) incurred with respect to any obligations arising out of, or in connection with, the Remittance Deed are in the nature of debts incurred by the administrators in the performance and exercise of their functions as joint and several administrators of IGPC; and
(b)notwithstanding that the liabilities set out in paragraph (a) above are debts incurred by the administrators in the performance and exercise of their functions as joint and several administrators of IGPC, the administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the assets of IGPC are insufficient to satisfy that debt or liability.
Confidentiality
7.Until further order of the Court, pursuant to sections 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice:
(a)the following documents be marked confidential on the Court’s file, and not be made available for inspection without prior notice being provided to the administrators or the companies and an order of this Court:
(i)the affidavit of Richard John Hughes affirmed 8 August 2023 together with annexure bundle marked “RJH-3” (Third Hughes Affidavit);
(ii)the administrators’ outline of submissions in support of the interlocutory process dated 8 August 2023 (Outline of Submissions); and
(iii)the affidavit of Rebecca Hinkley Cartoon affirmed 10 August 2023 together with annexure bundle marked “RHC-1” (Cartoon Affidavit); and
(b)within three business days following the making of these orders, the administrators file copies of the Third Hughes Affidavit, Outline of Submissions and Cartoon Affidavit which are redacted to mask confidential portions of them.
Notice to creditors
8.Within two business days of these orders being made, the administrators are to take all reasonable steps to give notice of these orders to the creditors of the each of the companies (including persons of whom the administrators are aware claiming to be creditors) by means of a circular:
(a)to be published on the website maintained by the administrators in respect of the administration of the companies; and
(b)to be sent by email or by post to all known creditors.
Other ancillary orders
9.Any person who can demonstrate sufficient interest to discharge or modify these orders has liberty to apply on the giving of three business days’ written notice to the plaintiffs and the Court.
10.The administrators’ costs of and incidental to this application be costs in the administration of the companies.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
ANDERSON J
INTRODUCTION
The Callide C Power Station in Queensland is currently not operational, following an explosion in its turbine in 2021 and a structural failure in its cooling towers in 2022. The power station had historically provided approximately 30% of Queensland’s energy supply.
The power station is run as a joint venture, referred to as the Callide Power Project. The joint venture is owned in equal parts by the fifth plaintiff (IGPC) and Callide Energy Pty Ltd (Callide Energy), a subsidiary of the Queensland Government-owned company CS Energy Ltd (CS Energy). The joint venturers are equally liable for the expenses and liabilities of the Project.
IGPC and three related entities, the second to fourth plaintiffs (the Companies) entered into voluntary administration in March 2023. The first plaintiffs are the administrators.
By an amended interlocutory process dated 10 August 2023 (Amended Interlocutory Process), the plaintiffs sought the following relief:
(a)a further extension of the convening period for the second meetings of the Companies’ creditors;
(b)orders and a direction protecting the administrators from liability associated with further funding they had sought for the second extension period; and
(c)orders to maintain the confidentiality of certain information contained in the documents on which the plaintiffs relied.
On 11 August 2023, I made orders and the direction sought by the plaintiffs. These are my reasons for making those orders and the direction.
BACKGROUND
On the hearing of the Amended Interlocutory Process, the plaintiffs read into evidence:
(a)an affidavit affirmed by Mr Richard John Hughes, one of the administrators, on 8 August 2023 (Third Hughes Affidavit), save for paragraphs 99-100 of that affidavit and pages 111-121 of the annexure to that affidavit;
(b)an affidavit affirmed by Ms Rebecca Hinkley Cartoon, a solicitor for the plaintiffs, on 10 August 2023 (Cartoon Affidavit);
(c)the affidavits of Mr Hughes affirmed on 27 April 2023 (First Hughes Affidavit) and 22 May 2023 (Second Hughes Affidavit), which were filed in support of orders previously sought by the plaintiffs before SC Derrington J and Halley J.
The background context to this application was usefully summarised by Halley J in Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd [2023] FCA 538 at [11]-[18] (First Liability Decision). I adopt that summary below at [8]-[16] of these reasons.
The Companies are part of the “Genuity Group”, which develops, owns and operates interests in power stations in Queensland.
IGPC’s interest in the Callide Power Project is governed by a joint venture agreement dated 11 May 1998 (JVA). Relevantly, the JVA provides that the manager, Callide Power Management Pty Ltd (CPM), must submit current cash estimates each week to each participant which show the aggregate cash amounts required to be paid by each participant: cl 5.5(a)(iii). If a participant fails to pay such cash amount by the due date (Called Sum), it is considered to be a debt owing to CPM: cl 5.6. Pursuant to cl 7.1 of the JVA, if a participant fails to pay a Called Sum on the due date, CPM must give a “Default Notice” to the participant specifying the Unpaid Called Sum and a relevant due date for the sum. A participant that becomes insolvent (including by the appointment of an administrator) or who subsequently fails to pay a called sum by the due date becomes a defaulting participant: cl 7.2. As a defaulting participant, the participant is stripped of its voting rights: cl 4.10.
The Callide Power Station has two production units: Unit C3 and Unit C4. On or about 25 May 2021, the Unit C4 turbine exploded, damaging the generator and associated infrastructure and equipment and forcing Unit C4 offline. On 31 October 2022, a further structural failure occurred resulting in Unit C3 losing connection to the grid and going offline. These events caused the suspension of the operation of the Callide Power Station.
A new turbine, cooling tower structures, and associated infrastructure and equipment, would be necessary to bring the Callide Power Station back online. The work program for their construction and commissioning is referred to as the Staged Return to Service.
If the committee responsible for approving actions in relation to the Callide Power Project (Management Committee) were to resolve to take all actions necessary to return the Callide Power Station back online, the JVA would oblige IGPC to pay 50% of the costs to do so. The Companies do not have the financial resources to meet that obligation, and so, the administrators considered alternative means by which to fund it.
The administrators concluded that the most viable funding model was a confidential proposal referred to as the Alternative Funding Solution.
The administrators determined that the Staged Return to Service was necessary to maximise the chances of the Companies and their businesses remaining in existence. It was also the administrators’ view that this proposed program would maximise the value of the Companies’ assets to its creditors and shareholders.
The speed at which the Callide Power Station could be returned to operation is of critical importance, both to the Companies, which are without a source of revenue until it is back online, and to the State of Queensland, which had relied on the Callide Power Station for some 30% of its electricity needs.
On 28 April 2023, SC Derrington J made orders extending the convening period by four months, to 11.59 pm on 1 September 2023. Her Honour also made suppression orders to protect the confidentiality of certain information on which the administrators relied on the hearing of their application. Her Honour’s reasons for judgment were recorded in Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (Admins Appointed) [2023] FCA 403 (First Extension Decision).
On 25 May 2023, Halley J gave a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) (being Sch 2 to the Corporations Act 2001 (Cth) (Act)) that the administrators were justified and acting reasonably in entering the Alternative Funding Solution and signing a Letter of Comfort. His Honour also made an order pursuant to s 447A(1) of the Act to limit the administrators’ liability in respect of debts incurred by IGPC in pursuing the Staged Return to Service. His Honour also made suppression orders to protect the confidentiality of certain information on which the administrators relied on the hearing of their application. His Honour’s reasons for judgment were recorded in the First Liability Decision.
After Halley J made the 25 May 2023 orders, the administrators continued to undertake steps as part of the administration, including liaising with Callide Energy about the Staged Return to Service, and exploring the viability and feasibility of a sale of IGPC’s interest in the Callide Power Project (IGPC Interest).
On 30 May 2023, Callide Energy gave notice of its intention to exercise its right to acquire the IGPC Interest pursuant to cl 7.8(a) of the JVA (Notice of Election). That notice commenced a complex process under the JVA directed to the valuation and sale of the IGPC Interest. In summary, under the JVA:
(a)the acquisition of the IGPC Interest must be completed within 180 days following the Notice of Election (cl 7.9 of the JVA);
(b)Callide Energy must pay to CPM all Called Sums, and all Unpaid Called Sums of IGPC (cl 7.11(a) of the JVA);
(c)within 30 days:
(i)“Default Valuers” are to be appointed to determine the “Fair Value” of the IGPC Interest in accordance with cl 7.13 of the JVA (and to whom the parties may provide written submissions);
(ii)a “Default Auditor” is to be appointed to determine the “Book Value” of the IGPC Interest in accordance with cl 7.14 of the JVA (and to whom the parties may provide written submissions);
(d)the Default Valuers and Default Auditor must each deliver a copy of their determinations within 60 days of appointment (cl 7.13(e) and 7.14(g) of the JVA); and
(e)the purchase price will be the lesser of the Fair Value and the Book Value, subject to adjustments under cl 7.12 of the JVA.
After receiving the Notice of Election, the administrators and Callide Energy met several times, and attempted to engage suitable candidates to act as Default Valuers and Default Auditor. The administrators approached nine auditors and seven valuers, but given independence and availability concerns, only one auditor and two valuers responded to “Requests for Quotation”. In the Third Hughes Affidavit, Mr Hughes deposed that the administrators expected to receive one further response from an auditor before Callide Energy and the administrators made decisions in respect of the experts to be engaged. The effect of Mr Hughes’ evidence was that, by reason of this and other complexities, the acquisition process had been challenging to complete within the 180-day period prescribed by the JVA.
In light of the challenges, Callide Energy subsequently expressed interest in withdrawing the Notice of Election and acquiring the IGPC Interest by other means. In the Third Hughes Affidavit, Mr Hughes deposed that this may involve a deed of company arrangement (DOCA) proposal, or the enforcement of Callide Energy’s security via a cross charge in favour of Callide Energy. Mr Hughes deposed that Callide Energy’s current intention was to progress both the process under the JVA, and a potential alternative acquisition process, in parallel.
In the Third Hughes Affidavit, Mr Hughes deposed that, if Callide Energy were to withdraw from acquiring the IGPC Interest, the administrators considered that the next best step in the interests of creditors would be to put the IGPC Interest to the open market via an “expression of interest” process (EOI Process). The administrators considered that, if operational, the Callide Power Project was likely to generate significant profit to the holder of the IGPC Interest. Mr Hughes deposed that multiple stakeholders had expressed interest in a potential acquisition, and there may be other candidates that emerge as part of an EOI Process. The administrators estimated any such process would require at least 13 weeks to undertake.
FURTHER EXTENSION OF CONVENING PERIOD
Principles
The Court has jurisdiction to make orders providing for an extension of the convening period under s 439A(6) of the Act. In Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [31], Barrett J expressed doubt as to whether s 439A(6) of the Act conferred a general jurisdiction on courts to grant multiple extensions to a convening period.
Courts have, however, relied on numerous occasions on the power contained in s 447A(1) of the Act to grant further extensions to a convening period following an earlier extension under s 439A(6): Hutton, in the matter of Triple MMM Holdings Pty Ltd (admins apptd) [2023] FCA 124 (Triple MMM) at [32] (O’Bryan J); Park, in the matter of Collection House Limited (admins apptd) [2022] FCA 1083 at [9] (Derrington J); Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 7) [2020] FCA 1182 (Virgin No 7) at [12]-[13] (Middleton J). Section 447A(1) relevantly empowers the Court to make any order it thinks appropriate about how Pt 5.3A of the Act (which governs the administration of a company’s affairs with a view to executing a DOCA) is to operate in relation to a particular company.
The principles for determining an application for a further extension of the convening period are the same as those in respect of the initial grant: Triple MMM at [33] (O’Bryan J); Virgin No 7 at [14] (Middleton J). The balancing exercise in which the Court engages was summarised by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717 (Virgin No 2) at [64] as follows:
[T]he Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors
In Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 at [18] (citations omitted), Lindgren J summarised the overlapping considerations affecting the exercise of discretion to extend a convening period as follows:
(a) the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that creditors be fully informed about the company’s position as early as possible and have an opportunity to vote on its future as soon as possible;
(b) the function of the Court is to strike an appropriate balance between the legislature’s expectation that the administration will be a relatively swift and summary procedure, and 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;
(c) the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration;
(d) a particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others;
(e) the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation; and
(f) it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended.
In an application of this kind, the Court will give weight to the opinion of administrators that an extension is necessary: Virgin No 2 at [68] (Middleton J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (admins apptd) [2020] FCA 422 at [32] (Gleeson J).
The facilitation of either (or both) of “(a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period”: Virgin No 2 at [66] (Middleton J).
Consideration
On 28 April 2023, SC Derrington J extended the convening period for four months. By their Amended Interlocutory Process, the plaintiffs applied for that time to be extended for a further six months – until 11.59 pm on 1 March 2024 (Further Extension Period).
It is first necessary to explain the rationale for the plaintiffs’ application for the Further Extension Period.
In the Third Hughes Affidavit, Mr Hughes deposed that the plaintiffs sought the first extension to the convening period to allow the administrators to conduct the EOI Process alongside the Staged Return to Service. Mr Hughes further deposed that the extension granted by SC Derrington J in her Honour’s orders of 28 April 2023 had proved to be insufficient due to the complex nature of the administration, Callide Energy’s issuing of the Notice of Election and the uncertainty surrounding the acquisition of the IGPC interest.
Mr Hughes deposed that the plaintiffs sought the further extension of the convening period so as to enable:
(a)the administrators to continue to engage with Callide Energy, and any other potential stakeholders, with a view to procuring the sale or acquisition of the IGPC Interest; and
(b)other interested parties to conduct due diligence and develop a DOCA or other proposal to acquire the IGPC Interest if Callide Energy were ultimately to withdraw from that process.
Mr Hughes also deposed that any sale may be subject to regulatory approval, such as by the ACCC and the Foreign Investment Review Board.
Mr Hughes said that the Further Extension Period would enable the administrators to continue to engage with parties in relation to ongoing litigation to which the Companies are party. That litigation was summarised by SC Derrington J in the First Extension Decision at [7]-[8].
Mr Hughes deposed that, if the Court were to make orders providing for the Further Extension Period, the administrators intended to pursue the sale of the IGPC Interest as well as preparing an administrators’ report as required by r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth).
Mr Hughes opined that, if the Court were to dismiss the application for the Further Extension Period, it was unlikely that the administrators would receive valid proposals for the restructure or sale of the IGPC Interest, in which case, the Companies would likely be placed into liquidation.
I was satisfied that the Further Extension Period should be granted for the following reasons.
Firstly, I was satisfied that the steps required by any assignment of the IGPC Interest, together with the complexities of administering the Companies’ business (including the Staged Return to Service), meant that the administrators would require significant time in order to assess whether the interests of creditors were best served by (among other things) the acquisition of IGPC’s interest by Callide Energy, by some other arrangement with Callide Energy, or by the acquisition of the Companies or certain of their assets by other interested parties.
Secondly, no creditors or shareholders opposed the plaintiffs’ application for the Further Extension Period (a matter that SC Derrington J considered relevant in the First Extension Decision at [18] at the time that the first extension was sought). The Third Hughes Affidavit and Cartoon Affidavit deposed to all correspondence received from creditors and shareholders. The effect of that evidence was that none had expressed any opposition to the orders sought by the plaintiffs.
Thirdly, the Companies do not employ any staff who will be prejudiced by the delay (a matter that SC Derrington J considered relevant in the First Extension Decision at [19]).
Fourthly, similarly to SC Derrington J in the First Extension Decision at [20], I inferred from the evidence that the impact on litigation against the Companies was likely to be minimal.
Fifthly, secured creditors were able to exercise their rights notwithstanding the administration (a matter that SC Derrington J considered relevant in the First Extension Decision at [19]).
Sixthly, similarly to SC Derrington J in the First Extension Decision at [22], I considered that the public interest must be given weight when considering the exercise of the Court’s discretion to extend the convening period. The Callide C Power Station is not operational. That situation is still putting strain on the energy grid for Queensland. In these circumstances, I gave weight to Mr Hughes’ evidence that the administrators considered that a further extension of the convening period would maximise the prospects of the Staged Return to Service progressing as scheduled.
Seventhly, the effect of Mr Hughes’ evidence was that the administrators considered that an extension of the convening period would enable them to achieve a restructure or sale of the Companies or their assets as a going concern. In those circumstances, an extension was likely to achieve a superior return for unsecured creditors when compared with a liquidation. That would similarly benefit statutory creditors and shareholders. I considered that the Court should give significant weight to this opinion.
For these reasons, I considered that it was appropriate to grant the plaintiffs’ application for the Further Extension Period.
JUDICIAL ADVICE AND ORDERS LIMITING THE ADMINISTRATORS’ LIABILITY
Principles regarding s 90-15 of the IPS
Section 90-15(1) of the IPS provides that a Court may make such orders as it thinks fit in relation to the external administration of a company. Such orders include “an order determining any question arising in the external administration of the company”: s 90-15(3)(a).
A court will not give a direction on a decision that is purely commercial. However, a direction may be provided where there is a particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. The Court may give a direction on a legal issue of substance or procedure or of power, propriety or reasonableness: In the matter of Ansett Australia Limited and Korda (2002) 115 FCR 409 at [65].
As stated by Stewart J in Re Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 at [9], the function of such a direction:
is not to determine rights and liabilities arising out of a particular transaction, but to confer a level of protection on the administrator. An administrator who acts in accordance with a judicial direction, having made full and fair disclosure to the court of the material facts, has “protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct” proposed.
In Re RCR Tomlinson Ltd [2018] NSWSC 1859, administrators sought directions under s 90-15 of the IPS that they were justified in procuring that certain companies under administration borrow funds not exceeding a specified amount. Black J held (at [14]) that such a direction may properly be made. In reaching this conclusion, Black J relevantly stated:
I recognise that that decision has a commercial character, at least in substantial part, but it also seems to me that it involves a balancing of complex interests, where there are advantages and disadvantages to that course, as recognised in [the administrator’s] affidavit evidence. The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.
In the First Liability Decision, Halley J considered that it was appropriate to grant the directions sought by the administrators under s 90-15, namely that the administrators were justified and acting reasonably in taking steps to advance the rebuilding of the Callide Power Station. In doing so, his Honour made the following observations at [21]-[24] (citations omitted) which also bear on the exercise of discretion:
The “prevailing principle” to be applied in circumstances where liquidators and administrators request a judicial direction in respect of a business or commercial decision, is that the decision must give rise to an issue requiring the exercise of legal judgment. An issue of this kind includes one of substance or procedure or of power, propriety or reasonableness of the decision.
Nevertheless, a Court’s preparedness to issue a judicial direction will depend on the circumstances of each request by the liquidators or administrators. Courts have previously issued such a direction where a decision, substantially commercial in character, is complex, made under time pressure and involved the balancing of competing interests in respect of a large corporate group. This reflects the “intrinsic unfairness” of exposing an administrator to risk of personal liability where the decision is complex and “where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies”.
In the course of the hearing on 25 May 2023, I asked senior counsel for the plaintiffs whether he was aware of any recent authorities in which a Court had declined to issue a direction under s 90-15(1) of the IPS on the basis that the request for such advice related solely to a commercial decision. The plaintiffs advised in their supplementary written submission, that their legal representatives had conducted a review of “126 cases delivered since the commencement of s 90-15” and that they were not aware of any authority “in which an insolvency practitioner’s application for directions has been refused solely because it related to a commercial decision”.
The function of such a direction is not to determine rights and liabilities arising out of a particular transaction. It is to provide liquidators and administrators, having made a full and fair disclosure of all relevant facts to the Court, with “protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision of undertaking the conduct”.
Principles governing personal liability of the administrators
Section 443A(1) of the Act provides that the administrator of a company under administration is liable for certain debts he or she incurs in the performance or exercise of any of his or her functions and powers as administrator. Section 443A(1) gives protection to a company’s creditors in exchange for the administrator’s power to continue to carry on trading though a company is under administration: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at [51]-[52] (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ). This protection encourages third parties to deal with the company during the administration whilst the company’s affairs are reviewed. The protection also discourages continued trading in circumstances where liquidation is inevitable, or where those with a stake in the survival of the company, such as substantial shareholders, are not prepared to indemnify the administrators for debts incurred during the administration, and where continuing to trade is not otherwise warranted: Virgin No 2 at [116]-[17].
An order may be made under s 447A(1) of the Act relieving administrators of their personal liability under s 443A for debts incurred in the administration: see, eg, Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493 (Secatore) (Gordon J).
The relevant principles governing the exercise of the Court’s power under s 447A(1) of the Act to modify the operation of s 443A(1) were relevantly summarised by Gilmour J in Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469 at [30] (citations omitted):
The principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows:
(a) the proposed arrangements are in the interests of the company’s creditors and consistent with the objectives of Pt 5.3A of the Corporations Act.
(b) typically the arrangements proposed are to enable the company’s business to continue to trade for the benefit of the company’s creditors.
(c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement.
(d) notice has been given to those who may be affected by the order.
In Secatore, Gordon J observed that orders under s 447A(1) of the Act have frequently been made in circumstances where the Court is satisfied that administrators have entered into a loan agreement or other arrangement to enable the company’s business to continue to trade for the benefit of the company’s creditors: at [23]. Her Honour further observed that the utility of such orders was that they would facilitate the making of the administrators’ commercial decisions, by permitting them to make the commercial decision of what is in the best interests of the Company’s creditors uninfluenced by concerns of personal liability: at [29].
In the First Liability Decision, Halley J made the following observation at [42] in relation to orders relieving administrators of personal liability in respect of contracts that have not yet been negotiated or entered into:
Orders relieving administrators of personal liability have been made in circumstances where contracts have not been negotiated or entered into at the time the order was made: see Virgin [No 2]; Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) [2022] FCA 1506 (Clough). Relevant considerations for the Court in such cases included that (a) continued trading was consistent with the objective of selling or recapitalising the business of the company as a going concern in the best interests of all creditors: Virgin [No 2] at [102], (b) continued trading would provide additional revenue that would not otherwise be received: Virgin [No 2] at [103], (c) creditors would be notified of the Court’s orders excluding the administrators’ personal liability, prior to entry into any agreement which in turn, preserved creditors’ capacity to apply to the Court to vary the orders: Virgin [No 2] at [105(2)], Clough at [57] (Banks-Smith J), (d) it was “efficient and cost effective” to make such orders: Virgin [No 2] at [105(3)], and (e) there was a need for flexibility: Virgin [No 2] at [107].
Consideration
The evidence of Mr Hughes was that the primary asset of the Companies’ business – the Callide C Power Station – was not operational, and that it required significant resources to rebuild it before it could recommence generating any revenue. In that connection, the administrators entered into a funding arrangement with a third party, whereby the third party would fund the administrators’ costs of the Further Extension Period. This arrangement was recorded in a Remittance Deed which, as at the time of the hearing, was agreed in principle.
By their Amended Interlocutory Process, the plaintiffs sought:
(a)a direction pursuant to s 90-15 of the IPS that the administrators were justified and acting reasonably in executing the Remittance Deed; and
(b)an order pursuant to s 447A(1) of the Act relieving the administrators of personal liability to repay any debts arising under the Remittance Deed.
I was satisfied that it was appropriate to make both the direction and the orders sought.
In relation to the direction sought pursuant to s 90-15 of the IPS, the plaintiffs submitted, and I accepted, that administration of the Companies was highly complex and involved numerous stakeholders. I also accepted that there was a degree of urgency to decision-making, which was compounded by the public nature of the Companies’ business, and the sensitivity in the energy market to the administrators’ decisions. Consistently with the reasons of Black J in RCR Tomlinson at [14], I considered that, notwithstanding that the administrators’ decision may have a commercial character, it nonetheless required the balancing of complex interests, and it would be unfair to leave an administrator at the risk of liability in undertaking the task of balancing those interests.
The administrators submitted, and I accepted, that this was a classic situation “where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies”: RCR Tomlinson at [14].
In this case, the administrators’ considered opinion was that the objects stated in s 435A of the Act were best advanced by entering into the Remittance Deed. Having reached that decision in the circumstances of this case, they considered it prudent to seek a direction that they were justified and acting reasonably in taking this course. On the basis of the matters deposed to by Mr Hughes, I was satisfied that it was consistent with the objectives of Pt 5.3A of the Act for the administrators to enter into the Remittance Deed. I was satisfied that this was the type of case in which the Court ought to be prepared to make a direction pursuant to s 90-15 of the IPS to that effect.
In relation to the order sought pursuant to s 447A(1) of the Act, I was conscious that, in the absence of an order addressing the administrators’ liability, the administrators would become personally liable under s 443A(1) of the Act for further costs associated with the Staged Return to Service (as well as other costs associated with their duties during the extended convening period).
As previously noted, on 25 May 2023, Halley J made an order pursuant to s 447A(1) of the Act limiting the administrators’ liability in respect of debts incurred by IGPC in pursuing the Staged Return to Service. Mr Hughes gave evidence of a confidential nature as to the effect of the Remittance Deed on IGPC’s overall indebtedness. The plaintiffs submitted that it was appropriate for the Court to make an order under s 447A(1) in relation to the Remittance Deed so that there was no doubt as to their liability in relation to the indebtedness of IGPC arising under the Remittance Deed. Mr Hughes deposed that the administrators could not responsibly execute the Remittance Deed unless the Court made the orders sought under s 447A(1) of the Act.
Consistently with the reasons of Halley J in the First Liability Decision at [46], I was satisfied that relieving the administrators from personal liability under the Remittance Deed was consistent with the Court’s general approach of affording administrators greater protection when they sought to trade large-scale businesses. Given the administrators’ view that the Further Extension Period was in creditors’ best interests (a view which I accepted for the purposes of ordering the Further Extension Period), I was also of the opinion that it was in creditors’ best interests to ensure that the administrators be protected from any liability associated with funding arrangements entered into for the Further Extension Period. I was also satisfied that the orders sought by the administrators would be unlikely to significantly prejudice or disadvantage creditors given the terms of the Remittance Deed. I was also satisfied that notice had been given to creditors who may be affected by the Court’s orders. In these circumstances, I considered it appropriate to make the orders sought by the administrators pursuant to s 447A(1) of the Act.
ABSENCE OF CONTRADICTOR
In the First Liability Decision, Halley J at [53] held that the absence of a contradictor, while undesirable, did not preclude a court determining an application such as the present where the administrators have taken reasonable steps to obtain a contradictor or if the natural contradictor has elected not to participate.
I was satisfied that it was appropriate for the Court to make the orders and direction sought by the administrators in the absence of a contradictor for the following reasons:
(a)Notice of the plaintiffs’ application was given to the Companies’ creditors and shareholders, and none expressed any opposition to the orders sought by the plaintiffs.
(b)The orders sought by the plaintiffs in their Amended Interlocutory Process were important to the finalisation of the administration and the pursuit of the objects set out in s 435A of the Act.
(c)The plaintiffs’ proposed orders permitted any person claiming to be adversely affected by the Court’s orders to apply to the Court to have them discharged.
COFIDENTIALITY
The plaintiffs sought orders for the suppression of parts of the Third Hughes Affidavit and the annexure to that affidavit, parts of the Cartoon Affidavit and the annexure to that affidavit, and parts of their outline of submissions in support of the relief sought.
The Court has the power to make suppression and non-publication orders under s 37AF and s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to prevent prejudice to the proper administration of justice. The relevant principles were summarised by Halley J in the First Liability Decision at [61] as follows:
The principles governing the making of suppression orders under s 37AF of the FCA Act are well established and were relevantly summarised by the Full Court of this Court in Country Care Group Pty Ltd v Director of Public Prosecutions (Cth) (No 2) (2020) 275 FCR 377; [2020] FCAFC 44 at [4]-[9] (Allsop CJ, Wigney and Abraham JJ). Their Honours’ emphasised that the operative word in s 37AG(1)(a) is “necessary” and therefore, suppression orders should only be made in exceptional circumstances where necessity compels departure from the open justice principle articulated in s 37AE: at [8]. Further, the question of whether an order is “necessary” will depend on the circumstances of each case but once the Court is satisfied that such an order is necessary, it would be an error to not make it: at [9].
In summary, the plaintiffs sought orders suppressing the following categories of information:
(a)Information regarding the Letter of Comfort. The existence and terms of the Letter of Comfort were already the subject of suppression orders made by Halley J (for the reasons set out at [62]-[67] of the First Liability Decision). I considered that it was appropriate that further orders be made for the same reasons given by Halley J.
(b)Information regarding the parties interested in the sale or acquisition of IGPC. I was satisfied that disclosure of the names of these parties would likely prejudice the EOI Process. I therefore considered that it was appropriate that this information be suppressed.
(c)Information regarding Called Sums and Unpaid Called Sums (as defined in the JVA). The Unpaid Called Sums were the subject of the Letter of Comfort. I considered that information relating to the Unpaid Called Sums should be suppressed. I was also satisfied that the amount of Called Sums was commercially sensitive given its disclosure was likely to prejudice the proper running of any EOI Process. I therefore considered it appropriate that this information be the subject of suppression orders.
(d)Information regarding the Remittance Deed. I was satisfied that orders should be made suppressing this information having regard to the interests of the counterparties to the Remittance Deed. I further considered that disclosure of information relating to the Remittance Deed may give commercial competitors an unfair advantage by disclosing the basis on which the parties contracted, and the disclosure might prejudice the proper running of any EOI Process as it would inform potential bidders’ valuation of the IGPC Interest.
The plaintiffs also sought orders suppressing information about the conduct of an unrelated party. That information was readily identifiable as confidential, and appropriately the subject of a suppression order.
In the circumstances of this case, I was satisfied that a suppression order in the terms sought by the plaintiffs was necessary to prevent prejudice to the proper administration of justice.
DISPOSITION
For these reasons, on 11 August 2023, I made the various orders and direction sought by the plaintiffs.
Consistently with the approach taken by Halley J in the First Liability Decision, I also consider that the costs of the administrators of and incidental to their Amended Interlocutory Application should be costs in the administration of the Companies.
I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson. Associate:
Dated: 24 August 2023
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