Tall Trees Tanah Merah Pty Ltd v Trust Company (PTAL) Limited as Custodian for the LM First Mortgage Income Fund
[2014] FCA 963
•5 September 2014
FEDERAL COURT OF AUSTRALIA
Tall Trees Tanah Merah Pty Ltd v Trust Company (PTAL) Limited as Custodian for the LM First Mortgage Income Fund [2014] FCA 963
Citation: Tall Trees Tanah Merah Pty Ltd v Trust Company (PTAL) Limited as Custodian for the LM First Mortgage Income Fund [2014] FCA 963 Parties: TALL TREES TANAH MERAH PTY LTD ACN 119 755 672, TALL TREES ROCHEDALE PTY LTD ACN 108 803 256, PETRUS HERMANUS WILLEMSE, FREDERICK CREAGH WICKS and PHILIP WARWICK USHER v THE TRUST COMPANY (PTAL) LIMITED ACN 008 412 913 AS CUSTODIAN FOR THE LM FIRST MORTGAGE INCOME FUND, LM INVESTMENT MANAGEMENT LIMITED ACN 077 208 461 (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED), BENDIGO AND ADELAIDE BANK LIMITED ACN 068 049 178 and PETER DINORIS AND NICK JIM COMBIS IN THEIR CAPACITY AS CONTROLLING TRUSTEES OF THE CONTROLLED ESTATE NO. QLD 2624/14/6 OF PHILLIP WARWICK USHER File number(s): QUD 473 of 2014 Judge(s): GREENWOOD J Date of judgment: 5 September 2014 Catchwords: BANKRUPTCY AND INSOLVENCY – consideration of an application for an interlocutory injunction restraining a contended creditor from voting at a meeting of creditors convened to consider a Personal Insolvency Agreement proposed by a debtor whose affairs are in the hands of controlling trustees by operation of s 188 of the Bankruptcy Act 1966 (Cth) Legislation: Bankruptcy Act 1966 (Cth), ss 188, 204 Cases cited: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 - cited
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 - cited
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 - citedDate of hearing: 4 September 2014 Date of last submissions: 4 September 2014 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 78 Counsel for the Applicants: Mr P McQuade with Mr A O’Brien Solicitor for the Applicants: Cronin Litigation Lawyers Counsel for the First and Second Respondents: Mr R Derrington QC Solicitor for the First and Second Respondents: Gadens Lawyers Solicitor for the Third Respondent: Mr P Schmidt, Norton Rose Fulbright Australia Solicitor for the Fourth Respondent: Ms A Heard, Debt Collection Legal
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 473 of 2014
BETWEEN: TALL TREES TANAH MERAH PTY LTD ACN 119 755 672
First ApplicantTALL TREES ROCHEDALE PTY LTD ACN 108 803 256
Second ApplicantPETRUS HERMANUS WILLEMSE
Third ApplicantFREDERICK CREAGH WICKS
Fourth ApplicantPHILIP WARWICK USHER
Fifth ApplicantAND: THE TRUST COMPANY (PTAL) LIMITED ACN 008 412 913 AS CUSTODIAN FOR THE LM FIRST MORTGAGE INCOME FUND
First RespondentLM INVESTMENT MANAGEMENT LIMITED
ACN 077 208 461 (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
Second RespondentBENDIGO AND ADELAIDE BANK LIMITED
ACN 068 049 178
Third RespondentPETER DINORIS AND NICK JIM COMBIS IN THEIR CAPACITY AS CONTROLLING TRUSTEES OF THE CONTROLLED ESTATE NO. QLD 2624/14/6 OF PHILLIP WARWICK USHER
Fourth Respondents
JUDGE:
GREENWOOD J
DATE OF ORDER:
5 SEPTEMBER 2014
WHERE MADE:
BRISBANE
UPON the first and second respondents undertaking not to engage in the conduct of voting in favour of a resolution that the fifth applicant be directed to execute a Personal Insolvency Agreement for the purposes of Pt X of the Bankruptcy Act 1966 (Cth), at a meeting of unsecured creditors of the fifth applicant convened to be held on Friday, 5 September 2014,
THE COURT ORDERS THAT:
1.The application for interlocutory relief sought by the Originating Application filed on 29 August 2014 is dismissed.
2.The costs of and incidental to the Application for Interlocutory Relief are reserved for later determination.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 473 of 2014
BETWEEN: TALL TREES TANAH MERAH PTY LTD ACN 119 755 672
First ApplicantTALL TREES ROCHEDALE PTY LTD ACN 108 803 256
Second ApplicantPETRUS HERMANUS WILLEMSE
Third ApplicantFREDERICK CREAGH WICKS
Fourth ApplicantPHILIP WARWICK USHER
Fifth ApplicantAND: THE TRUST COMPANY (PTAL) LIMITED ACN 008 412 913 AS CUSTODIAN FOR THE LM FIRST MORTGAGE INCOME FUND
First RespondentLM INVESTMENT MANAGEMENT LIMITED
ACN 077 208 461 (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
Second RespondentBENDIGO AND ADELAIDE BANK LIMITED
ACN 068 049 178
Third RespondentPETER DINORIS AND NICK JIM COMBIS IN THEIR CAPACITY AS CONTROLLING TRUSTEES OF THE CONTROLLED ESTATE NO. QLD 2624/14/6 OF PHILLIP WARWICK USHER
Fourth RespondentsJUDGE:
GREENWOOD J
DATE:
5 SEPTEMBER 2014
PLACE:
BRISBANE
REASONS FOR JUDGMENT
These proceedings are concerned with an application for an interim or interlocutory order directing the adjournment of a meeting of the creditors of the fifth applicant, Mr Phillip Warwick Usher, from today, 5 September 2014, to a date to be fixed, subject to earlier order.
The first, second and fifth applicants also seek an interlocutory injunction restraining the first and second respondents from voting in the controlled estate of Mr Usher for or against a resolution to be considered by the creditors for the purposes of s 204 of the Bankruptcy Act 1966 (Cth) (the “Act”). They seek an interlocutory injunction restraining the first and second respondents from voting for or against a resolution that Mr Usher execute a Personal Insolvency Agreement or a resolution requiring Mr Usher to present a debtor’s petition within seven days of the passing of such a resolution.
Further, they seek an interlocutory injunction restraining the first and second respondents from taking any step in reliance upon a Notice of Demand dated 28 January 2014 issued to Mr Usher, “with a view to any insolvency, reorganisation administration, arrangement or assignment for the benefit of creditors or any similar proceedings involving [Mr Usher]”.
Finally, they seek an interlocutory injunction restraining Mr Peter Dinoris and Mr Nick Combis, in their capacity as controlling trustees of the controlled estate of Mr Usher, from admitting for voting purposes, the Proof of Debt lodged by the first respondent in the controlled estate of Mr Usher, with respect to any resolution under s 204 of the Act.
Having regard to the urgency with which the matter has come forward, I propose to give short reasons explaining the basis for the orders I propose to make. In addressing the interlocutory application, I apply the principles derived from Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, Gleeson CJ and Crennan J at [19]; Gummow and Hayne JJ at [65] – [72].
The background events are these.
Mr Usher and Mr Powell co‑founded in approximately 2005 a group of companies called the “Tall Trees” group. Those companies were structured in such a way so as to establish a number of partnerships for the purpose of developing a number of “independent living communities” with full‑time qualified aged care services available to residents. These communities are known as “supported living retirement villages”. One entity is called Tall Trees Tanah Merah Pty Ltd (“TTTM”) and another is called Tall Trees Rochedale Pty Ltd (“TTR”). Those entities own real property upon which care facilities have been built. TTTM and TTR are the first and second applicants.
In 2005, entities called The Trust Company (PTAL) Limited as Custodian for the LM First Mortgage Income Fund (“PTAL”) and LM Investment Management Limited (“LMI”) provided loan facilities of $2,145,000.00 to an entity called Australian Living Concepts (Garden Terraces) Pty Ltd (“Concepts”) to enable a care facility to be developed on the TTTM land. That loan facility was supported by a first registered mortgage over the TTTM property, first ranking charges granted by Concepts and guarantees.
On 28 November 2007, PTAL and LMI provided a loan facility to TTTM of approximately $10 million. That facility provided for a repayment date of 10 September 2010, registered mortgages granted by TTTM and TTR over various properties, deeds of charge over TTTM, TTR and Concepts, other charges by Tall Trees Group Pty Ltd (“TTG”) and Usher Powell Developments (Rochedale) Pty Ltd, and guarantees by Mr Usher, Mr Powell, TTR, TTG and TTG in a trustee capacity.
On 15 November 2010, a Deed of Variation was entered into between PTAL as lender, LMI as a responsible entity, TTTM as borrower and parties described as guarantors as set out in Sch 1 to the Agreement. The guarantors were TTR, TTG, Concepts, Mr Usher, Mr Wicks, Mr Powell, Mr Willemse and four other Tall Trees companies called, sufficiently for present purposes, “Corporate”, “Oxenford”, “Cairns” and “Scottsdale Drive”.
The Deed of Variation recites that PTAL had agreed to lend certain monies to TTTM at the request of the “Original Guarantors” on the terms of the 28 November 2007 Loan Agreement, and that TTTM and the Guarantor (being the Sch 1 Guarantors) had requested PTAL to enter into the 15 November 2010 Deed of Variation. The Deed of Variation recites at Sch 2 the “original securities” given by various entities to support the obligations of the borrower under the 28 November 2007 Loan Agreement. Schedule 3 recites the “current security” then taken by the lender to support the increase in the facility from approximately $10 million to $14.6 million under the 15 November 2010 Deed. Schedule 3 sets out 15 guarantees executed by individuals and entities in particular capacities. Those guarantees include guarantees of TTTM’s obligations to the lender, under the Deed of Variation, given by Mr Willemse, Mr Powell, Mr Wicks and, relevantly for present purposes, Mr Usher.
The Instrument of Guarantee executed by Mr Usher is described as a “Deed of Guarantee and Indemnity”. The Deed is dated 19 November 2010. By cl 3, relevantly for present purposes, Mr Usher unconditionally guarantees the due and punctual payment of the “Guaranteed Sums” by the borrower, TTTM, when they are due and the punctual performance of all particular obligations of TTTM.
The “Guaranteed Sums” are defined to mean all amounts: that are owing and payable by the borrower to the lender; amounts that are owing by the borrower to the lender but not presently payable; amounts that are contingently owing by the borrower to the lender; amounts that may become payable by the borrower to the lender by way of indemnity or damages or by operation of law or equity or otherwise as a result of anything done by the lender with the consent or at the express or implied request of the borrower. The term includes amounts that are payable to the lender under any security given to the lender by the borrower or any guarantor, and amounts that the lender may become entitled to debit or charge to any account of the borrower. All of these classes of amounts are amounts that become payable to the lender “in any manner and on any account, whether as principal debtor or surety or otherwise, and whether alone or jointly with any other person”.
Clause 5 contains an expansive definition of the term, “Guaranteed Sums”.
Clause 3.2 provides that a demand may be made upon the guarantor at any time and from time to time and whether or not the lender has made demand on the borrower.
Clause 4 is described as “Indemnity Provisions”.
Clause 4.1, under the heading “Indemnity”, provides that the Guarantor, Mr Usher, as a separate and additional liability, indemnifies the lender against any loss or costs the lender suffers or incurs by reason of: the liability of TTTM to pay the Guaranteed Sums being unenforceable in whole or in part for particular reasons; the borrower becoming bankrupt or insolvent; the Guaranteed Sums not being recoverable from the borrower (and not being recoverable under cl 3 of the Guarantee for particular reasons); the lender being obliged, or agreeing to pay, an amount to a trustee in bankruptcy or liquidator (of an insolvent person) in connection with a payment by the Guarantor or the borrower; and, the Guarantor defaulting under the Guarantee and Indemnity in connection with any person exercising, or not exercising, rights under the Guarantee.
Clause 4.1 also provides that the Guarantor, as principal borrower, agrees to pay a sum equal to the amount of the loss to the lender, on demand.
Clause 4.2 provides that the indemnity is not limited nor affected by the circumstance that the Guaranteed Sums cannot be recovered from the borrower for any reason.
Apart from financing facilities provided by PTAL and LMI as lender, TTTM also negotiated the provision of various finance facilities from the Commonwealth Bank of Australia (“CBA”). A base loan was negotiated with the CBA of $19.2 million. On 7 April 2009, PTAL/LMI entered into a Deed of Priority and Subordination with CBA which was subsequently varied in June 2010 with the term of the arrangements expiring in August 2012.
In December 2010, an “Intercreditor Deed” was entered into between the CBA and PTAL/LMI. That Deed identified the securities granted to LMI by TTTM (mortgages and company charges) which were to be subordinated to the security interests granted by the Borrower to the CBA to support financing facilities provided by the CBA for particular construction and operating costs associated with projects of the borrower and entities related to the borrower.
The subordinated securities granted to LMI were thereafter to be called the “Mezzanine Securities”.
The CBA and PTAL/LMI facilities expired in August 2012.
On 21 November 2012, LMI issued a Notice of Default under the LMI loan of 28 November 2007 as varied by the Deed of 15 November 2010.
Representatives of the Tall Trees group of companies conducted negotiations to facilitate a re‑financing of the CBA debt. On 20 June 2013, Bendigo Adelaide Bank Limited (“Bendigo”) advanced an amount of $11.3 million to TTTM and TTR to replace the CBA facility.
On 20 June 2013, Bendigo, TTTM, TTR, PTAL and LMI entered into an Intercreditor Deed (the “Bendigo Intercreditor Deed”). Bendigo is described in the Deed as the Senior Creditor. TTTM and TTR, in their own right and in a trustee capacity, are described as the Debtor. TTTM and TTR, in their own right and in a trustee capacity, together with “Corporate”, in its own right and as trustee, and TTG, in its own right and as trustee, are described as the Mortgagor. PTAL and LMI are described as the “Mezzanine Creditors”. The Deed recites that the Senior Creditor has agreed to provide financial accommodation to the debtor on the basis that the Mezzanine Creditors are subordinated to the Senior Creditor and the Senior Creditor has first priority in accordance with the terms of the Deed.
Clause 2 sets out the “First Priority” ranking of the securities held by the Senior Creditor. It also sets out the “Second Priority” ranking of the Mezzanine Securities. Third and Fourth Priority rankings are also described in that clause.
Clause 3 bears the title “Overall Limit on Enforcement Action and Payment”. Clause 3.1, relevantly, is in these terms:
3.1 Mezzanine Creditors undertakings
The Mezzanine Creditors will not, without the prior written consent of the Senior Creditor:
(a) require or accept payment of any Mezzanine Debt;
(b) take any step to enforce the Mezzanine Securities;
(c) take any step for the purpose of or towards:
(i)levying any execution or obtaining any judgement against the Debtor or the Mortgagor; or
(ii)the appointment of a Liquidator of the Debtor or the Mortgagor;
…
until after the Senior Discharge Date [which is the date on which the “Senior Creditor has been fully and finally paid and repaid”].
Clause 3.2 provides that the Debtor and the Mortgagor will not, without the consent of the Senior Creditor, pay any Mezzanine Debt until after the Senior Discharge Date.
The term “Mezzanine Debt” means all money which the Debtor is liable to pay to the Mezzanine Creditors, whether at the date of the Deed or as may become payable in the future, and includes payment of any money or liquidated or unliquidated damages under or in connection with the “Mezzanine Finance Documents”. That term is defined to mean any document or agreement between the Debtor or the Mortgagor, and the Mezzanine Creditors, or any of them, for the purposes of or in relation to providing financial accommodation to the Debtor; or the “Mezzanine Securities”, which are those securities set out in Sch 1. The Mezzanine Securities consist of six charges and mortgages set out in Item 1 of Sch 1. The Senior Securities are six charges and mortgages set out in Item 2 of Sch 1. The Senior Securities reflect an amount of $11.3 million (Item 3) and the Mezzanine Securities reflect an amount of $16.026 million (Item 4).
Clause 3.3 is in these terms:
3.3 Enforcement by Mezzanine Creditor
Until the Senior Discharge Date, unless the Senior Creditor has consented in writing, the Mezzanine Creditor will not:
(a)accelerate any of the Mezzanine Debt or otherwise declare any of the Mezzanine Debt prematurely payable on an Event of Default or otherwise unless the Senior Creditor has declared the Senior Debt to be prematurely payable;
(b) enforce the Mezzanine Debt by execution or otherwise;
(c)enforce any security conferred by the Mezzanine Securities by sale, possession, appointment of a receiver, receiver and manager or otherwise except as permitted by this Deed;
(d)initiate or support or take any steps with a view to any insolvency, liquidation, reorganisation, administration or dissolution proceedings or any voluntary arrangement or assignment for the benefit of creditors or any similar proceedings involving the Debtor or a guarantor, whether by petition, convening a meeting, voting for a resolution or otherwise.
An “Event of Default” referred to in cl 3.3(a) means any event of default or other event entitling a Creditor concerned to accelerate the due date of any liability of the Debtor and the term “Creditor” means each of the Senior Creditor and the Mezzanine Creditors.
On 28 January 2014, PTAL issued a Notice of Demand to Mr Usher telling him that an Event of Default had occurred under securities described as the Loan Agreement between PTAL, LMI and TTTM dated 28 November 2007 “as varied” (by the Deed of Variation) and the mortgages and company charges described in Item 8 to the 28 November 2007 Loan Agreement. The event was said to be that TTTM had failed to pay to PTAL, as agent for LMI, the total amount outstanding under the 28 November 2007 Loan Agreement, on or before the due date for payment under that agreement which was 31 August 2012.
That seems to be the date of expiry of the facilities under the 28 November 2007 Loan Agreement as varied by the 15 November 2010 variation.
The notice to Mr Usher recites that:
…
Pursuant to a Deed of Guarantee and Indemnity dated 19 November 2010 (“the Guarantee”), you guaranteed to PTAL, inter alia, the payment, on demand, of the Guaranteed Sums (as that term is defined in the Guarantee) by the Borrower. Without limiting or restricting the scope of the definition, the term Guaranteed Sums includes all amounts that are presently or contingently owing and payable by the Borrower to PTAL.
Without limiting the generality of this demand for the whole of the Guaranteed Sums, the amount owing as at 18 November 2013 was $17,415,535.89. No payments have been received since 18 November 2013. …
On 19 June 2014, Mr Usher signed an authority pursuant to s 188 of the Bankruptcy Act 1966 (Cth) (the “Act”) authorising Mr Dinoris and Mr Combis to deal with his affairs under Pt X of the Act without his estate being sequestrated.
On 20 June 2014, Mr Dinoris and Mr Combis signed the authority under s 188(2) of the Act.
Mr Usher provided the controlling trustees with a proposed Personal Insolvency Agreement. Under that Agreement, Mr Usher proposes to provide the controlling trustees with an amount of $75,000.00 within two business days of a resolution by creditors (who are meeting today) to accept the proposal. By cl 3.1, of the draft Agreement, Mr Usher suggests that the trustees “will not have the right to recover any amounts that would be recoverable by a Trustee in Bankruptcy in relation to undervalued transactions, transfers to defeat creditors and avoidance of preferences, pursuant to the provisions of Division 3 of Part VI of the Bankruptcy Act [1966] for which purpose that Division shall be a term and be incorporated into the Personal Insolvency Agreement”.
Clause 5 provides that upon distribution of the monies, the trustees shall issue a certificate stating that the terms of the agreement have been complied with and “upon due issuance of that certificate, the Debtor shall be released from all provable debts as at the date of acceptance of the Personal Insolvency Agreement”.
By cl 8.1, the Agreement “shall bind all of the Debtor’s secured Creditors, as well as the unsecured Creditors, provided however that nothing in the Personal Insolvency Agreement affects the rights of a secured creditor to realise or otherwise deal with its security”.
The unsecured Creditors of Mr Usher’s estate (although some of these Creditors hold securities granted by relevant entities) amount to $21,558,336.46 at least so far as reflected in the Notice to Creditors by Mr Dinoris dated 24 June 2014. The number of creditors in the “Creditor Listing Report” is 13 creditors.
The controlling trustees also issued a report dated 15 July 2014. In that report, the controlling trustees say that it is their opinion that it is in the best interest of creditors to accept Mr Usher’s proposal for a Personal Insolvency Agreement. They observe that they have already received $22,726.86 and that the total contribution will be $97,726.86 once Mr Usher pays the amount of $75,000.00 to the trustees which is to be paid within two days of acceptance of the proposal by the creditors. The trustees suggest that the total estimated liabilities, based on the Statement of Affairs, is $21,558,836.00. A pessimistic position in the administration in bankruptcy is an estimated liability of $25,800,000.98. An optimistic position in bankruptcy is an estimated liability of $6,800,098.00.
In the report, the trustees list 23 companies of which they say Mr Usher has been a director. They list six further companies of which Mr Usher has ceased to be a director and they list another 17 companies, now deregistered, of which Mr Usher was previously a director. They also list 28 discretionary trusts of which Mr Usher is said to be within a class of beneficiaries under the relevant trust deed. The trustees note Mr Usher’s advice that he has received no income from these trusts in the last two years.
The trustees say that they have undertaken enquiries to determine whether Mr Usher may have entered into any voidable transactions under ss 120, 121 and 122 of the Act and as to that matter the trustees say: “The debtor did not disclose any such transactions in his Statement of Affairs to which the above provisions may apply. My investigations have not revealed any voidable transactions capable of commercial recovery should the debtor be declared bankrupt”.
That seems to be the scope of the examination of the enquiry.
Today a meeting of creditors is to occur to consider whether to resolve, by special resolution under s 204 of the Act, that Mr Usher execute the proposed Personal Insolvency Agreement, or that Mr Usher’s property be no longer subject to control under Div 2 of Pt X of the Act, or to require Mr Usher to present a Debtor’s Petition within seven days from the date of passing such a resolution. Realistically, the creditors are likely to resolve that Mr Usher be required to execute a Personal Insolvency Agreement or that Mr Usher present a Debtor’s Petition within the relevant seven days.
That, of course, is entirely a matter for the meeting.
For the purposes of that meeting, PTAL as custodian for the LMI First Mortgage Income Fund, has lodged a Proof of Debt with the controlling trustees of Mr Usher’s affairs. The Proof of Debt asserts a debt, incurred on 19 November 2010 (the date of the Deed of Guarantee and Indemnity), in an amount of $19,531,604.25. The details of the debt are described in the Proof in this way:
Guarantee and Indemnity provided in support of a loan facility provided by the Trust Company (PTAL) Limited to Tall Trees Tanah Merah Pty Ltd ACN 119 755 672 as nominee for the Tanah Merah Village Partnership.
The attached statement shows a settlement balance on drawdown of $11,351,808.83 with a closing balance at 20 June 2014 of $19,531,604.25.
The nub of the present matter is this.
TTTM and TTR together with Mr Willemse and Mr Wicks, and together with Mr Usher (although not through his controlling trustees), assert that PTAL and LMI are in breach of cl 3.3(d) of the Bendigo Intercreditor Deed of 20 June 2013 as earlier described. In particular, TTTM and TTR, as parties to that Deed contend, using the language of cl 3.3(d) that PTAL and LMI, by issuing the Notice of Demand of 28 January 2014 which supports the Proof of Debt lodged with the controlling trustees, and by purporting to attend the meeting of creditors today and exercise a voting right attached to that Proof, are “taking a step with a view to any insolvency” or “any voluntary arrangement or assignment for the benefit of creditors or any similar proceedings” involving, a guarantor of the debtor, Mr Usher, and that that step involves “voting for a resolution or otherwise” [emphasis added in each case].
TTTM and TTR say that they are parties to the Deed and they seek an injunction restraining PTAL and LMI from engaging in conduct, or threatening to engage in conduct, in breach of cl 3.3(d) of the Bendigo Intercreditor Deed. They say that the prohibition contained in s 3.3(d) operates upon conduct directed to steps in connection with processes including insolvency, a meeting, and voting. They also say that the reference in cl 3.3(d) to “a guarantor” can only be a contextual reference to those persons or entities who are guarantors of obligations under the Mezzanine Securities granted to the lender by the borrower, the subject of the subordination arrangements.
It is very odd indeed that the Bendigo Intercreditor Deed does not plainly and expressly include, as parties, the guarantors to what might be described as the standstill arrangements under the Bendigo Intercreditor Deed (being a standstill until the full repayment of the Bendigo debt occurs). Nor does the Deed contain, unlike the 2007 Loan Agreement or the 15 November 2010 Deed of Variation, references to defined terms such as “Guarantor” or “Guarantors”, “Original Guarantee” and “Original Guarantors”, respectively. On the face of the document, it simply does not seek to address, at all, the position of the guarantors of the borrower’s obligations to PTAL and LMI with respect to the Mezzanine Securities.
If the intention of the parties to the Bendigo Intercreditor Deed had been to adopt, inter‑parties, an enforceable prohibition upon PTAL and LMI requiring the performance and discharge by a person of any obligation arising under a Deed of Guarantee and Indemnity properly arising under that instrument, the document would presumably have expressly said so.
It does not.
The position of the guarantors as an identified group, or as potential parties to rights and obligations is not addressed, expressly, at all. The Bendigo Intercreditor Deed seeks to make clear, inter se, the classes of priority and subordinated securities as between Bendigo on the one hand and PTAL/LMI on the other, as recognised by the Debtor and Mortgagor, as those terms are defined in identifying relevant participants.
The prohibitions in cl 3.1 and in cl 3.3(a), (b) and (c) are concerned with steps the Mezzanine Creditors might otherwise have been minded to take to enforce or accelerate or prematurely crystallise obligations on the part of the Debtor and/or Mortgagor (as defined), but for those clauses. The clauses are not expressly concerned with steps taken or rights asserted against a non‑party and, in particular, a person described as a guarantor.
Clause 3.3(d) is a little different because it contains an undefined reference to “a guarantor”. Clause 3.3(d) seems to suggest that the Mezzanine Creditors will not initiate or support, or take any step, with a view to (which might mean, for the purpose of, or more likely, so as to achieve) any insolvency, liquidation or reorganisation involving the Debtor; proceedings with a view to any administration or dissolution of the Debtor or any voluntary arrangement or assignment for the benefit of creditors (or any similar proceedings), involving the Debtor.
All of those prohibited things, so described, are prohibited whether occurring “by petition, convening a meeting, voting for a resolution, or otherwise” [emphasis added].
I accept that the description of conduct under the phrase “or otherwise” in the context of the clause means some form of affirmative, initiating or supporting conduct taken with a view to making arrangements for the insolvency, re‑organisation, liquidation, dissolution or administration of the Debtor or voluntary arrangements or an assignment for the benefit of the creditors of the Debtor.
I also accept, however, that in trying to give meaning to a poorly drawn clause which does not have, as its predominant focus, the obligations of PTAL and LMI in relation to the class of persons who have executed Deeds of Guarantee and Indemnity, the reference to “or a guarantor” (which is an undefined term), in cl 3.3(d), following the words “the Debtor”, may arguably at least mean “or a guarantor of the Debtor” [emphasis added]. I also accept that the words “involving the Debtor or a guarantor [of the Debtor]” qualifies all of the processes collected together earlier in the clause that is to say, initiating or supporting or taking any steps with a view to any insolvency, liquidation, re‑organisation, administration or dissolution proceedings or any voluntary arrangement or assignment for the benefit of creditors or any similar proceedings.
The applicants also contend that cl 3.3(d) is a provision that operates for the benefit of a third party and is enforceable by “a guarantor” such as Mr Usher.
The Deed of Guarantee and Indemnity given by Mr Usher is not simply a promise to pay a debt due by the borrower to the lender. It contains an obligation in relation to a wide class of “Guaranteed Sums” as defined by reference to cl 5. The instrument contains both a guarantee and an indemnity. The applicants say that the reference to “a guarantor” in cl 3.3(d) ought not be read down as a reference to a “characterisation” of the obligation of the person as one of, “guarantee” thus leaving PTAL and LMI free to engage in conduct, contemplated by the clause, so far as it relates to the person’s obligations under any relevant “indemnity”.
I do not agree.
It seems to me that in the absence of any express prohibition in the Bendigo Intercreditor Deed directed to PTAL and LMI with respect to persons who have assumed obligations to those entities under Deeds of Guarantee and Indemnity, PTAL and LMI remain free to assert rights against those persons, as those rights might arise construed according to the terms of each particular Deed of Guarantee and Indemnity. Those rights extend to broad obligations of indemnity.
However, to the extent that a clause such as cl 3.3(d) purports to fetter or control any step PTAL and LMI might take under those instruments, the scope of that fetter must fall to the express language of the clause. I accept that the language of the clause constrains PTAL and LMI from taking affirmative action to support or bring about any insolvency or the class of other processes described in the clause so far as it relates to obligations a person has by way of guarantee. In any event, assuming for the moment that the clause operates more broadly to capture a person described as “a guarantor” but which includes a person who has assumed obligations of guarantee and indemnity, the clause does not prevent PTAL and LMI from casting a vote against a proposed insolvency or form of administration of the affairs of the relevant person.
In these proceedings, PTAL and LMI say that they propose to attend the meeting, as creditors of Mr Usher, in respect of obligations of indemnity owed to them by him, and they propose to vote against any motion which would have the effect of requiring Mr Usher to execute a Personal Insolvency Agreement. They also propose not to vote on the resolution directed to the question of whether Mr Usher ought present a Debtor’s Petition.
That will be a matter for the creditors to determine in the meeting.
The applicants say that if PTAL and LMI are permitted to vote at the meeting against a proposed resolution directing Mr Usher to enter into a Personal Insolvency Agreement as proposed, it is inevitable that a resolution will be passed directing Mr Usher to present a Debtor’s Petition. Such a result will bring about, it is said, significant prejudice because Mr Usher’s estate will then be sequestrated and, moreover, he will not be able to engage in the various activities described by Mr Willemse at para 57 of Mr Willemse’s affidavit.
I am not satisfied that the matters at para 57 represent factors which weigh the balance of convenience in favour of granting relief.
Moreover, should PTAL and LMI be prevented from participating in the meeting and voting in the way they suggest, it may be that a resolution will be passed (without their having had an opportunity to participate) directing Mr Usher to execute the proposed Personal Insolvency Agreement which will have the effect of foreclosing any proper examination or analysis of facts, circumstances or events relevant to Mr Usher’s engagement with the companies and trusts earlier described, and thus a consideration of the relationship between those facts, circumstances or events and the provisions of Div 3, Pt VI of the Act.
The debts of TTTM and TTR are approximately $31 million and the assets of those entities according to the valuations are approximately $38 million. PTAL and LMI say that no material has been put on which properly supports the undertaking as to damages offered by those two entities. Mr Usher also offers an undertaking as to damages but of course his affairs are in the hands of controlling trustees. Mr Willemse says that on behalf of the applicants, and in his capacity as a director, the applicants provide the usual undertaking as to damages.
PTAL and LMI observe that the unsecured creditors who have a right to attend the meeting today have not been served with the application and have not been heard on the application.
It seems to me that cl 3.3(d) operates in the way I have described. I am not satisfied that PTAL and LMI’s conduct of attending the meeting and voting against a resolution that Mr Usher be directed to execute a Personal Insolvency Agreement represents conduct which constitutes a breach or threatened breach of cl 3.3(d). I accept that a contention to that effect is at least arguable but I do not accept that it is sufficiently arguable in the context of all of the other factors I have described to warrant granting the relief sought. I am not satisfied that the balance of convenience favours granting the relief, even if I were to be satisfied that the prima facie case was sufficiently arguable.
The effect of preventing PTAL and LMI from acting consistently with the clause by casting a vote against a resolution to direct Mr Usher to execute a Personal Insolvency Agreement might well be to foreclose any opportunity to examine relevant matters as earlier mentioned.
Moreover, the other unsecured creditors have not been served with the application and have not had an opportunity to be heard on any of these questions.
Moreover, PTAL and LMI offer an undertaking to vote against the proposed Personal Insolvency Agreement (T, p 25, lns 27‑34). As I have indicated, I do not regard that conduct as a contravention of cl 3.3(d).
For these reasons, the application for interlocutory relief is dismissed.
I certify that the preceding seventy‑eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate:
Dated: 5 September 2014
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