Walsh, in the matter of LakeCoal Pty Ltd (Administrators appointed) (Receivers and managers appointed)
[2018] FCA 1634
•29 October 2018
FEDERAL COURT OF AUSTRALIA
Walsh, in the matter of LakeCoal Pty Ltd (Administrators appointed) (Receivers and managers appointed) [2018] FCA 1634
File number: NSD 1979 of 2018 Judge: YATES J Date of judgment: 29 October 2018 Catchwords: CORPORATIONS – external administration – application for extension of time to convene second meetings of creditors Legislation: Corporations Act 2001 (Cth), ss 419A, 435A, 436A, 439A, 440B Cases cited: Re Diamond Press Pty Ltd [2001] NSWSC 313
Re Riviera Group Pty Ltd (2009) 72 ACSR 352
Date of hearing: 29 October 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 46 Counsel for the plaintiffs: Mr N M Bender Solicitor for the plaintiffs: Allens ORDERS
NSD 1979 of 2018 IN THE MATTER OF LAKECOAL PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 094 084 787, FASSI COAL PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 147 642 386 AND LDO COAL PTY LTD (ADMINISTRATORS APPOINTED) ACN 140 669 932
JUSTIN DENIS WALSH AND SAMUEL JOHN FREEMAN AS JOINT AND SEVERAL ADMINISTRATORS OF LAKECOAL PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 094 084 787 and others named in the schedule
Plaintiffs
JUDGE:
YATES J
DATE OF ORDER:
29 OCTOBER 2018
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period within which the applicants must convene the second meetings of the creditors of LakeCoal Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 094 084 787 and each of the companies listed in the attached schedule (together, the Companies) under s 439A(5) of the Act be extended up to and including 28 February 2019.
2.Pursuant to s 447A(1) of the Act, the second meetings of the creditors of each of the Companies required by s 439A of the Act may be held together or separately and at any time during, or within five business days after the end of, the convening period as extended by the Court pursuant to Order 1 above notwithstanding the provisions of s 439A(2) of the Act.
3.With respect to:
(a)those creditors (including persons claiming to be creditors) of the Companies for whom the applicants have a current post, facsimile or email address (the Creditors); and
(b)the Australian Securities and Investments Commission (ASIC),
the applicants inform the Creditors and ASIC of the orders made pursuant to this application and any further application or orders in the administrations of the Companies by means of a circular forwarded by post, facsimile or email (as the case may be) within seven days after the filing of the application or making of orders.
4.With respect to all creditors of the Companies for whom the applicants do not have a current post, facsimile or email address, the applicants will make available to any such creditor a copy of the orders made pursuant to this application and any further application or orders in the administration of the Companies (and any supporting affidavit material) upon receipt of a request made care of the applicants at Ernst & Young, 111 Eagle Street, Brisbane in the State of Queensland or the email address ‘[email protected]’.
5.The following parties have liberty to apply on giving all other interested parties three business days’ notice:
(a)any person who can demonstrate a sufficient interest to modify or discharge these orders including any Creditor or ASIC; and
(b)the applicants for any purpose connected with the administrations of the Companies.
6.The costs of and incidental to this application be costs and expenses in the administrations of and be paid out of the assets of, the Companies.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
YATES J:
INTRODUCTION
The plaintiffs are the joint and several administrators of:
(a)LakeCoal Pty Ltd (administrators appointed) (receivers and managers appointed) (LakeCoal);
(b)Fassi Coal Pty Ltd (administrators appointed) (receivers and managers appointed) (Fassi Coal); and
(c)LDO Coal Pty Ltd (administrators appointed) (LDO Coal),
(collectively, the companies). They were appointed on 3 October 2018 under s 436A(1)(a) of the Corporations Act 2001 (Cth) (the Act), pursuant to a resolution of the sole director of each company.
On the same day, Barry Anthony Taylor and Todd Andrew Gammel were appointed by Sunset Power International Pty Ltd (trading as Delta Electricity) as joint and several receivers and managers of all the assets and undertaking of LakeCoal and Fassi Coal (the Delta Receivers). Since their appointment, the Delta Receivers have been in control of all the assets of the two companies.
On 5 October 2018, Kelly-Anne Lavina Trenfield and John Richard Park were appointed by Bucairn Investments Pty Ltd (Bucairn Investments) as joint and several receivers and managers of LakeCoal and Fassi Coal (the Bucairn Receivers).
On 29 October 2018, the plaintiffs applied under s 439A(6) of the Act to extend, until 28 February 2019, the convening periods for the second meetings of creditors of the companies. The application was supported by the following affidavits:
(a)Justin Denis Walsh, sworn 26 October 2018. Mr Walsh is the first-named plaintiff.
(b)Barry Anthony Taylor, affirmed 26 October 2018. Mr Taylor is one of the Delta Receivers.
(c)Kelly-Anne Lavina Trenfield, sworn 26 October 2018. Ms Trenfield is one of the Bucairn Receivers.
(d)Daniel John Bradford, affirmed 29 October 2018. Mr Bradford is a solicitor who shares the day-to-day carriage of this matter on behalf of the plaintiffs.
I was satisfied that the extensions should be granted and made orders accordingly. But for the extensions, the convening periods would have expired on 31 October 2018.
These are my reasons for making the orders.
BACKGROUND
The principal asset of LakeCoal and Fassi Coal is an operating coal mine called the Wallarah Chain Valley Mine. They operate the mine as an unincorporated joint venture pursuant to an agreement dated 28 June 2017. The mine has been operating, in one form or another, since about the 1960s. Its operations are extension. It has been reported that, as at 31 December 2017, the mine had 186 full-time employees.
LakeCoal and Fassi Coal are also sub-lessees of various mining sub-leases granted by companies in the Centennial Group of companies—specifically, Centennial Mandalong Pty Limited, Centennial Mannering Pty Limited (Centennial Mannering), Centennial Myuna Pty Limited and Centennial Munmorah Pty Limited—pursuant to a Mining Cooperation Deed dated 19 September 2013 (the Mining Cooperation Deed). The Mining Cooperation Deed amended and reproduced an earlier agreement between LakeCoal and Fassi Coal and some members of the Centennial Group. The earlier agreement was dated 27 June 2012. The mining leases are in respect of part of the Mannering Mine.
Prior to 27 June 2012, the Wallarah Chain Valley Mine and the Mannering Mine were independent and separate. But since that date, LakeCoal and Fassi Coal have operated the mines together as, in effect, a merged operation. In the remaining sections of these reasons, it is convenient to refer to the merged operation as, simply, the mine. LakeCoal and Fassi Coal supply the coal extracted from the mine to Delta Electricity, as required under the Mining Cooperation Deed.
The plaintiffs’ investigations to date indicate that the main reason for LakeCoal’s and Fassi Coal’s financial difficulties is that they were trading at a loss and were reliant on loans from shareholders. The shareholders are no longer prepared to provide the loans. LDO Coal’s financial difficulties arise consequentially from LakeCoal entering into administration. LDO Coal’s principal assets are its shareholding in, and its receivables from loans made to, LakeCoal.
Delta Electricity holds security over all the assets and undertaking of LakeCoal and Fassi Coal. As at 26 October 2018, the amount claimed was $234,423,278.82. It is by far the largest creditor of the joint venture.
Bucairn Investments holds security over all the assets and undertaking of LakeCoal, Fassi Coal and LDO Coal. As at 26 October 2018, the amount claimed was approximately $19,500,000.00. Ms Trenfield’s affidavit refers to a lesser amount owing. Nothing turns on this difference for present purposes.
Centennial Mannering holds security over all the assets and undertaking of LakeCoal and Fassi Coal. As at 26 October 2018, the amount claimed was $569,310.29.
Security interests are registered on the Personal Property Securities Register (PPSR) against specific assets of one or both of LakeCoal and Fassi Coal. The Delta Receivers bear a liability under s 419A of the Act in relation to personal property leased to one or both of the companies in respect of which the Delta Receivers continue to exercise rights. Two known security interests are also registered on the PPSR in respect of LDO Coal’s property.
Leaving to one side their indebtedness to Delta Electricity, Bucairn Investments and Centennial Mannering as noted above, the creditors of LakeCoal are owed approximately $88,670,827; the creditors of Fassi Coal are owed approximately $97,112,057; and the creditors of LDO Coal are owed approximately $80,748,160.
The plaintiffs’ investigations to date indicate that there is little prospect of any return to unsecured creditors in the absence of a deed of company arrangement (DOCA) or the identification of voidable dispositions or other claims available for the benefit of creditors in a liquidation of the companies.
In his affidavit, Mr Walsh deposed that, if the meetings of creditors were to be convened on 31 October 2018 and held shortly thereafter, it would be likely that he would recommend that the companies be placed in liquidation.
THE APPLICATION TO EXTEND THE CONVENING PERIODS
The plaintiffs sought the extension of the convening periods to provide the Delta Receivers with the opportunity to negotiate a sale of LakeCoal’s and Fassi Coal’s business and assets, and to allow them (the plaintiffs), as administrators, the opportunity to provide a suitable report to the creditors in advance of the second meetings.
In this connection, on 24 October 2018, the Delta Receivers wrote to the plaintiffs asking them to consider making the extension application. In their letter, they outlined their intention to undertake a marketing campaign for the sale of LakeCoal’s and Fassi Coal’s business and assets as a going concern. They explained that keeping the companies in administration would allow them the greatest degree of flexibility in structuring a sale, particularly if the sale could be effected by a DOCA. They explained that maintaining flexibility in this way would maximise the opportunity to obtain the highest price possible, which would be of benefit to the secured creditors and might be of benefit to the unsecured creditors. They also referred to the advantages of maintaining the statutory moratorium provided by s 440B of the Act until the marketing campaign and sale process were concluded.
In his affidavit, Mr Taylor affirmed the Delta Receivers’ request in the 24 October 2018 letter to the plaintiffs. He explained the Delta Receiver’s strategy in greater detail. He said that, in the Delta Receivers’ view, the sale of the business and assets, the recapitalisation of the two companies and/or the restructuring of their debt, whilst the business remains a going concern, would maximise the return to Delta Electricity and other creditors. It would also provide an opportunity for suppliers and contractors to continue to do business with the mine, provide the best prospects of continuing employment for employees of the mine (who could be migrated to a new employer with the advantage that claims against LakeCoal and Fassi Coal for employee entitlements might be minimised), and provide preferable GST treatment upon the sale of certain assets.
Mr Taylor explained the marketing and sale process that would be required and expressed the opinion that this process would likely take some four months to undertake and conclude.
Mr Taylor also stressed the importance of maintaining the flexibility that a DOCA might provide to achieve these ends, which might also result in certain cost savings and lead to higher bids from potential purchasers.
Mr Taylor considered the counterfactual of LakeCoal and Fassi Coal (whom he called the Obligors) being placed in liquidation now:
20.If the Obligors are placed in liquidation this may impact on supplier and customer contracts, customer retention and employee retention, potentially reducing the return to creditors. The supplier contracts to which the Obligors are a party typically contain a right for the supplier to terminate the contract upon the Obligors entering into liquidation. Similarly, each of the coal supply agreements between the Obligors and Delta Electricity gives Delta Electricity the right to terminate upon the Obligors entering into liquidation.
21.If a liquidator is appointed before final bids are received and a DOCA involving an acquisition of shares is the preferred bid, a liquidator might consider it appropriate to appoint administrators to the Obligors at that stage. However, this would mean that the voluntary administration process would need to be re-commenced and the first and second creditors meetings held again. Such a course would involve additional professional fees which would not be incurred if the Obligors remain in administration while the sale process proceeds. Such a course would also involve additional delay while the first and second creditors meetings took place which may risk delaying completion of the sale transaction. It would also invite the risks involved in a liquidation set out above, noting that the liquidation process would crystallise all employee entitlements and make their employment status with the Companies inherently uncertain.
At this stage it is convenient to record that, also on 24 October 2018, the Centennial Group wrote to the Delta Receivers. In its letter, the Centennial Group said that events of default had occurred under the Mining Cooperation Deed, entitling the Centennial Group to terminate it and the subleases. The Centennial Group claimed, in addition, that rent of $618,456.94 was unpaid under the Mining Cooperation Deed and that LakeCoal and Fassi Coal were required to deliver a security bond to the New South Wales Department of Planning and Environment of $3,035,000.
The letter also referred to an interim arrangement in respect of the Mining Cooperation Deed that had been proposed by the Delta Receivers on 23 October 2018. The details of the proposal are not in evidence and, at the time of the hearing, were not known by the plaintiffs.
On 25 October 2018, the plaintiffs’ solicitors wrote to the Centennial Group notifying them of the application to extend the convening periods and requesting the Centennial Group’s attitude to the application. On 26 October 2018, the Centennial Group’s solicitors responded stating that the Group would not oppose a shorter extension of the convening periods for one month to enable satisfactory arrangements to be reached with the Delta Receivers. It is clear from the letter that, at that time, the Centennial Group did not support a longer extension. However, the Centennial Group did not appear at the hearing of the application to express any, or any continuing, opposition.
I also note that, in his affidavit, Mr Taylor deposed that the Delta Receivers are paying all trade creditors, employee creditors and lease creditors for whom they are liable in the normal course of business during the receivership and that it is the Delta Receivers’ intention to continue to do so.
Mr Taylor also said that, if the Centennial Group were to terminate the Mining Cooperation Deed or the subleases, LakeCoal and Fassi Coal would be obliged to cease mining operations immediately because all their current operations are conducted within the sublease area. The mine would then remain in shutdown unless and until, amongst other things:
(a)detailed scoping and analysis are undertaken to identify a suitable area to recommence mining in an area that does not include the area of the subleases;
(b)funding is secured to support mining operations in the new area;
(c)plant and equipment currently used in the subleased area is relocated to the new area; and
(d)contracts are entered into with third parties as required to facilitate mining operations in the new area.
Mr Taylor said that, while he could not presently quantify the likely cost and delay which would be occasioned by the above steps, they were likely to be substantial. In fact, he considered it to be likely that, if operations ceased, the mine would remain in permanent shutdown until such time the sale process is completed.
Mr Taylor expressed the opinion that any attempt by the Centennial Group to repossess the sublease areas would significantly impact on the Delta Receivers’ ability to continue to trade the business and obtain the best possible return to creditors. He argued, therefore, that the Delta Receivers’ objective for an orderly sale on a going concern basis would be supported by an extension of the administrations, which would then provide the advantage of the moratoriums imposed by s 440B of the Act.
Relatedly, Mr Taylor said that LakeCoal and Fassi Coal continue to lease plant and equipment at a cost of approximately $190,000 per week. This plant and equipment is used in the day-to-day operation of the mine. Termination of some or all of the agreements, or withdrawal of access to and use of the plant and equipment, would likely impact on those operations. If that happened, replacement plant and equipment would need to be sourced. This could cause delays, or a temporary or even permanent shutdown of the mine, until replacement plant and equipment is located, delivered and installed. Mr Taylor argued that this is another reason why an extension of the administrations would support the Delta Receivers’ objective.
It is evident from the foregoing that the Delta Receivers supported the extension application. The Bucairn Receivers also supported the application, for much the same reasons.
The same view was expressed by Mr Walsh on behalf of the plaintiffs. He said:
33.An extension to the convening period as sought will enhance the possibility of the business being sold as a going concern, provide the Receivers with the opportunity to undertake a thorough sale campaign for the coal mine and will preserve the ability to structure by way of DOCA, all of which will tend to maximise the likely return to the Companies’ creditors.
34.The extension would also provide us with an opportunity to conduct further investigations into the Companies and to comprehensively report to creditors about:
(a)the results of those investigations, as and when such information becomes available;
(b)the books and records of the Obligors, of which upon their appointment the Receivers took possession, and which they have undertaken to make available to us. Our inspection of the books and records may disclose transactions which we will be required to investigate in order to be able to make meaningful recommendations to creditors prior to the second meetings of creditors;
(c)the status, financial circumstances and solvency position of each of the Companies, including the debts claimed by secured creditors, prior to assessing the prospect of any return to unsecured creditors; and
(d)whether any DOCA proposal ultimately submitted by the Receivers will result in a better return to unsecured creditors than a liquidation.
Mr Walsh also expressed his belief that it was in the best interests of creditors that the convening periods be extended until 28 February 2019 as this would serve to maximise, so far as possible, the prospects of the mine continuing in existence as well as the return to creditors under the sale proposed by the Delta Receivers.
THE PLAINTIFFS’ SUBMISSIONS
The plaintiffs submitted that the convening periods should be extended until 28 February 2019 for the following reasons.
First, absent such an extension, it is likely that the companies would be placed in liquidation, with nil return to unsecured creditors.
Secondly, the maximum return to creditors would most likely be achieved by providing the Delta Receivers with the opportunity to conduct a thorough marketing and sale process which preserves their ability to use a DOCA as part of any resulting transaction.
Thirdly, the application has the support of the Delta Receivers and the Bucairn Receivers who, between them, represent the interests of the overwhelming majority of secured debt proved in the administrations.
Fourthly, although the Centennial Group has not supported an extension until 28 February 2019, and has reserved its rights in respect of the Mining Cooperation Deed and subleases, it has not indicated its present intention or desire to exercise these rights. Further, the delay (if any) of the Centennial Group’s ability to enforce its rights under the Mining Cooperation Deed and the subleases occasioned by an extension until 28 February 2019, must be considered in the context that:
(a)the termination of the subleases would be likely to have a “catastrophic effect” on the mining operations leading to great cost and delay, which would also be likely to have a “vastly depressing” effect on the sale process that is envisaged;
(b)it is in the interests of creditors as a whole that this does not occur so that the maximum return from the sale of the business and assets can be achieved; and
(c)it would appear to be in the interests of the Centennial Group for the mine to be sold as a going concern without the need for the reconfiguration referred to in Mr Taylor’s evidence.
Fifthly, a shorter extension of one month (as suggested by the Centennial Group) would not permit sufficient time for the marketing and sale process to be undertaken and would only invite the risk of wasted costs and a corresponding diminution in the return to creditors.
CONSIDERATION
The principles that apply in an application to extend the convening period for the second meeting of creditors have been discussed in a number of cases. They do not require elaboration in these reasons.
It is accepted that the Court must strike a balance between, on the one hand, the expectation that an administration will be conducted in a relatively speedy and summary manner and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions towards maximising the return for creditors and any return for shareholders: Re Diamond Press Pty Ltd [2001] NSWSC 313 at [10]. In this connection, it is to be remembered that an object of an administration under Pt 5.3A of the Act is to provide for the business, property and affairs of an insolvent company to be administered in a way that results in a better return for the company’s creditors and members than would result from an immediate winding up: s 435A. One of the factors to be taken into account is the time needed to execute an orderly process for the disposal of assets, including the sale of a business as a going concern: Re Riviera Group Pty Ltd (2009) 72 ACSR 352 (Riviera) at [13]. In Riviera, Austin J observed (at [18]) that where an administration has aspects of complexity, there is no place for a predisposition against extension. However, the applicant for an extension must adduce evidence establishing grounds that are adequate to enable the Court to carry out the balancing exercise that is required.
I am satisfied that such evidence has been adduced in the present case. I also accept the substance of the plaintiffs’ submissions. The evidence points persuasively to the need not only for an extension of the convening periods, but an extension up to 28 February 2019 to enable the marketing and sale process envisaged by the Delta Receivers to be implemented and completed.
In coming to this conclusion, I have taken into account the strong support provided by the Delta Receivers and the Bucairn Receivers. I have also taken into account the apparent lack of support from the Centennial Group. Whilst an extension of the convening periods will prolong the administrations and the consequent impact of the moratorium provided under s 440B of the Act, I cannot see why the Centennial Group’s interests overall are not coincident with the interests of all creditors in seeking the best possible outcome from the unfortunate state in which the companies find themselves. Even though the Centennial Group has reserved its rights, it has not indicated that it wishes to exercise those rights at the present time. Further, it has not appeared to oppose the extensions being granted.
Whilst LDO Coal is not part of the Delta Receivers’ proposals, there is little point in treating that company differently from the other companies so far as the present application is concerned. To do so would only increase costs. It may not be possible in any event for the plaintiffs to make a recommendation to creditors in respect of LDO Coal without knowing what they might finally recommend in respect of LakeCoal.
CONCLUSION AND DISPOSITION
The orders sought should be made with the usual reservation that any creditor or person having a sufficient interest can move the Court, on notice, to vary or discharge them.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 29 October 2018
SCHEDULE OF PARTIES
NSD 1979 of 2018 Plaintiffs
FASSI COAL PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 147 642 386
LDO COAL PTY LTD (ADMINISTRATORS APPOINTED) ACN 140 669 932
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