Wight, in the matter of Responsible Entity Services Ltd (Administrators Appointed)
[2024] FCA 458
•1 May 2024
FEDERAL COURT OF AUSTRALIA
Wight, in the matter of Responsible Entity Services Ltd (Administrators Appointed) [2024] FCA 458
File number(s): VID 341 of 2024 Judgment of: BUTTON J Date of judgment: 1 May 2024 Date of publication of reasons: 2 May 2024 Catchwords: CORPORATIONS – application to extend convening period – where administrations complex and time necessary for administrators to conduct further investigations and sale process, and to make an informed recommendation about the future of the company – application allowed Legislation: Corporations Act 2001 (Cth) s 439A, Pt 5.3A
Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG
Cases cited: In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002
In the matter of Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352; [2009] NSWSC 585
Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862
Mighty River International Limited v Hughes (2018) 265 CLR 480; [2018] HCA 38
Re ABC Learning Centres (No 8) (2009) 73 ACSR 478; [2009] FCA 994
Re Diamond Press Australia Pty Limited [2001] NSWSC 313
Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) (2020) 144 ACSR 347; [2020] FCA 717
Woodhouse (Administrator), in the matter of Panoramic Resources Limited [2024] FCA 22
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 47 Date of hearing: 1 May 2024 Counsel for the Plaintiffs: B Slocum Solicitor for the Plaintiffs: Gilbert + Tobin ORDERS
VID 341 of 2024 IN THE MATTER OF RESPONSIBLE ENTITY SERVICES LTD (ADMINISTRATORS APPOINTED) (ACN 116 489 420)
BARRY WIGHT AND RACHEL ELIZABETH BURDETT IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF THE SECOND PLAINTIFF
First Plaintiff
RESPONSIBLE ENTITY SERVICES LTD (ADMINISTRATORS APPOINTED) (ACN 116 489 420)
Second Plaintiff
ORDER MADE BY:
BUTTON J
DATE OF ORDER:
1 MAY 2024
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth) (the Act), the period within which the First Plaintiffs must convene the second meeting of creditors of the Second Plaintiff under s 439A of the Act (Second Meeting) be extended to 11:59pm AEST on 5 August 2024.
2.Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Second Plaintiff so that, notwithstanding s 439A(2) of the Act, the Second Meeting may be convened and held at any time during the period up to, or within 5 business days after the end of, the convening period as extended by paragraph 1 above, provided that the First Plaintiffs give notice of the Second Meeting in accordance with r 75-225(1) and r 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR).
3.By 11:59pm on Friday, 3 May 2024, the First Plaintiffs shall give notice of this order to the creditors of the Second Plaintiff (including persons claiming to be creditors), investors in the RES Investment Fund (ARSN 120 933 093) and unit holders of the PPM Investment Trust (investors), by means of a circular:
(a)to be published on the website maintained by the First Plaintiffs in respect of the administration of the Second Plaintiff; and
(b)to be sent by email or by post to all known creditors and investors.
4.If the First Plaintiffs send a circular to any creditor or investor pursuant to paragraph 3 above by email, and receive a notification that such email was not successfully delivered, the First Plaintiffs shall use reasonable endeavours to identify a postal address for the recipient in the books and records of the Second Plaintiff, and shall forthwith send a copy of the circular by post to that address.
5.Pursuant to s 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Act) (IPSC), Pt 5.3A of the Act is to operate in relation to the Second Plaintiff such that if, pursuant to any provision in any of Pt 5.3A of the Act, the IPSC or the IPR, the First Plaintiffs are required to provide any other notification to creditors during the voluntary administration of the Second Plaintiff, such notice will be validly given to creditors of the Second Plaintiff:
(a)by giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Second Plaintiff for whom or which the First Plaintiffs hold an email address;
(b)if the First Plaintiffs provide notice pursuant to paragraph 5(a) above by email to any creditor and receive a notification that such email was not successfully delivered, then by using reasonable endeavours to identify a postal address for the recipient and sending the notice by post to that address;
(c)by sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the IPR, to any creditors not being a creditor referred to in sub-paragraph 5(a) above; and/or
(d)to the extent that the matter relates to a meeting that is the subject of r 75- 40(4) of the IPR, causing such notice to be published on the Insolvency Notices website located at: further order of the Court, pursuant to s 37AF and s 37AG 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, publication of those parts of the First Plaintiffs’ submissions dated 30 April 2024 (Submissions) and the affidavits sworn by Rachel Elizabeth Burdett on 29 April 2024 (First Affidavit) and 30 April 2024 (Second Affidavit) respectively (including their confidential annexures “REB-2” and “REB-4”) which relate to the proposed restructure of Pleasure Point Mine Pty Ltd and/or the potential restructure of the Second Plaintiff and/or the sale of the Second Plaintiff’s assets, more particularly described as:
(a)the figures in paragraphs 18(a)–(c), paragraphs 48(a)–(c) and 50(a)–(g), the final six words in the first sentence of paragraph 52, the figure in paragraph 82(a), and paragraph 82(d) of the First Affidavit, together with the annexure bundle marked “REB-2”;
(b)the final eight words of the first sentence, and sub-paragraphs (a)–(e) of paragraph 12, together with the annexure bundle marked “REB-4”; and
(c)paragraph:
(i)14 of the Submissions from the words “and intends to” on line 8 until footnote 22 and from the words “The return” on line 13 until the word “below)”; and
(ii)16 of the Submissions from the word “raising” on the third line until the end of the paragraph,
be suppressed.
7.Pursuant to r 2.32(1) of the Federal Court Rules 2011 (Cth), 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 First Plaintiffs or the Second Plaintiff and a further order of this Court:
(a)the unredacted First Affidavit, together with confidential annexure bundle marked “REB-2”;
(b)the unredacted Second Affidavit, together with confidential annexure bundle marked “REB-4”; and c. the unredacted Submissions.
8.Liberty to apply.
9.Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify these orders on the giving of three business days’ written notice to the Plaintiffs and the Court.
10.The First Plaintiffs’ costs of or incidental to this application be costs in the administration of the Second Plaintiff.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(REVISED FROM TRANSCRIPT)BUTTON J:
NATURE OF APPLICATION
This is an application brought by first plaintiffs (the Administrators) as administrators of Responsible Entity Services Pty Ltd (the Company). They seek orders extending the convening period of the second meeting of creditors of the Company by approximately three months. Absent an extension, the second meeting would need to be held by 10 May 2024.
The Administrators also seek ancillary orders regarding notification of creditors and confidentiality orders over certain information in supporting affidavits and submissions.
The Administrators read two affidavits in support:
(a)an affidavit of Rachel Elizabeth Burdett, dated 29 April 2024; and
(b)a further affidavit of Rachel Elizabeth Burdett, dated 30 April 2024.
Those affidavits set out, in great detail, the complicated and (in some respects) confused operations and documentary record with which the Administrators are dealing, the work done to date, and investigations that remain to be completed.
As summarised in the Administrators’ submissions, the primary purpose of the application is to permit sufficient time to:
(a)finalise a sale process of the Company’s assets;
(b)investigate the affairs of the Company including its potential breaches of its Australian Financial Services Licence (AFSL), potential misuse of funds and various transactions;
(c)investigate the precise capacity in which the Company holds assets of various trusts and funds;
(d)investigate the extent to which the Company’s liabilities are liabilities incurred in its personal capacity, its capacity as trustee or as Responsible Entity (RE) of those trusts and funds; and
(e)investigate the impact on the Company, its creditors and other stakeholders (including investors and unit holders in the relevant trusts and funds) of a potential restructure of a third party which is both a debtor to the Company (in both its personal capacity, and as RE of one fund) and whose shares also form part of the assets of a trust of which the Company is trustee.
BACKGROUND
Given the breadth and detail of the factual matters detailed in the two affidavits, principally in the first affidavit, it is not necessary to set out those matters at length in what is a strong, and straightforward, application for an extension.
Accordingly, I will summarise the relevant matters in outline.
The Company holds an AFSL and operates as a professional RE, trustee and manager of retail investment schemes.
The Company employs no staff and occupies no business premises. It has a consultancy arrangement with one individual.
The Company is the RE for two funds: the “RES Fund” (ARSN 127 384 767) and the “RES Investment Fund” (ARSN 120 933 093). The Administrators currently understand the RES Fund to be dormant. The RES Investment Fund comprises four “RES Sub Funds”, being the:
(a)Pleasure Point Mine Fund (PPM Sub Fund);
(b)Classic Offer Investment Fund (COI Fund);
(c)Plazrok Fund; and
(d)PE Capital Fund.
It is the PPM Sub Fund and the COI Fund that have been detailed in more depth in Ms Burdett’s first affidavit, and which are primarily relevant to this application.
Pleasure Point Mine
The purpose of the PPM Sub Fund was to lend money to assist in the establishment and operation of a sandstone quarry known as the “Pleasure Point Mine” in Queensland, which I understand from the evidence is not yet operational. The current balance of the loans from the PPM Sub Fund to Pleasure Point Mine Pty Ltd (PPM) is approximately $26 million. Those loans are secured by a first ranking registered mortgage over the PPM mine site and an All Present and After Acquired Property (AllPAP) security over the assets of PPM.
PPM has failed to make a repayment on the loans from the PPM Sub Fund since at least June 2023.
PPM is undergoing a restructure and has an agreement with a third party, through which profit scenarios (modelling the return on the sale of the site) have been developed. PPM’s agreement with the third party may result in the sale of the site.
There are some complicating factors with which the Administrators must grapple.
In addition to its position as secured creditor of PPM (in its capacity as RE and/or trustee and manager of the RES Investment Fund), the Company also owns at least 15% of the shares in PPM (in its capacity as trustee of the “PPM Investor Trust”) and is party to a “PPM Management Agreement” with PPM (in its personal capacity and/or in its capacity as RE of the RES Investment Fund). There are sums owing under the PPM Management Agreement.
The Administrators are concerned that the interests of the investors in the PPM Sub Fund are, or may be, in conflict with the interests of the investors in the PPM Investor Trust and the Company’s creditors. The Administrators may need to obtain legal advice and/or judicial directions in respect of this matter.
There is also a lack of clarity in the records in relation to income from the PPM Management Agreement. On the face of the PPM Management Agreement, the Company appears to have entered that agreement as RE for the RES Investment Fund, but the books and records of the Company record income from the PPM Management Agreement as personal income.
COI Fund
The COI Fund has been detailed in the evidence for completeness, not because issues arise that necessitate the extension of the convening period. That said, I will note that the Company (as RE of the RES Investment Fund and on behalf of the COI Fund) entered into a “Freedom Financial Loan Agreement” with Freedom Financial Services Pty Ltd (Freedom Financial) in September 2012. That loan is secured by a guarantee granted in favour of the Company as RE of the RES Investment Fund, for the benefit of the COI Fund. The Company also appears to have been providing management services to Freedom Financial in its capacity as RE of the RES Investment Fund. The balance of the Freedom Financial loan account is subject to further investigations by the Administrators, but appears to be in the order of about $1.76 million.
Investor claims
The Administrators are also aware of claims that have been ventilated by investors in the RES Sub Funds against the Company. Those claims include claims for the return of capital and claims for misleading and deceptive conduct in relation to Product Disclosure Statements issued in relation to the RES Investment Fund and/or the RES Sub Funds.
The Company is party to an insurance policy which may respond to investors’ claims. The investor claims and the ambit of the insurance policy are still the subject of inquiry by the Administrators.
Assets and liabilities
At the date of the Administrators’ appointment, the Company’s assets comprised:
(a)cash at hand of $153,769.35;
(b)the AFSL (with an estimated value of $275,000);
(c)debtors with a book value of $1,096,741.62 (including the outstanding amounts owing under the PPM Management Agreement — which may have been earned in the Company’s personal capacity); and
(d)the Company’s shareholdings and any rights of indemnity out of the assets of the RES Investment Fund and/or Sub Funds and/or the PPM Investment Trust for debts which the Company incurred in its capacity as RE of the RES Investment Fund and/or Sub Funds and/or as trustee of the PPM Investment Trust.
The Company’s known liabilities include $264,476.57 owed to ordinary unsecured creditors and $133,880 in claims by consultants and officers and former employees of the Company’s ultimate holding company, Responsible Entity Services Australia Pty Ltd, which are contingent on payment of the outstanding fees under the PPM Management Agreement and the PPM restructure.
SALE PROCESS
The Administrators are engaged in a sale process in relation to the Company’s assets, which process is of central importance to this application.
The Administrators have conducted an expressions of interest (EOI) campaign in relation to the Company’s RE business, intellectual property and goodwill, and the Company’s other assets, through a Deed of Company Arrangement (DOCA), or asset sale.
The sale process commenced with an EOI advertisement (to which 19 parties responded) and resulted in a confidential “Information Memorandum” being provided to 14 interested parties who signed a non-disclosure deed.
Seven parties have sought access to a virtual data room and eight parties submitted a non-binding indicative offer or requested further information or further time to conduct due diligence.
While the date for submission of final binding offers was 26 April 2024, the Administrators are of the view, based on their interactions with potential bidders, that more time is needed in order to maximise the prospects of the sale process. If granted the extension they seek, the Administrators would extend the due date for final binding offers.
The Administrators consider a further 21 business days from 26 April 2024 is necessary to allow parties who may be interested in acquiring some or all of the assets to complete their due diligence and submit any final binding offers. They consider that a further 15 to 21 business day period will also be required for the negotiation of formal terms and completion of relevant transactions, in addition to any necessary regulatory approvals.
There are a number of key areas for further investigation that were detailed in the affidavits and summarised in the Administrators’ written submissions as follows, exposing the need for further time:
The key areas for further investigation before the Administrators inform creditors (and investors, as contingent creditors) of their opinion as to the Company’s future include:
(a) the precise identification of the Company Assets;
(b) the precise identification of the:
(i) unit holdings; and
(ii) assets;
of the PPM Investor Trust (including the total PPM shareholding) and RES Investment Fund (including each RES Sub Fund);
(c) Company liabilities (including claims against the Company for damages and equitable compensation) and the extent (if any) to which the Company’s liabilities (or some of them) may be:
(i) satisfied out of its contractual and/or equitable rights of indemnity from the assets of the PPM Investor Trust and RES Investment Fund, in priority to the return of capital to investors of those funds;
(ii) the subject of the Company’s insurance policy; and/or
(iii) the subject of claims against the Company’s directors and other third parties;
(d) the identity, and the assessment of, the respective rights and/or interests, of:
(i) the Company’s creditors;
(ii) the PPM Unit Holders; and
(iii)the members of the RES Investment Fund (and each RES Sub Fund);
in relation to:
(iv) the PPM Restructure; and
(v) the Company’s rights under the Mortgage and other security interests over PPM’s assets;
in light of the Company’s ongoing duties to both creditors and investors.
The Administrators have noted that they may need to obtain legal advice and/or judicial directions in relation to matters arising from the sale process, and the potential conflict between the interests of various stakeholders already noted.
PRINCIPLES
The principles applicable to applications such as this are well established: see, eg, Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) (2020) 144 ACSR 347; [2020] FCA 717 at [64]–[68] (Middleton J).
As the Administrators submitted:
When considering an application to extend the convening period, the Court must have regard to the objects of Part 5.3A, set out in s 435A of the Act, namely, providing for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
The Court must reach an appropriate balance between the expectation that an administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible and constructive options directed towards maximising the returns for creditors and any return for shareholders.
In relation to the appropriate balance between expedition and the need to ensure that options that may maximise returns for creditors are properly considered, the Administrators cited Re Diamond Press Australia Pty Limited [2001] NSWSC 313 at [10] (Barrett J) and In the matter of Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352; [2009] NSWSC 585 at [15]–[16] (Austin J).
On the authorities, the relevant factors include:
(a)whether there are prospects of a better return, which may outweigh the expectation and desirability of prompt resolution so that creditors can be fully informed and vote as soon as possible;
(b)detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors and others;
(c)importantly, whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a DOCA, for the administration to end, or for the company to be wound-up; and
(d)whether creditors consent to the extension.
It is also clear from the authorities that the Court should not allow longer than is required for the diligent exercise of the powers of the administrator. That said, extensions tend to be granted for the periods sought by administrators, provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has a reasonable basis.
In Mighty River International Limited v Hughes (2018) 265 CLR 480; [2018] HCA 38 at [73] Nettle and Gordon JJ (who were in dissent in the result, but not relevantly in this respect) observed:
Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator’s estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators.
The authorities also demonstrate that, on applications such as the present, the views of administrators are regarded as “significant” and, particularly where the administration is complex, should “carry weight”: Woodhouse (Administrator), in the matter of Panoramic Resources Limited [2024] FCA 22 at [18] (Banks-Smith J) citing In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 at [9] (Black J). Moreover, courts are generally willing to tailor the timeframe in Pt 5.3A to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Pt 5.3A: Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 at [21] (Moshinsky J) citing Re ABC Learning Centres (No 8) (2009) 73 ACSR 478; [2009] FCA 994 at [52] (Emmett J).
DISPOSITION
The factual material before me comfortably establishes that it is appropriate to grant the extension sought by the Administrators. The administration is complex and the matters referred to above capture only the principal matters the Administrators are dealing with.
I am satisfied that the Administrators have acted diligently and that the additional time is not a function of any dilatory conduct on their part. Rather, the additional time is necessary in order for the:
(a)Administrators to conduct further investigations to assess the rights and obligations of the Company and stakeholders in relation to assets held by the Company (in its various capacities);
(b)sale process to be continued, and to be continued in a commercially advantageous manner;
(c)Administrators to assess the Company’s rights under the PPM loan agreements and security documents and to form a view as to the preferred course in relation to the enforcement of the security interests or, alternatively, the benefits presented by the restructure of PPM; and
(d)Administrators to assess the recoverability of the Outstanding PPM management fees, having regard to matters including the PPM restructure.
All told, the Administrators need the extension in order for these investigations to be pursued and the sale process to be completed so that they can make an informed recommendation to creditors about the future of the Company.
Creditors and investors were informed of the application but none has come forward to oppose the extension. ASIC was also notified of the application, but has not raised any concerns. In relation to creditors, I also note that the Administrator raised establishing a Committee of Inspection with creditors at the first meeting, but there was insufficient interest for such a committee to be established.
On the material, I am also satisfied that the extension will not cause any significant prejudice to interested parties, beyond the mere fact of delay. The Company has no employees, and the consultant mentioned will continue to be retained. There are no leased premises.
I am also satisfied that it is appropriate to make orders under s 37AF of the Federal Court of Australia Act 1976 (Cth) in respect of a limited number of paragraphs of the affidavits, and exhibits REB-2 and REB-4, as well as certain paragraphs of the submissions.
The matters in those paragraphs and exhibits relate to the proposed restructure of PPM and the potential sale or restructure of the Company. Ms Burdett’s first affidavit explains why disclosure of this commercially sensitive information may adversely impact the preservation of value in the business and jeopardise the sale process.
I am therefore satisfied that it is necessary in the interest of justice (pursuant to s 37AG(1)(a)) that the suppression orders be made. I discussed with counsel reframing the proposed orders so that s 37AF orders are made in respect of identified paragraphs and exhibits accompanied by an order under r 2.32(1) providing that the unredacted form of the documents on the court file are to be marked as confidential.
Accordingly, orders will be made in substantially the form proposed, with adjustments as discussed with counsel at the hearing.
I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button. Associate:
Dated: 2 May 2024
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