FEDERAL COURT OF AUSTRALIA AE&E Australia Pty Limited (Administrators Appointed), in the matter of AE&E Australia Pty Limited (Administrators Appointed) (No 2) [2011] FCA 314 Citation: AE&E Australia Pty Limited (Administrators Appointed), in the matter of AE&E Australia Pty Limited (Administrators Appointed) (No 2) [2011] FCA 314 Parties: AE&E AUSTRALIA PTY LIMITED (ADMINISTRATORS APPOINTED) File number: NSD 1750 of 2010 Judge: EMMETT J Date of judgment: 18 February 2011 Legislation: Corporations Act 2001 (Cth) s 439A Cases cited: AE&E Australia Pty Limited (Administrators Appointed), in the matter of AE&E Australia Pty Limited (Administrators Appointed) [2010] FCA 1494 referred to Date of hearing: 18 February 2011 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 18 Counsel for the Plaintiff: Mr S Golledge Solicitor for the Plaintiff: Colin Biggers & Paisley IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1750 of 2010 IN THE MATTER OF AE&E AUSTRALIA PTY LIMITED (ADMINISTRATORS APPOINTED) AE&E AUSTRALIA PTY LIMITED (ADMINISTRATORS APPOINTED) Plaintiff JUDGE: EMMETT J DATE OF ORDER: 18 FEBRUARY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act) the period during which the plaintiffs are to convene the second meeting of creditors in the voluntary administration of AE&E Australia Pty Limited (Administrators Appointed) (the Company) be extended so that it ends on 15 April 2011. 2. Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate in relation to the Company so that the plaintiffs may convene the second meeting to be held at any time during or within 5 business days of the end of the convening period as extended by order 1 above. 3. Leave be reserved to any person claiming to be interested, including any creditor of the Company, to make any application as they may be advised to vary these orders upon 49 hours' notice to the plaintiffs. 4. The plaintiffs notify the creditors of the Company and the Australian Securities & Investments Commission of these orders by circular notice to be issued within 48 hours. 5. These orders may be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1750 of 2010 IN THE MATTER OF AE&E AUSTRALIA PTY LIMITED (ADMINISTRATORS APPOINTED) AE&E AUSTRALIA PTY LIMITED (ADMINISTRATORS APPOINTED) Plaintiff JUDGE: EMMETT J DATE: 18 FEBRUARY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 17 December 2010, the Court, for reasons that I gave on that day, extended the period during which the plaintiffs (the Administrators) were to convene the second meeting of creditors in the voluntary administration of AE&E Australia Pty Limited (the Company): see AE&E Australia Pty Limited (Administrators Appointed), in the matter of AE&E Australia Pty Limited (Administrators Appointed) [2010] FCA 1494. I indicated that I was reluctant to extend the convening period to 31 March 2011, as was sought, but that the Court might conceivably be persuaded to extend the convening time further after some progress had been reached in the administration. The Administrators now apply for a further extension of the convening period to 15 April 2011, pursuant to s 439A(6) of the Corporations Act 2001 (Cth). 2 Before dealing with the extension, it is desirable to say something about the progress of the administration. The Administrators have entered into negotiations with WR Carpenter (No 1) Pty Limited (Carpenter) for the transfer of the Worsley Project to a third party, and agreement in principle has been reached with a third party for the transfer of the Worsley Project. The bankers funding Carpenter have approved an appropriate entity for the transfer. The identity of that entity is presently confidential. 3 The Administrators are confident that, if the transfer takes place, some 160 employees of the Company and over 240 subcontractors engaged in the Worsley Project will be transferred. The total employee entitlements, as at 25 November 2010, totalled some $11.8 million. The Worsley Project employees are owed something over $3,180,000. As part of the transfer process, Carpenter has made payments, including pre-appointment payments, to unsecured creditors, of nearly $15 million. The amounts billed by and owed to suppliers of the Worsley Project, as at 25 November 2010, total some $40.5 million. 4 Carpenter has indicated that, upon the successful transfer of the Worsley Project, it will meet all accepted pre-appointment claims, although there are some three claims that are disputed. There are also open purchase orders where works have not yet been billed or completed, totalling some $94 million. The Administrators are concerned that, if work ceases on the Worsley Project, the open orders will become creditor claims in the Company's liquidation, as opposed to the possibility of the claims being paid as part of the transfer of the Worsley Project. 5 So long as the Administrators remain as voluntary administrators, they are personally liable for the work being undertaken on the Worsley Project. Despite an indemnity from Carpenter, their potential personal liability encourages creditors to continue to trade with the Company. That arrangement would cease if the Company were placed in liquidation. 6 The Administrators' negotiations on behalf of the company with Carpenter and subcontractors and suppliers have been undertaken on the basis that the Administrators will remain in their present capacity. The Administrators are not certain that the cooperative attitude of those parties would continue if they became liquidators of the Company. 7 If the Worsley Project is transferred, approximately one third of the current potential liability for employee entitlements would be paid to the new employer, significantly reducing the priority liabilities of the Company to employees. Those entitlements amount to approximately $3,180,000. 8 Apart from the Worsley Project, the Company retains 15 employees at its North Ryde premises to ensure that the day-to-day operations of the Company are run efficiently and to assist the Administrators in their investigations and sale of assets. The Administrators expect that there will be a shortfall between General Employee Entitlements and Redundancy Scheme (GEERS) payment and employee entitlement claims of some of the non-Worsley Project employees, who would, in liquidation, receive some $5.1 million from GEERS with a shortfall of about $3.6 million on employee claims. 9 The administrators wrote to the Minister for Tertiary Education, Skills, Jobs and Workplace Relations, requesting that any claims submitted by further employees under GEERS be verified and distributed while the company is in administration. While no response has been received, the Administrators understand, from informal discussions, that GEERS will not process claims by former employees unless the Company is in liquidation. If the Company were placed in liquidation, arrangements would be put in place well in advance of the relevant time for all documents necessary for lodgement of GEERS claims, to ensure that the employee entitlements are determined as quickly as possible. 10 The Company's project with Sino Iron, to which I referred in my earlier reasons, relates to the construction of power plant in the Pilbara region of Western Australia. The Company has carried out works and submitted project claims. On 21 December 2010, a determination was made In Western Australia involving an adjudication of an amount of some A$37 million plus US$940,000. That determination represents only part of the claims that the Company has against Sino Iron. The Administrators have entered into negotiations with Sino Iron for the purposes of obtaining a streamlined arbitration of all claims that the Company has against Sino Iron. 11 Correspondence between the Administrators and Sino Iron suggests that Sino Iron may engage in protracted and expensive litigation disputing the Company's claim. In that context, the Administrators have explored with the European Banking Syndicate the possibility of a deed of company arrangement whereby, inter alia, all employee entitlements that would otherwise be paid under GEERS would be paid as soon as available funds allow. A deed of company arrangement would provide for the balance of employee entitlements to be paid out of funds as they came, so that employees would get more than they would under liquidation. 12 The European Banking Syndicate would fund litigation with Sino Iron and, if that were successful, the European Banking Syndicate would claim the benefit of the fruits of any verdict or settlement. The balance of any funds realised from the recoveries, or from the sale of the Company's remaining intellectual property, would be available for the other unsecured creditors, so that there would be a fund under a deed of company arrangement. 13 If the Company goes into liquidation, it is uncertain as to whether or not it would be in the interests of creditors for the liquidators to fund litigation with Sino Iron. If potential litigation with Sino Iron were funded from moneys received by the liquidators in the liquidation, that would have the effect of delaying the payment of employee entitlements. It may also mean that, if the litigation were unsuccessful, the employees would be unlikely to recover the shortfall between GEERS payments and their actual entitlements. 14 At the first meeting of creditors, the Company's European Banking Syndicate submitted a proof of debt for in excess of €700 million, which was claimed to be owed by the Company under a syndicated revolving guarantee facility. The Administrators understand that the debt claimed by the European Banking Syndicate should be reduced by approximately €400 million to take account of banking guarantees that have been reclaimed or for which other agreements have been entered into. The Administrators believe that the syndicate will not be admitted as a creditor for an amount in excess of €300 million. 15 The European Banking Syndicate includes some 15 banking institutions. The Administrators expect that some time may be required to consider the possibility of a deed of company arrangement, particularly in circumstances where they would need to determine, as far as possible, the prospect of successful litigation with Sino Iron. The Administrators have formed the view that, having regard to the difficulties encountered by Carpenter in the transfer of the Worsley Project, it would be in the interests of creditors for the convening period to be extended for a further seven weeks, to 15 April 2011. During that period, the Administrators also expect that the European Banking Syndicate would be able to indicate whether or not it would support a deed of company arrangement along the broad terms that I have briefly outlined. 16 A second meeting of the committee of creditors was held on 18 January 2011. At that meeting the Administrators raised the possibility of applying to the Court for a further extension of the convening period. No dissent was recorded. 17 On 15 February 2011, the administrators convened a further meeting of the committee of creditors for 16 February 2011. At that meeting, the committee of creditors was informed of the decision by the Administrators to make an approach to the Court to apply for an extension of time to 15 April 2011. The committee unanimously agreed to support that application, on the basis that a meeting of the committee of creditors would be convened in four weeks' time, in order to update the committee on the progress of the administration. The legal representative of the European Banking Syndicate abstained from voting at the meeting, on the basis that it would be the main proponent of a deed of company arrangement. 18 In all of the circumstances that I have described, I consider that it would be appropriate to accede to the Administrator's request to extend further the time within which the second meeting of creditors is to be convened. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 4 April 2011