FEDERAL COURT OF AUSTRALIA McGrath, in the matter of Capena Contracting Pty Limited (Subject to Deed of Company Arrangement) [2011] FCA 1035 Citation: McGrath, in the matter of Capena Contracting Pty Limited (Subject to Deed of Company Arrangement) [2011] FCA 1035 Parties: ANTHONY GREGORY MCGRATH, JOSEPH DAVID HAYES and SHAUN ROBERT FRASER v CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 009 625 138) AND COMPANIES LISTED IN SCHEDULE 1, AECOM AUSTRALIA PTY LTD (ACN 093 846 925), PATRICK STEVEDORES OPERATIONS PTY LTD (ACN 065 375 840) and PATRICK STEVEDORES OPERATIONS NO. 2 PTY LTD (ACN 056 292 687) File number(s): NSD 1101 of 2011 Judge: EMMETT J Date of judgment: 15 July 2011 Legislation: Corporations Act 2001 (Cth) ss 447A, 447D Date of hearing: 15 July 2011 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 15 Counsel for the plaintiffs: P Dunning SC Solicitor for the plaintiffs: Kemp Strang Solicitor for the second defendant: L Moore of Allens Arthur Robinson Solicitor for the third and fourth defendants: Schweikert Harris IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1101 of 2011 IN THE MATTER OF CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 009 625 138 BETWEEN: ANTHONY GREGORY MCGRATH, JOSEPH DAVID HAYES and SHAUN ROBERT FRASER Plaintiffs AND: CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 009 625 138) AND COMPANIES LISTED IN SCHEDULE 1 First Defendants AECOM AUSTRALIA PTY LTD (ACN 093 846 925), Second Defendant PATRICK STEVEDORES OPERATIONS PTY LTD (ACN 065 375 840) Third Defendant PATRICK STEVEDORES OPERATIONS NO. 2 PTY LTD (ACN 056 292 687) Fourth Defendant JUDGE: EMMETT J DATE OF ORDER: 15 JULY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Service of the Originating Process filed on 6 July 2011 be dispensed with, other than upon the second, third and fourth defendants. 2. Leave be granted to the plaintiffs to file in Court the affidavit of Joseph David Hayes sworn on 14 July 2011, with exhibit "JDH C – 1", marked Confidential, (Confidential Affidavit). 3. Upon the conclusion of the hearing of the Originating Process, Exhibit 1 be placed in a sealed envelope marked "Not to be Opened Without an Order of a Judge of the Court", and the sealed envelope placed with the papers. 4. The undertaking given to this Honourable Court on 4 December 2008 by the second defendant, by its counsel, in proceeding NSD 1115 of 2008, be discharged, or otherwise accepted as satisfied. 5. Leave be granted to the second defendant pursuant to Corporations Regulation 5.6.56 to withdraw its proof of debt dated 6 August 2008 (the Revised Maunsell Proof). 6. Pursuant to section 447A of the Corporations Act, Part 5.3A of the Corporations Act 2001 (Cth) (the Corporations Act) operate in relation to Capena Contracting Pty Limited (Subject to Deed of Company Arrangement) so that the time for lodgment of the proof of debt of the second defendant dated 30 June 2011, in the form of Schedule 3 to the Originating Process (Final AECOM Proof), is extended beyond the time allowed by clauses 4.2, 4.3 and 4.4 of the Mining Pool Deed of Company Arrangement, dated 22 March 2006, binding Capena Contracting Pty Limited (Subject to Deed of Company Arrangement) and the second defendant. 7. The cost of the plaintiff be costs in the administration of the first defendants. BY CONSENT, THE COURT DIRECTS THAT: 8. Pursuant to section 447D(2) of the Corporations Act, the plaintiffs, as Deed Administrators of the first defendants, are justified in: (a) entering into the Confidential Settlement Deed exhibited to the Confidential Affidavit of Joseph David Hayes sworn 14 July 2011; (b) receiving the Final AECOM Proof in substitution for the Revised Maunsell Proof; (c) receiving and adjudicating upon the Final AECOM Proof in accordance with the Confidential Settlement Deed; (d) making a distribution to the second defendant in respect of the Final AECOM Proof, in accordance with the Confidential Settlement Deed; and (e) upon making the distribution referred to in sub-clause (d), the proceeding finalise, with a view to effectuating, the Deeds of Company Arrangement binding the First Respondents, in accordance with their terms. 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 1101 of 2011 IN THE MATTER OF CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 009 625 138 BETWEEN: ANTHONY GREGORY MCGRATH, JOSEPH DAVID HAYES and SHAUN ROBERT FRASER Plaintiffs AND: CAPENA CONTRACTING PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 009 625 138) AND COMPANIES LISTED IN SCHEDULE 1 First Defendants AECOM AUSTRALIA PTY LTD (ACN 093 846 925), Second Defendant PATRICK STEVEDORES OPERATIONS PTY LTD (ACN 065 375 840) Third Defendant PATRICK STEVEDORES OPERATIONS NO. 2 PTY LTD (ACN 056 292 687) Fourth Defendant JUDGE: EMMETT J DATE: 15 JULY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiffs in this proceeding (the Deed Administrators) are the deed administrators of the first defendants, being Capena Contracting Pty Limited (Capena) and various other related companies. The Deed Administrators have applied to the Court for orders and directions under ss 447A and s 447D of the Corporations Act 2001 (Cth) (the Corporations Act). 2 Capena is a subsidiary of Henry Walker Eltin Group Limited (HWE), which is a listed company subject to a deed of company arrangement. HWE, Capena and 24 other subsidiaries of HWE were placed into voluntary administration on 31 January 2005. The Deed Administrators and Mr Scott Kershaw became the voluntary administrators of all of those companies on 1 February 2005, and subsequently became administrators under feeds of company arrangement. Mr Kershaw resigned on 14 December 2007, leaving the Deed Administrators as the administrators of the four deeds. The four deeds of company arrangement were as follows: a deed of company arrangement dated 23 November 2005 binding ACN 009 366 036 Pty Limited (Eltin) and the Deed Administrators (the Eltin Deed); a deed of company arrangement dated 23 November 2005 binding the Deed Administrators and a number of companies described as non-core entities (the Non-core Deed); a deed of company arrangement dated 16 December 2005 binding the Deed Administrators, HWE Cockatoo Pty Limited, and Eltin Underground Operations Pty Limited (the Cockatoo Deed); and a deed of company arrangement dated 22 March 2006 binding the Deed Administrators and a number of companies referred to as the mining pool entities (the Mining Pool Deed). The name of each deed of company arrangement alludes to the nature of the business conducted by the companies bound by it. HWE's main business was mining, but it had several other non-core businesses. 3 As a consequence of the realisation of several of the businesses, the deeds of company arrangement relating to and binding some entities have been effectuated; otherwise the relevant deeds of company arrangement remain on foot. The Non-core Deed has been constructed so that, once all claims under it have been finalised, any balance held in the fund established under that deed is to be paid to the Mining Pool Deed. Thereafter, all creditors of the Mining Pool Deed and the Non-core Deed are entitled to participate in any further distributions on the terms of the Mining Pool Deed. 4 The background to the present application involves a contract entered into by Capena in March 2004 with Port of Brisbane Corporation with respect to the construction of a new container terminal at Fisherman's Island, Brisbane, Queensland (the Port of Brisbane Project). Capena also entered into a contract with the fourth defendant in this proceeding, Patrick Stevedores Operations No 2 Pty Limited (Patrick Stevedores No 2), for the construction by Capena of berths 8 and 9 at Fishermans Island (the Patricks Contract). Capena performed certain construction works under the Patricks contract, in accordance with the specifications and design for the Port of Brisbane Project prepared by the second defendant, AECOM Australia Pty Limited (AECOM). Following the placement into voluntary administration of Capena on 31 January 2005, the contract with Patrick Stevedores No 2 was terminated. Port of Brisbane Corporation also terminated its contract with Capena. Subsequently an agreement was entered into by Patrick Stevedores No 2 for the completion by another contractor of the Port of Brisbane Project. 5 In August 2007, proceedings were commenced in the Supreme Court of Queensland by Patrick Stevedores No 2 and the third defendant, Patrick Stevedores Operations Pty Limited (Patrick Stevedores). In that proceeding claims were made by Patrick Stevedores No 2 and Patrick Stevedores against AECOM for breach of contract and negligence with respect to the specifications and design for the Port of Brisbane Project. Capena was subsequently joined in those proceedings as a third party on 19 December 2008. AECOM made claims against Capena seeking indemnity in respect of alleged faulty or negligent construction. AECOM has defended the claims by Patrick Stevedores No 2 and Patrick Stevedores, and Capena has defended the claim brought against it by AECOM for indemnity. Patrick Stevedores No 2 and Patrick Stevedores made no claim against Capena. 6 The proceedings in the Supreme Court of Queensland raised substantial claims and cross-claims concerning the design and construction of shipping container terminals at the Port of Brisbane. They are complex, have involved the Deed Administrators and their legal representatives in substantial time and expense, and continue to do so. Substantial interlocutory steps are still to be carried out, and the pleadings have not yet been finalised. The proceedings have been listed for hearing in Brisbane for approximately eight weeks, commencing on 24 October 2011. Various applications have been made to the Court in connection with the administrations of Capena and the other companies and in respect of the deeds of company arrangement. Specifically, on 4 December 2008, upon certain undertakings being given, various orders were made and directions were given under the Corporations Act in proceeding NSD 1115 of 2008. 7 The undertakings were given by AECOM, under its former name of Maunsell Australia Pty Limited, to prosecute the Supreme Court proceeding diligently, but not to seek to enforce any judgment which it might obtain against Capena in that proceeding without the prior leave of the Court. For present purposes, it is relevant that an order was made, under s 447A of the Corporations Act, that Part 5.3A of the Corporations Act operate in relation to Capena so that the time for lodgment of a proof of debt by AECOM be extended beyond the time allowed by the provisions of the Mining Pool Deed. 8 By the orders of 4 December 2008, AECOM was granted leave pursuant to s 444E(3) of the Corporations Act to bring the proceeding against Capena seeking contribution in respect of any liability that it may be held to have to Patrick Stevedores and Patrick Stevedores No 2 in the Supreme Court proceeding. Other orders were made under s 447A to the effect that Part 5.3A of the Corporations Act was to operate in relation to the entities bound by the Mining Pool Deed in specific ways that made provision for claims or potential claims by AECOM and Patrick Stevedores No 2, and any other claims arising in respect of works performed at the Port of Brisbane for Port of Brisbane Corporation. A direction was given under s 447D that the deed administrators of the Mining Pool Deed were justified in deferring adjudication on AECOM's proof of debt pending the resolution of the Supreme Court proceeding, and in making a payment of interest payable under provisions of the mining pool deed and the non-core deed prior to adjudication of the AECOM proof of debt. 9 Capena and AECOM have now reached a commercial resolution of the claims made in the Supreme Court proceeding as between Capena and AECOM. AECOM proposes to submit an amended proof of debt, dated 30 June 2011, seeking to prove in the Mining Pool Deed in respect of the amount to be paid under that commercial resolution. The commercial resolution is evidenced by a deed of settlement the terms of which are confidential. The Deed Administrators now seek orders, pursuant to an originating process filed on 6 July 2011, varying the orders made on 4 December 2008, and otherwise enabling them to give effect to the commercial resolution that has been reached. They seek appropriate orders and directions justifying their accepting and dealing with the amended AECOM proof as a means of compromising the claims made as between AECOM and Capena in the Supreme Court proceedings, which claims would be admissible to prove in the Mining Pool Deed. 10 The Deed Administrators have formed the view that it is in the interests of the creditors of Capena to accept the proposed amended AECOM proof in lieu of the proof that had been lodged following the orders of 4 December 2008. They have formed that view in the light of several matters. First, very lengthy, expensive, complex and uncertain litigation will be avoided, whose estimated hearing time and costs would both be very substantial. Secondly, the uncertainty and further costs of any appeal following the completion of the trial will also be avoided. Thirdly, the amount of any proposed amended AECOM proof is substantially less than the proof which was lodged in accordance with the orders of 4 December 2008. Fourthly, the resolution of AECOM's claims will facilitate the timely finalisation of the claims of participating creditors under the Mining Pool Deed, and the resolution of those claims will enable the prompt payment of further interest under the Mining Pool Deed to all participating creditors who are entitled. Finally, the resolution of the interests of the persons otherwise having an interest in HWE, namely its shareholders, will be accelerated, and all shareholders will then have the opportunity of receiving their entitlements according to law. 11 Creditors of the various HWE companies, including Capena, who are entitled to become participating creditors under the relevant deeds of company arrangement, including the Mining Pool Deed and the Non-core Deed, have received distributions totalling 100 cents in the dollar. That is to say, all admitted claims have been paid in full or otherwise provided for. The acceptance of the amended AECOM proof will enable the finalisation of claims under all of the deeds of company arrangement, particularly the Mining Pool Deed. 12 Since participating creditors have been paid, or provision has been made for the payment of their claims in full, the deeds of company arrangement provide that participating creditors are entitled to statutory interest. In effect, s 563B of the Corporations Act has been incorporated into the terms of the mining pool deed. In accordance with the orders made on 4 December 2008, the Deed Administrators have attended to the payment of interest. Those orders permitted the Deed Administrators to make payment of interest prior to and notwithstanding that the claims of AECOM had not been adjudicated upon. The Deed Administrators made distributions to participating creditors entitled to statutory interest under the respective deeds of company arrangement in both June 2009 and August 2010. 13 As at 30 June 2011, the Deed Administrators hold approximately $46,544,000 in funds established under the Mining Pool Deed and the Non-core Deed. The Deed Administrators need to make further payment to participating creditors of statutory interest, and also need to make payment to AECOM under the amended AECOM proof. To the extent that there is contractual interest payable to participating creditors, the Deed Administrators will need to make those payments. No interest is payable in respect of the amended AECOM proof. Upon payment of the amount of the amended AECOM proof and payment of the balance of the interest due to participating creditors, the effective position, with respect to the various HWE companies, will be as follows: total principal distributed to creditors: $310,548,000; total statutory interest paid on creditors' claims: $37,177,000; total amount distributed: $348,225,000. 14 It is against that background that the Deed Administrators have made the present application. First of all, they seek an order that the undertaking noted on 4 December 2008 be treated as satisfied, or, to the extent necessary, that leave be given for it to be withdrawn. Next, they seek an order under s 447A of the Corporations Act that Part 5.3A of the Corporations Act operate in relation to Capena so that the time for lodging of AECOM's amended proof of debt be extended beyond the time contemplated by the Mining Pool Deed. They also ask for an order that their costs of the application be paid from Capena's assets. Finally, they seek directions under s 447D of the Corporations Act that, as Deed Administrators, they are justified in entering into the settlement deed, receiving the amended AECOM proof in substitution for the earlier proof, receiving and adjudicating upon the amended proof in accordance with the settlement deed, making a distribution to AECOM in respect of the amended proof in accordance with the settlement deed, and, upon making that distribution, proceeding to finalise, with a view to effectuating, the four deeds of company arrangement in accordance with their terms. 15 It is not for the Court to determine whether the deed of settlement is, from a commercial point of view, appropriate for the Deed Administrators to make. They must, of course, exercise their own judgment as to whether or not the compromise effected by the settlement deed is justified, in the light of the advice they have received concerning prospects of success and the likely costs that would be incurred in defending the Supreme Court proceedings further. However, in the light of the opinions that they have expressed, I am satisfied that they would be justified in entering into such a deed and giving effect to the compromise in the way that is suggested. It is clear that they have performed the undertaking noted on 4 December 2008, and that, by reaching the compromise to which I have referred, either they have discharged the undertaking in full or they should be relieved from prosecuting the Supreme Court proceedings any further. The lodgment of the amended proof and its payment would discharge any undertaking by AECOM not to enforce any judgment that it might have obtained against Capena in the Supreme Court proceedings. In all of the circumstances, I consider that it is appropriate to accede to the application made by the Deed Administrators, and to make orders and give directions in the terms sought. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 2 September 2011 SCHEDULE 1 Henry Walker Eltin Group Limited ACN 007 710 483 Bulumba Pty Limited ACN 008 060 240 Capnorth Developments Pty Limited ACN 009 640 251 Castlemaine Wastewater Treatment Pty Limited ACN 081 417 030 Capena Civil Pty Limited (formerly HWE Civil Pty Limited) ACN 106 551 302 Capena Finance Pty Limited (formerly HWE Finance Pty Limited) ACN 009 593 668 Capena Land Pty Limited (formerly HWE Land Pty Limited) ACN 009 614 788 HWGL Services Pty Limited ACN 009 615 436 Capena IO Pty Limited (formerly HWIO Pty Limited) ACN 072 445 179 Inventive Pty Limited ACN 009 639 310 LSM Projects Pty Limited ACN 106 580 134 Northaust Auto Hire Pty Limited ACN 009 639 490 Simon Engineering (Australia) Holdings Pty Ltd ACN 000 142 165 Simon Engineering (Australia) Pty Limited ACN 000 117 000 Bridge Autos Pty Limited ACN 009 625 816 Castleton Pty Limited ACN 009 210 664 Capena International Pty Limited (formerly Eltin International Pty Limited) ACN 009 211 456 Capena Open Pit Operations Pty Limited (formerly Eltin Open Pit Operatoins Pty Limited) ACN 008 918 278 Capena Surface Mining Pty Limited (formerly Eltin Surface Mining Pty Limited) ACN 062 450 113 Capena Underground Operations Pty Limited (formerly Eltin Underground Operations Pty Limited) ACN 008 906 849 Capena Contracting Pty Limited (formerly Henry Walker Eltin Contracting Pty Limited) ACN 009 625 138 Capena Environmental Pty Limited (formerly Henry Walker Environmental Pty Limited) ACN 009 627 490 Capena Underground Pty Limited (formerly Henry Walker Underground Pty Limited) ACN 007 649 274 ACN 009 366 036 Pty Limited ACN 009 366 036