FEDERAL COURT OF AUSTRALIA Carson, in the matter of Hastie Group Limited (No 3) [2012] FCA 719 Citation: Carson, in the matter of Hastie Group Limited (No 3) [2012] FCA 719 Parties: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040, HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS File number(s): NSD 749 of 2012 Judge: YATES J Date of judgment: 5 July 2012 Catchwords: CORPORATIONS – application for directions under s 447D of the Corporations Act 2001 (Cth) Legislation: Corporations Act 2001 (Cth) s 447D Cases cited: Carson, in the matter of Hastie Group Limited [2012] FCA 626 Date of hearing: 5 July 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 21 Counsel for the Plaintiffs: Mr J Hynes Solicitor for the Plaintiffs: Henry Davis York IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 749 of 2012 BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 First to Third Plaintiffs HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS Fourth to Forty-Seventh Plaintiffs JUDGE: YATES J DATE OF ORDER: 5 JULY 2012 WHERE MADE: SYDNEY THE COURT: 1. Orders that the plaintiffs have leave to file an Interlocutory Process dated 5 July 2012 in the form initialled by Yates J. 2. Orders that the Interlocutory Process be returnable instanter before Yates J. 3. Directs that the Administrators appointed to the plaintiff companies would be justified in: (a) treating any plant and equipment listed from pages 12 to 119 of Exhibit CDC-9 to the affidavit of Craig David Crosbie sworn 5 July 2012 (Exhibit) that is unclaimed (Unclaimed Plant and Equipment) as the property of Hastie Group Ltd (Administrators Appointed) and the companies set out in Schedule 1 of the Originating Process (collectively the Companies); (b) selling the Unclaimed Plant and Equipment by public online auction with Grays Auctions (Grays): (i) after causing to be published, on or before Saturday, 7 July 2012 and prior to the scheduled auction, the first occurring on Tuesday, 10 July 2012, advertisements advising of the proposed auction of the Unclaimed Plant and Equipment which include information substantially in terms of the notice contained at page 130 of the Exhibit, in The Australian newspaper and the website maintained by Grays; and (ii) issuing notices by email, within five days of the completion of the sale of the Unclaimed Plant and Equipment, to those creditors of the Companies (whose email address is known to the Administrators) advising them of the sale of the assets and the terms upon which the sale proceeds are to be held by the Administrators; (c) holding the proceeds of sale in a separate account and applying the proceeds: (i) towards the payment of the Administrators' costs incurred in connection with realising the Unclaimed Plant and Equipment; (ii) towards any claim in respect of the Unclaimed Plant and Equipment which, in the opinion of the Administrators, is a valid claim; and (iii) after a period of three months, distributing the balance of the proceeds of sale in the ordinary course of the administration of the Companies. 4. Orders that the costs of the application be costs in the administration of the Companies. 5. Orders that the document appearing from pages 12 to 119 of Exhibit CDC-9 to the affidavit of Craig David Crosbie sworn 5 July 2012 be placed in a sealed envelope marked confidential and which shall not be opened other than pursuant to an order of the Court. 6. Grants any person affected by these orders liberty to restore on two days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 749 of 2012 BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 First to Third Plaintiffs HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS Fourth to Forty-Seventh Plaintiffs JUDGE: YATES J DATE: 5 JULY 2012 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 This is an application brought by the administrators appointed to the 44 companies that comprise the Hastie Group for directions under s 447D of the Corporations Act 2001 (Cth) (the Act), permitting them to dispose of certain plant and equipment. 2 The administrators were appointed on 28 May 2012. The business of the Hastie Group and the background to the administration are discussed in Carson, in the matter of Hastie Group Limited [2012] FCA 626. It is not necessary to repeat that discussion in any detail in these reasons. It is sufficient to note that the administrators are in sole control of the 33 companies that comprise the MEP Division and the International Division of the group. Receivers and managers have been appointed to the 11 companies that comprise the Services Division of the group. 3 The present application relates solely to the companies that comprise the MEP Division. The focus of the MEP Division was subcontracting on construction and engineering projects. In that connection, individual companies within the MEP Division would undertake certain specific works on individual projects. At the date of the administrators' appointments the MEP Division had approximately 2,530 employees, employed across 1,600 projects throughout Australia. The Division operated on as many as 1,000 sites in Australia. 4 The Hastie Group is not operationally integrated. Asset registers are held by each individual entity, rather than by a head office. Contracts are held by each individual entity. General administration functions are not centralised and there is, generally for each company, a separate payroll, separate records, separate offices and separate management. Some entities share premises and staff. Prior to the administrators' appointments, day-to-day operational decisions seem to have been made by each individual entity. A number of entities in the Hastie Group were acquired as going concerns. They may have had liabilities that predated the Hastie Group's control of them. Nevertheless, the Hastie Group has operated using a single treasury entity. It has also had a common financier. In a number of cases, "crude mergers" had been effected by the management of the Hastie Group, whereby two companies effectively traded as one business. 5 Immediately following their appointments, the administrators suspended trading in respect of the MEP Division. 6 The administrators' investigations to date have revealed that the Hastie Group held at the time of their appointment a large number of individual items of plant and equipment at 36 different locations. It has been estimated that the total auction value of this plant and equipment is $6.4 million. The maximum auction value of plant and equipment stored at any one location is no more than approximately $855,000. The administrators continue to exercise rights in relation to 19 sites by reason of the existence of plant and equipment at those sites. The costs associated with moving the plant and equipment would be significant. It is the administrators' view that the cost would exceed the commercial value of the plant and equipment to the companies. From 13 July 2012 the total weekly rental that will be payable with respect to the sites occupied solely by reason of the presence of that plant and equipment will be $61,134.26. Other plant and equipment has been consolidated and is currently being stored by Grays Auctions. 7 The books and records of the companies that have been located and reviewed by the administrators inadequately describe the nature and location of all the plant and equipment. To compound that inadequacy, some of the plant and equipment has been moved from time to time between companies and different building sites. This appears to have occurred without records being kept of particular movements. 8 Moreover, the employment of all but approximately 20 employees of the pre-existing 2,550 staff in the MEP Division has been terminated. This has reduced the ability of the administrators to verify the information that is available to them in relation to plant and equipment. In these circumstances, there is also a real likelihood that there will be additional property located at various building sites throughout Australia that has not been accounted for by the administrators to date. 9 There are 995 registrations noted against the companies in the Personal Property Securities Register (PPSR). On 28 May 2012, the administrators wrote to all creditors who had an interest recorded against the companies in the PPSR. Enclosed with each letter was a pro forma security interest summary that each creditor was requested to complete in respect of each security interest the creditor held. Each creditor was requested to provide notification of its interest as a matter of urgency and, in any event, by no later than 31 May 2012. 10 As at 19 June 2012, approximately 80% of those secured creditors had failed to respond to that correspondence. Many of the responses received by the administrators are of little assistance to them in understanding the identity of the property in which a security interest might be claimed. This is because the responses do not adequately particularise the equipment or the security agreement under which the security interest is said to arise. I have been taken today to a number of examples that demonstrate the difficulty faced by the administrators in this regard. Given the level of generality of many of the registrations in the PPSR and the existence of many transitional security interests that are not registered, it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests. 11 On 26 June 2012, the administrators wrote to 12 financiers who appeared from the books and records of the companies to have a secured claim in respect of plant and equipment. The financiers were asked to consent to the sale of the plant and equipment referable to their interests or give notice that they did not consent to such sale before 2 July 2012. They were also asked to advise, on or before 2 July 2012, whether, to the best of their knowledge, any of the listed items of plant and equipment formed a key component of another piece of plant or equipment and whether that plant and equipment was recorded on the lists that had been provided to them. In each case the letter stated that if no response was received on or before 2 July 2012, the administrators would assume that the rights of the relevant financier (with respect to the companies) did not include any interest in any of the items in the listed plant and equipment, or, alternatively, that the financier waived that interest. 12 On 28 June 2012 the administrators caused an advertisement to appear in The Australian newspaper. The advertisement requested that creditors notify the administrators of claims concerning assets, plant and equipment, stock, inventory, leased assets or other items in the possession of the Hastie entities by 4 July 2012. The advertisement contained the following statement: If you do not contact the administrators within this timeframe, the administrators will assume that any rights you may have regarding the Hastie Entities do not include any interest or claims in any of the items currently in the possession of the Hastie Entities, or alternatively that you waive and do not pursue that interest which may result in their sale. 13 Copies of this advertisement also appeared in The Sydney Morning Herald, The Age, The Adelaide Advertiser, The West Australian and The Brisbane Courier Mail newspapers. 14 Additionally, on 4 July 2012 the administrators sent an email to 3,000 creditors (whose current addresses were known to the administrators) requesting that they advise of any claims in relation to plant and equipment. That email contained a notification in substantially similar terms as that which appeared in the newspaper advertisements to which I have referred. 15 As a result of their examination of the available books and records of the companies within the MEP Division, including the register of leased assets, and after receiving claims from financiers, the administrators have identified approximately $2 million worth of assets belonging to third parties. To date, there are no unresolved claims in relation to that plant and equipment. There are, however, approximately 3,684 items of plant and equipment that are "unclaimed" at the present time. These items represent about 77% of the total number of items of plant and equipment identified to date by the administrators. Those items represent a significant part of the administrators' costs to store and maintain plant and equipment. 16 The administrators have formed the view that given: (a) the ongoing cost, including the significant rental cost to which I have referred; and (b) the efforts undertaken by them to date to establish the existence of all claimants in relation to plant and equipment, it is in the best interests of the companies and their creditors that all unclaimed plant and equipment be sold as soon as possible. The administrators are of the view that the most cost-effective approach to selling all unclaimed plant and equipment, and that which will maximise the sale prices for that plant and equipment, will be by way of online auctions. They propose to engage Grays Auctions to conduct those auctions. They are concerned, however, that despite their inquiries to date and the notifications that they have already given, some part of the unclaimed plant and equipment may, in fact, be subject to claims that will arise in the future. 17 Subject to orders being made as presently sought by them, the administrators propose to undertake the following. First, they seek to place an advertisement in The Australian newspaper advising of the proposed auction of the unclaimed plant and equipment. That advertisement will contain the notification that appeared in the previous newspaper advertisements. It is proposed that the advertisement appear on 7 July 2012. They then propose to instruct Grays Auctions to conduct the auction sales no earlier than 10 July 2012. The administrators then propose to hold the net proceeds of sale in a separate escrow account for a period of three months following the completion of each sale. Immediately upon completion of the sale process, they will write to all known creditors advising them of the realisation of the assets and the three-month time period during which the proceeds will be held in escrow. After the three-month period, they will then apply the proceeds of sale in the ordinary course of the administration of the companies. In effect, that will mean that the proceeds of the auction sales (after sales costs and costs represented by direct work done by the administrators in realising or preserving the plant and equipment) will be paid to the security trustee representing the syndicate that comprises the Hastie Group's major financiers. 18 I am satisfied that it is appropriate to grant the relief, and in particular make the directions, now sought by the administrators. I am satisfied that there have been genuine and substantial difficulties in identifying those items of plant and equipment that might be subject to a security interest and other claims, and that the administrators have taken a number of steps to attempt to clarify that question as best they can. 19 As I have noted, the directions proposed will involve yet a further attempt to identify any remaining undisclosed claims in respect of the plant and equipment now held by the relevant companies prior to the commencement of the auctions. 20 I should add that the administrators have sought a confidentiality order in relation to the valuation material that has been placed before me today in order to consider their application. They have expressed the view that if this information were made public and thus available to a potential purchaser, there is a real prospect that the sale prices in respect of the items will be influenced and possibly reduced. They seek an appropriate confidentiality order to ensure the maximisation of the chance of achieving the highest sale price possible in respect of each item of unclaimed plant and equipment. I am satisfied in the circumstances that it is appropriate to make such an order. 21 In the end result, I propose to make orders and directions in accordance with the draft that I have discussed with counsel in the course of the application today. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 5 July 2012