FEDERAL COURT OF AUSTRALIA Hayes, in the matter of Henry Walker Eltin Group Limited (subject to deed of company arrangement) (No 2) [2014] FCA 30 Citation: Hayes, in the matter of Henry Walker Eltin Group Limited (subject to deed of company arrangement) (No 2) [2014] FCA 30 Parties: JOSEPH DAVID HAYES, ANTHONY GREGORY MCGRATH, SHAUN ROBERT FRASER, HENRY WALKER ELTIN GROUP LIMITED (ACN 007 710 483) (SUBJECT TO DEED OF COMPANY ARRANGEMENT), HAMISH GIDLEY-BAIRD, ANTHONY HARALDSON, BULUMBA PTY LIMITED (ACN 008 060 240) (SUBJECT TO DEED OF COMPANY ARRANGEMENT), SIMON ENGINEERING (AUSTRALIA) HOLDINGS PTY LTD (ACN 000 142 165) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) and SIMON ENGINEERING (AUSTRALIA) PTY LIMITED (ACN 000 117 000) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) File number: NSD 1799 of 2013 Judge: YATES J Date of judgment: 5 February 2014 Catchwords: CORPORATIONS – application for directions concerning deed administrators' remuneration Legislation: Corporations Act 2001 (Cth) s 449E Federal Court (Corporations) Rules 2000 (Cth) rr 1.8, 9.2(2) Cases cited: Hayes, in the matter of Henry Walker Eltin Group Limited (subject to deed of company arrangement) [2013] FCA 973 Date of hearing: Determined on the papers Date of last submissions: 3 December 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 14 Solicitor for the Plaintiffs: Mr G Cussen of Kemp Strang IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1799 of 2013 IN THE MATTER OF HENRY WALKER ELTIN GROUP LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) AND THE CORPORATIONS ACT JOSEPH DAVID HAYES First Plaintiff ANTHONY GREGORY McGRATH Second Plaintiff SHAUN ROBERT FRASER Third Plaintiff HENRY WALKER ELTIN GROUP LIMITED (ACN 007 710 483) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Fourth Plaintiff HAMISH GIDLEY-BAIRD Fifth Plaintiff ANTHONY HARALDSON Sixth Plaintiff BULUMBA PTY LIMITED (ACN 008 060 240) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Seventh Plaintiff SIMON ENGINEERING (AUSTRALIA) HOLDINGS PTY LTD (ACN 000 142 165) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Eighth Plaintiff SIMON ENGINEERING (AUSTRALIA) PTY LIMITED (ACN 000 117 000) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Ninth Plaintiff JUDGE: YATES J DATE OF ORDER: 5 February 2014 WHERE MADE: SYDNEY THE COURT DIRECTS THAT: 1. Pursuant to r 1.8 of the Federal Court (Corporations) Rules 2000 (Cth) (the Rules), and in lieu of r 9.2(2) thereof, at least 21 days before filing any interlocutory process seeking an order for remuneration under s 449E(1A) of the Corporations Act 2001 (Cth), the first, second and third plaintiffs must serve a notice substantially in accordance with Form 16 of the Rules of their intention to apply for that order, and a copy of any affidavit on which they intend to rely, on the following persons: (a) each of the 10 largest shareholders of the fourth plaintiff, as recorded in annexure A to the affidavit of Hamish Gidley-Baird sworn 27 August 2013, by ordinary mail to the address of those shareholders as stated in the fourth plaintiff's share register; and (b) each director of the fourth plaintiff. 2. Pursuant to r 1.8 of the Rules, r 9.2(3), (4), (5) and (6) apply mutatis mutandis with respect to the notice referred to in paragraph 1 hereof, such that the reference therein to "any creditor or contributory" is to be taken as a reference to any person in respect of whom service has been made in accordance with the said paragraph. 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 1799 of 2013 IN THE MATTER OF HENRY WALKER ELTIN GROUP LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) AND THE CORPORATIONS ACT JOSEPH DAVID HAYES First Plaintiff ANTHONY GREGORY MCGRATH Second Plaintiff SHAUN ROBERT FRASER Third Plaintiff HENRY WALKER ELTIN GROUP LIMITED (ACN 007 710 483) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Fourth Plaintiff HAMISH GIDLEY-BAIRD Fifth Plaintiff ANTHONY HARALDSON Sixth Plaintiff BULUMBA PTY LIMITED (ACN 008 060 240) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Seventh Plaintiff SIMON ENGINEERING (AUSTRALIA) HOLDINGS PTY LTD (ACN 000 142 165) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Eighth Plaintiff SIMON ENGINEERING (AUSTRALIA) PTY LIMITED (ACN 000 117 000) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Ninth Plaintiff JUDGE: YATES J DATE: 5 february 2014 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 This is an application by the first, second and third plaintiffs for directions under r 1.8 of the Federal Court (Corporations) Rules 2000 (Cth) (the Rules). 2 On 27 September 2013, I made orders providing for the termination of two deeds of company arrangement referred to as the Mining Pool deed and the Non-Core deed: Hayes, in the matter of Henry Walker Eltin Group Limited (subject to deed of company arrangement) [2013] FCA 973 (my earlier reasons). The Mining Pool deed was made on 22 March 2006. The fourth plaintiff (HWE) and other related companies were parties to the deed. The Non-Core deed was made on 23 November 2005. The seventh plaintiff (Bulumba), the eighth plaintiff (SEA Holdings), the ninth plaintiff (SEA) and other related companies were parties to that deed. I also made orders for the winding up of HWE, Bulumba, SEA Holdings and SEA. 3 The first, second and third plaintiffs were the administrators of the deeds. On 27 September 2013, I granted leave to them: to apply for such further or other relevant relief or directions as the case may require; and to bring in this proceeding any application for approval of remuneration as deed administrators in relation to HWE, Bulumba, SEA Holdings and SEA. Factual background 4 In my earlier reasons, I made the following findings (at [4]-[11]): 4 HWE was placed into voluntary administration by resolution of its directors on 31 January 2005. At the time, HWE had five directors, including Mr Gidley Baird and Mr Haraldson. The other directors ceased holding office in 2005. 5 HWE is listed on the Australian Securities Exchange (the ASX). Its listing was suspended on the commencement of its external administration. Its listing remains in suspension. Nevertheless, the deed administrators have continued to make disclosures to HWE's shareholders through the ASX. 6 HWE's share register discloses that it has 218,317,156 issued shares. All shares are fully paid. There are 11,062 shareholders. The top 20 shareholders include corporate investors and custodians who hold 60,543,099 shares comprising 27.73% of the issued shares. The current directors, and the former directors of HWE and related parties, together own or control 11.8% of the issued shares. 7 At the time of commencement of its external administration, HWE's main business was mining. It had several other, non-core businesses. 8 HWE is the ultimate holding company of a large number of subsidiary companies. Many of these subsidiary companies, also parties to one of the two deeds the subject of this proceeding or to other deeds of company arrangement, have been deregistered or are in the process of being deregistered. The remaining subsidiary companies, whose deregistration has not been sought, are Bulumba, SEA Holdings and SEA. 9 The administrations of HWE and its subsidiary companies, which culminated in the various deeds of company arrangement, have occupied some eight years. The administrations have been complex. Substantial business assets and operations have been realised across multiple jurisdictions within and outside Australia, with considerable success. The deed administrators: • have paid approximately $298.75 million to admitted creditors; • have paid approximately $36.95 million on account of all statutory interest entitlements, to all admitted creditors; • have paid $461,690.57 in full payment of contractual interest in accordance with the Mining Pool deed, to the creditors so entitled; • hold approximately $34.097 million, before costs, in relation to the Mining Pool deed (the Mining Pool fund); and • hold approximately $4.218 million, before costs, in relation to the Non-Core deed (the Non-Core fund). The sale of the SEA business and the collection of its debtors represented not substantially less than one-third of the contribution to the pooled funds referable to the Non-Core deed. 10 The position with respect to each corporate plaintiff is as follows: • Since the sale of its business assets and operations, HWE has not traded and has no management or infrastructure. It is solvent. All claims of creditors have been satisfied. The deed administrators hold substantial surplus funds (represented by the Mining Pool fund) to be returned to HWE's shareholders. • Bulumba has no creditors, no directors and no employees. It is solvent. Its sole remaining asset is an interest in a claim against the City of Belmont, Western Australia, relating to the development of certain property. The claim is being prosecuted by others. On present indications, Bulumba may receive by way of settlement approximately $100,000. However, that claim may not be resolved until 2014. • SEA Holdings has no assets other than the issued shares in SEA. It has no creditors, no directors and no employees. It is solvent. • SEA has no assets, no directors and no employees. It is solvent. Recently, a claim has been made against SEA for indemnity under the Law Reform (Contributory Negligence & Tortfeasors' Contribution) Act 1947 (WA). The claim concerns a former employee of SEA who was injured on 16 January 2004. SEA, through its insurer, Allianz Australia Limited (Allianz), settled a claim by this employee in 2007. The employee has now made a claim against Newcrest Mining Ltd (Newcrest) in respect of the same incident. Newcrest has sought indemnity against SEA and joined it as a party to the proceeding. Allianz has confirmed through its solicitors that, in the event that Newcrest is found liable to pay damages to the employee, and SEA is found to be a joint tortfeasor and liable to indemnify Newcrest, then Allianz will indemnify SEA for that liability. Further, Allianz has instructed its solicitors to conduct the proceeding on behalf of SEA, and has stated that it will meet the associated legal costs. 11 The Non-Core deed provides that, once all claims thereunder have been finalised, any balance is to be applied in respect of 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. However, as events have transpired, all admitted claims against HWE and the remaining subsidiaries have been paid in full, save for the late contingent claim for indemnity asserted against SEA. As I have noted, the only relevant remaining asset to be collected is Bulumba's expected successful claim against the City of Belmont. 5 As recorded above, the claims of creditors of HWE and its remaining subsidiaries have been satisfied, save for the recent claim made against SEA in respect of which Allianz has indicated it will provide indemnity if the claim is successful. 6 Other evidence in the proceeding shows that the top three shareholders of HWE hold 9.9% of its issued capital; the top five shareholders hold 15.28% of its issued capital; and the top 10 shareholders hold 23.23% of its issued capital. Legislative background 7 Section 449E(1A) of the Corporations Act 2001 (Cth) (the Act) provides that the administrator of a company under a deed of company arrangement is entitled to receive such remuneration as is determined by agreement between the administrator and the committee of inspection (if any); or by resolution of the company's creditors; or, if there is no such agreement or resolution, by the Court. 8 Section 449E(1D) of the Act provides that the Court may determine remuneration under s 449E(1A)(c) even if there has been no meeting of the committee of inspection or there has been no meeting of the company's creditors. 9 Rule 9.2 of the Rules provides for the procedure to be followed in relation to an application for remuneration under s 449E(1A)(c) of the Act. Rule 9.2(2) provides: At least 21 days before filing an originating process, or interlocutory process, seeking the order, the administrator must serve a notice in accordance with Form 16 of the administrator's intention to apply for the order, and a copy of any affidavit on which the administrator intends to rely, on the following persons: (a) each creditor who was present, in person or by proxy at any meeting of creditors; (b) each member of any committee of creditors or committee of inspection; (c) if there is no committee of creditors or committee of inspection, and no meeting of creditors has been convened and held, each of the 5 largest (measured by amount of debt) creditors of the company; (d) each member of the company whose shareholding represents at least 10% of the issued capital of the company. 10 Rule 1.8(a) of the Rules provides: The Court may give directions in relation to the practice and procedure to be followed in a proceeding if it is satisfied, in the circumstances of the proceeding, that: (a) the provisions of the Corporations Act, the ASIC Act, or the rules of this Court do not adequately provide for the practice and procedure to be followed in the proceeding. The present application 11 The first, second and third plaintiffs submit that r 9.2(2) of the Rules does not adequately provide for the practice and procedure to be followed in relation to their intended application for remuneration. Other than the contingent creditor represented by the recent claim against SEA, there are no creditors of HWE and its remaining subsidiaries. They submit that no utility would be served and it would be an unnecessary financial impost for them to give a Form 16 notice to previous creditors who attended any meeting of creditors. The simple fact is that no such creditor has any interest in the remaining funds. There is no committee of creditors or committee of inspection. No shareholder of HWE has a shareholding that represents at least 10% of the issued capital of the company. 12 In these circumstances, the first, second and third plaintiffs submit that the appropriate course is to give a direction that, in lieu of r 9.2(2), they be required to serve a Form 16 notice and a copy of the affidavit intended to be relied on by them, on each of the five largest shareholders of HWE (by ordinary mail to the address stated for those shareholders in HWE's share register) and on the directors of HWE. Consideration 13 I am satisfied that, in the circumstances, there is no utility in the first, second and third plaintiffs giving a Form 16 notice to former creditors. I am satisfied that no useful purpose would be served by giving notice to any person other than a shareholder of HWE and its directors. However, I am of the view that, in respect of shareholders, a Form 16 notice and any affidavit to be relied on should be served on the 10 largest shareholders, representing 23.23% of HWE's issued capital. I am satisfied that this spread of shareholders, representing nearly one-quarter in value of HWE's issued capital, will provide a sufficient pool from which any likely objector can be found. Disposition 14 Directions will be made accordingly. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 5 February 2014