FEDERAL COURT OF AUSTRALIA Australian Workers' Union v Billingham, in the matter of Arrium Limited (administrators appointed) [2016] FCA 384 File number: VID 298 of 2016 Judge: DAVIES J Date of judgment: 12 April 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – administration – appointment of new administrators – where current administrators intend to resign – Corporations Act 2001 (Cth) ss 447A, 449C(6) Legislation: Corporations Act 2001 (Cth) ss 447A, 449C(6) Cases cited: Re Ansett Australia Ltd (admin apptd) (2001) 39 ACSR 296; [2001] FCA 1348 Re Wallace-Smith; National Express Group Australia (Bayside Trains) Pty Ltd (recs and mgrs apptd) (admins apptd) (2003) 46 ACSR 674; [2003] FCA 764 Date of hearing: 12 April 2016 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 10 Counsel for the Applicants: T Woodward SC with S Maiden Solicitor for the Applicants: Arnold Bloch Leibler Counsel for the First Applicant: S Hay Solicitor for the First Applicant: Maurice Blackburn Solicitor for the Second Applicants: L Zwier, Arnold Bloch Leibler Solicitor for the Third Applicant: King and Wood Mallesons Solicitor for the Respondents: J Scarcella, Ashurst ORDERS VID 298 of 2016 IN THE MATTER OF ARRIUM LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 410 833) AND THE OTHER COMPANIES LISTED IN SCHEDULE ONE BETWEEN: AUSTRALIAN WORKERS' UNION First Applicant (and others named in Schedule Two) AND: PAUL BILLINGHAM, SAID JAHANI, MICHAEL MCCANN AND MATTHEW BYRNES IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF ARRIUM LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 410 833) AND THE OTHER COMPANIES LISTED IN SCHEDULE ONE First Respondents ARRIUM LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 410 833) AND THE OTHER COMPANIES LISTED IN SCHEDULE ONE Second Respondents JUDGE: DAVIES J DATE OF ORDER: 12 APRIL 2016 THE COURT ORDERS THAT: 1. Pursuant to r 1.39 of the Federal Court Rules 2011, service of this originating process on the respondents be abridged in accordance with r 2.7 of the Federal Court (Corporations Rules) 2000 be abridged to 12 April 2016 at 5.30pm. 2. Pursuant to s 447A of the Corporations Act 2001 (Cth) (the Act), s 449C(6) of that Act applies in the voluntary administrations of each of the second respondents as if it read as follows: "Where a company is under administration, but for some reason no administrator is acting or the administrator proposes to resign, the court may appoint a person as administrator (in the case of a proposed resignation, to take effect upon on and from that resignation) on the application of ASIC or of an officer, member or creditor of the company." 3. Pursuant to s 449C(6) of the Act, Mark Francis Xavier Mentha, Bryan Webster, Martin Madden and Cassandra Elysium Mathews be appointed jointly and severally as administrators of each of the second respondents with effect as and from the date and time that the first respondents give notice in writing of their resignation as administrators of the second respondents. 4. Liberty is reserved to any interested person to apply to amend, vary or revoke the orders made in paragraphs 2 and 3 above, on 12 hours' written notice to the applicants, but any such application must be made no later than 4 pm on Thursday 14 April 2016. 5. All parties' costs of and incidental to the application be paid as costs of the administration, such costs to be taxed in the absence of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) DAVIES J: 1 The first respondents ("the existing administrators") were appointed the voluntary administrators of the second respondents, Arrium Limited and 93 other companies in the Arrium Group ("the Group"), on 7 April 2016. The existing administrators have scheduled the first meetings of the companies' creditors for Tuesday, 19 April 2016 and in the meantime, continue to operate the Group's businesses. Very recently, they indicated that they intend to resign as administrators of the companies. 2 In consequence of the existing administrators' intention to resign as administrators, the applicants have made an urgent application to the Court for an order pursuant to ss 449C(6) and 447A of the Corporations Act (2001) (Cth) ("the Act") in the following terms: Pursuant to s 447A of the Act, s 449C(6) of that Act applies in the voluntary administrations of each of the Second Respondents as if it read as follows: Where a company is under administration, but for some reason no administrator is acting or the administrator proposes to resign, the court may appoint a person as administrator (in the case of a proposed resignation, to take effect upon on and from that resignation) on the application of ASIC or of an officer, member or creditor of the company. 3 The Arrium Group is a group of more than 100 Australian and foreign companies, 94 of which are in voluntary administration. The Group conducts businesses in the mining consumables, mining and steel industries. It has operations in Australia and overseas and employs around 7,000 Australians. According to its last annual report, Arrium Limited had net assets of $2.555 billion and recorded a loss of $1.866 billion. It is immediately evident that the Group conducts very substantial business operations and is a very substantial commercial enterprise employing thousands of employees. 4 The application is supported by an affidavit sworn by Mr Zwier. Mr Zwier has deposed that KordaMentha, who are proposed to replace the existing administrators as administrators of the second respondents, is an advisory and investment firm that provides restructuring, turnaround, real estate and forensic support for companies and their stakeholders. It has experience with acting in relation to large corporate insolvencies, including the Ansett, Timbercorp and Willmott external administrations. Exhibited to the affidavit is a copy of a credential pack document which sets out KordaMentha's credentials for such large and complex appointments. I accept that KordaMentha has the capabilities to act as administrators of the Arrium Group. 5 The applicants are the Australian Workers' Union ("AWU"), a group of United States private placement noteholders, and National Australia Bank as agent for 23 lenders who have made facilities available to the Group under syndicated facility agreements (five of whom also have bilateral facilities). The debts are unsecured and the total amount of the debts presently outstanding to institutional lenders is approximately $2.7 billion. The AWU represents some 2,000 of the Group's 7,000 employees. Mr Zwier has deposed that he has also been informed by Mr McDine, the national secretary of the AWU, that most, if not all, of the other employees of the Arrium Group, most of whom are members of other Australian trade unions, will vote at the first meeting of creditors consistently with the vote of the AWU. On that basis, Mr Zwier believes that the replacement of Grant Thornton with KordaMentha as administrators enjoys the overwhelming support of the majority in number and value of the creditors of the companies under administration. 6 ASIC has been given notice of this application and has not appeared or given notice that it opposes the orders sought. 7 The solicitors for the directors have advised that the directors do not object to the orders sought or to the appointment of KordaMentha as the administrators upon the resignation of the existing administrators. 8 Mr Scarcella, who appeared for the existing administrators, has also informed the Court that they consent to the orders that are sought by the applicants. 9 There is authority in this Court that the Court has the power to make the orders sought pursuant to ss 447A and 449C(6) of the Act. In Re Ansett Australia Ltd (admin apptd) (2001) 39 ACSR 296; [2001] FCA 1348, Goldberg J made a similar order in circumstances where the then administrators appointed to Ansett Australia had advised their intention to resign. His Honour stated at [6] that he: …consider[ed] it important in an administration of this nature, an administration of a very, very substantial commercial enterprise and a commercial enterprise which employs many thousands of employees, that there be no gap in the continuation of the administration which is currently in existence and which is operative. His Honour stated at [9]–[10] that: 9. The court has the power under s 449C(6), where a company is under administration and for some reason no administrator is acting, to appoint a person as administrator on the application of a creditor of the company. It seems to me that it is an appropriate order to make in those circumstances that the proposed substitute administrators be appointed with effect from the date and time that the administrators give notice in writing of their resignation as administrators of the companies. 10. If that event occurs, then the order will come into effect. If that event does not occur, then the current administrators will maintain their position as administrators. What is important is that there be no point of time where there are no administrators undertaking the administration of the company. In Re Wallace-Smith; National Express Group Australia (Bayside Trains) Pty Ltd (recs and mgrs apptd) (admins apptd) (2003) 46 ACSR 674; [2003] FCA 764, Finkelstein J determined an application by the plaintiff seeking orders that the court appoint a substitute joint administrator to the companies. The orders were sought following the resignation of one of the joint administrators. His Honour doubted whether s 449C(6) applied at least while an administrator remained in office, but his Honour found, however, that s 447A could be used to fill a gap in the legislative scheme and appoint a second administrator where one of two administrators had resigned. 10 I am satisfied that the Court does have the power to make orders of the kind that are sought and adopt the observations of Goldberg J in Re Ansett about the importance that there be no point of time where there are no administrators undertaking the administration of the company. For those reasons, the orders will be made. Given the urgency with which this application has been heard and the short notice, I propose to provide for liberty to apply to other interested parties. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 18 April 2016 SCHEDULE ONE 1. A.C.N. 006 769 035 Pty Limited (ACN 006 769 035) 2. Akkord Pty Limited (ACN 060 486 991) 3. ANI Construction (W.A.) Pty. Limited (ACN 008 670 871) 4. Arrium Finance Pty Limited (ACN 093 954 940) 5. Arrium Iron ore Holdings Pty Limited (ACN 152 752 844) 6. Atlas Group Employees Superannuation Fund Pty. Limited. (ACN 060 568 998) 7. Atlas Group Staff Superannuation Fund Pty. Limited. (ACN 059 654 241) 8. Atlas Group Superannuation Plan Pty Limited (ACN 065 649 050) 9. Australian National Industries Pty Limited (ACN 000 066 071) 10. Australian Wire Industries Pty Limited (ACN 064 267 456) 11. Austube Mills Holdings Pty Limited (ACN 123 160 172) 12. Austube Mills Pty Limited (ACN 123 666 679) 13. AWI Holdings Pty Limited (ACN 004 157 475) 14. B.G.J. Holdings Proprietary Limited (ACN 004 859 536) 15. Bradken Consolidated Pty Limited (ACN 000 011 932) 16. Central Iron Pty Limited (ACN 143 503 397) 17. Cockatoo Dockyard Pty Limited (ACN 000 025 918) 18. Comsteel Pty. Limited (ACN 006 218 524) 19. Coober Pedy Resources Pty Limited (ACN 151 599 905) 20. Eagle & Globe Pty Limited (ACN 000 122 305) 21. Email Accumulation Superannuation Pty Limited (ACN 065 263 658) 22. Email Executive Superannuation Pty Limited (ACN 065 263 818) 23. Email Holdings Pty Limited (ACN 092 348 555) 24. Email Management Superannuation Pty Limited (ACN 065 263 710) 25. Email Metals Pty. Limited. (ACN 004 574 681) 26. Email Pty Limited (ACN 000 029 407) 27. Email Superannuation Pty Limited (ACN 065 263 603) 28. Emwest Holdings Pty. Limited. (ACN 001 992 123) 29. Emwest Properties Pty Limited (ACN 003 146 334) 30. GSF Management Pty Limited (ACN 064 116 874) 31. J. Murray-More (Holdings) Pty Limited (ACN 000 158 412) 32. John McGrath Pty Limited (ACN 000 004 937) 33. Kelvinator Australia Pty Limited (ACN 007 873 734) 34. Litesteel Products Pty Limited (ACN 109 854 677) 35. Litesteel Technologies Pty Limited (ACN 113 101 054) 36. Metals Properties Pty. Limited. (ACN 000 040 040) 37. Metalstores Pty Limited (ACN 000 267 112) 38. Metpol Pty Limited (ACN 000 927 373) 39. N.K.S. (Holdings) Proprietary Limited (ACN 004 321 313) 40. O Dee Gee Co. Pty. Limited. (ACN 004 208 191) 41. Onesteel Americas Holdings Pty Limited (ACN 147 067 016) 42. Onesteel Building Supplies Pty Limited (ACN 000 045 349) 43. Onesteel Coil Coaters Pty Limited (ACN 123 138 732) 44. OneSteel Manufacturing Pty Limited (ACN 004 651 325) 45. Onesteel MBS Pty Limited (ACN 096 273 979) 46. Onesteel Nsw Pty Limited (ACN 003 312 892) 47. Onesteel Queensland Pty Limited (ACN 010 558 871) 48. Onesteel Recycling Holdings Pty Limited (ACN 059 240 952) 49. Onesteel Recycling Overseas Pty Limited (ACN 105 479 356) 50. Onesteel Recycling Pty Limited (ACN 002 707 262) 51. Onesteel Reinforcing Pty Limited (ACN 004 148 289) 52. Onesteel Stainless Australia Pty Limited (ACN 004 610 851) 53. Onesteel Stainless Pty Limited (ACN 006 362 652) 54. Onesteel Technologies Pty Limited (ACN 096 380 219) 55. Onesteel Trading Pty Limited (ACN 007 519 646) 56. Onesteel US Investments 1 Pty Limited (ACN 131 211 606) 57. Onesteel US Investments 2 Pty Limited (ACN 131 211 571) 58. Onesteel Wire Pty Limited (ACN 000 010 873) 59. Overseas Corporation (Australia) Pty Limited (ACN 004 242 086) 60. P & T Tube Mills Pty Limited (ACN 010 469 977) 61. Palmer Tube Mills Pty Limited (ACN 010 469 879) 62. Pipeline Supplies of Australia Pty Limited (ACN 008 573 475) 63. Reosteel Pty Limited (ACN 000 142 094) 64. Roentgen Ray Pty Limited (ACN 000 028 106) 65. Southern Iron Pty Limited (ACN 119 611 068) 66. SSG Investments Pty Limited (ACN 085 490 526) 67. SSG No.2 Pty Limited (ACN 087 840 720) 68. SSG No.3 Pty Limited (ACN 087 840 515) 69. SSGL Share Plan Nominees Pty Limited (ACN 085 943 540) 70. SSX Acquisitions Pty Limited (ACN 090 574 520) 71. SSX Employees Superannuation Fund Pty Limited (ACN 064 431 116) 72. SSX Holdings Pty Limited (ACN 087 813 116) 73. SSX International Pty Limited (ACN 084 990 947) 74. SSX Pty Limited (ACN 082 181 726) 75. SSX Retirement Fund Pty Limited (ACN 064 431 303) 76. SSX Services Pty Limited (ACN 083 090 831) 77. SSX Staff Superannuation Fund Pty Limited (ACN 064 431 072) 78. Tasco Superannuation Management Pty Limited (ACN 071 901 712) 79. The ANI Corporation Pty Limited (ACN 000 421 358) 80. The Australian Steel Company (Operations) Pty Limited (ACN 069 426 955) 81. Tube Estates Pty. Limited. (ACN 010 449 939) 82. Tube Street Pty Limited (ACN 004 785 157) 83. Tube Technology Pty. Limited. (ACN 010 469 986) 84. Tubemakers of Australia Pty Limited (ACN 000 005 498) 85. Tubemakers Somerton Pty Limited (ACN 004 595 546) 86. Western Consolidated Industries Pty Limited (ACN 001 185 913) 87. Whyalla Ports Pty Limited (ACN 153 225 364) 88. X.C.E. Pty Limited (ACN 004 081 903) 89. XEM (Aust) Pty Limited (ACN 004 158 025) 90. XLA Pty Limited (ACN 004 239 392) 91. XLL Pty Limited (ACN 006 301 266) 92. XMS Holdings Pty Limited (ACN 008 742 014) 93. Zinctek Pty limited (ACN 010 474 790) SCHEDULE TWO Second Applicants: C.M. LIFE INSURANCE COMPANY COMPANION LIFE INSURANCE COMPANY CONNECTICUT GENERAL LIFE INSURANCE COMPANY FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY MUTUAL OF OMAHA INSURANCE COMPANY NATIONWIDE LIFE INSURANCE COMPANY OHIO NATIONAL LIFE ASSURANCE CORPORATION RELIASTAR LIFE INSURANCE COMPANY SECURITY LIFE OF DENVER INSURANCE COMPANY STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY STATE FARM LIFE INSURANCE COMPANY THE LINCOLN NATIONAL LIFE INSURANCE COMPANY THE OHIO NATIONAL LIFE INSURANCE COMPANY TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY TRANSAMERICA LIFE INSURANCE COMPANY UNITED OF OMAHA LIFE INSURANCE COMPANY VOYA INSURANCE AND ANNUITY COMPANY VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY Third Applicant: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)