FEDERAL COURT OF AUSTRALIA Hill, in the matter of Intergen Energy Holdings (Australia) Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2016] FCA 1585 File number(s): NSD 2183 of 2016 Judge(s): JAGOT J Date of judgment: 20 December 2016 Catchwords: CORPORATIONS – administrators' liability – whether appropriate to make orders under ss 447A and 447D of the Corporations Act limiting liability of administrators Legislation: Corporations Act 2001 (Cth) ss 447A, 447D Cases cited: Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142 Re Nexus Energy Ltd [2014] NSWSC 1041 Date of hearing: 20 December 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 12 Counsel for the Plaintiffs: Mr D L Cook SC Solicitor for the Plaintiffs: Ashurst Australia Counsel for Intergen Energy Group Holdings (Australia) Pty Ltd: Mr N M Bender appeared with leave of the Court Solicitor for Intergen Energy Group Holdings (Australia) Pty Ltd: Johnson Winter & Slattery Lawyers ORDERS NSD 2183 of 2016 IN THE MATTER OF INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 090 996 142 BETWEEN: CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 090 996 142 First Plaintiff INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 090 996 142 Second Plaintiff CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF IG POWER HOLDINGS LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 876 (and others named in the Schedule) Third Plaintiff JUDGE: JAGOT J DATE OF ORDER: 20 DECEMBER 2016 THE COURT NOTES THAT: 1. The plaintiffs undertake to the Court to provide the Australian Securities and Investments Commission a copy of these orders to ASIC within 48 hours of these orders being made. THE COURT ORDERS THAT: 1. Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (the Act), Part 5.3A of the Act is to operate in relation to the Company Plaintiffs as if section 443A(1) of the Act reads, in respect of the Administrator Plaintiffs, as follows: "(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for: (a) services rendered; or (b) goods bought; or (c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or (d) the repayment of money borrowed; or (e) interest in respect of money borrowed; or (f) borrowing costs, except for any debts incurred arising out of or in connection with a Loan Agreement to be entered into by the following parties: (a) IG Power (Callide) Ltd (Administrators Appointed) (Receivers And Managers Appointed) (ACN 082 413 885); (b) IG Power Marketing Pty Ltd (Administrators Appointed) (Receivers And Managers Appointed) (ACN 082 413 867); (c) IG Power Holdings Limited (Administrators Appointed) (Receivers And Managers Appointed) (ACN 082 413 876); (d) InterGen Energy Holdings (Australia) Pty Ltd (Administrators Appointed) (Receivers And Managers Appointed) (ACN 090 996 142); (e) InterGen Energy Group Holdings (Australia) Pty Ltd (ACN 092 452 198) of Level 26, 400 George Street, Brisbane QLD 4000 (Lender) (together, the Companies); and (f) Christopher Hill, Grant Sparks and Martin Ford in their capacity as voluntary administrators of each of the Companies." 2. Costs of this application be costs in the administration of the Second, Fourth, Sixth and Eighth Plaintiffs (the Company Plaintiffs). 3. Within one business day, the First, Third, Fifth and Seventh Plaintiffs (the Administrator Plaintiffs) cause notice of the originating process and these orders to be given to creditors of each of the Company Plaintiffs respectively by placing copies of the said documents on the website maintained by the Administrator Plaintiffs at https://www.ppbadvisory.com/creditor-information. 4. Liberty be reserved to any party affected by the above orders to apply to modify or discharge them on no less than 48 hours' notice to the Administrator Plaintiffs. THE COURT DIRECTS THAT: 5. Pursuant to section 447D(1) of the Act, the Administrator Plaintiffs are justified in causing the Company Plaintiffs to enter into a Loan Agreement on substantially the same terms as those contained in the draft Loan Agreement produced at Annexure CCH-12 to the affidavit of Christopher Clarke Hill, affirmed on 20 December 2016. 6. Pursuant to section 447D(1) of the Act, the Administrator Plaintiffs are justified in causing the Company Plaintiffs to enter into the Services Agreement produced at Annexure CCH-13 to the affidavit of Christopher Clarke Hill (Draft Services Agreement) on substantially the same terms as those contained in the Draft Services Agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JAGOT J: 1 This is an urgent application seeking orders under ss 447A and 447D of the Corporations Act 2001 (Cth) (the Corporations Act), in effect: (1) to allow the administrators of the relevant companies to enter into a loan agreement for $270 million without incurring the personal liability which would otherwise arise pursuant to s 443A(1)(d) of the Corporations Act, under the first of those sections; and, (2) for directions that the administrators are justified in doing so, under the latter section. 2 As set out in the evidence and the written submissions which have been provided, Intergen Energy Holdings (Australia) Pty Ltd, IG Power Holdings Limited, IG Power Marketing Pty Ltd and IG Power (Callide) Ltd (together, the companies) were placed into administration on 14 June 2016. On the same day, National Australia Bank, the security trustee under the relevant loan facility for the companies, appointed receivers over the assets of the companies. The companies perform various functions in the conduct of the Callide Power Plant in central Queensland. 3 The urgent application arises in circumstances where the administrators have received competing proposals in respect of the future of the companies. The first proposal is from the ultimate Australian holding company of the relevant company group (referred to as Ozgen, being Ozgen Holdings Australia Pty Ltd), which will provide sufficient funding to retire the receivers, pay the unsecured creditors and restore the companies to solvency. The other proposal is from the major secured creditor of the Companies (referred to as KKR; more specifically, KKR Credit Advisors (US) LLC, on behalf of KKR Mackellar Partners LP, Spruce Investors II Limited Partnership, Presidio Investors Limited and various other secured lenders). 4 The urgency of the application is a result of the fact that KKR's proposal is to lapse if not put to the second meeting of creditors, which was to be held before 31 December 2016. This date was extended to 18 April 2017, with the last day for the convening of that meeting being 21 December 2016. These details were set out in communications from Herbert Smith Freehills, the lawyers for KKR, dated 14 December 2016 in which reference is made to KKR's proposal, but in addition, contains specific criticisms of the proposal by Ozgen. 5 In that letter, it was said that KKR considers that Ozgen's proposal involves: a scheme to circumvent the need to put forward a DOCA proposal for consideration by the Administrators and creditors in an attempt to resume control of the affairs of the company … without paying out all the creditors … and returning the companies to solvency … [which is] not permissible under part 5.3A [of the Corporations Act]. 6 It is in these circumstances that the plaintiffs bring their urgent application. 7 Consistent with the evidence and the submissions which have been put on behalf of the plaintiffs, I do not have any doubt that the first part of the relief which is sought pursuant to s 447A is appropriate. The loan agreement which is proposed is in the sum of $270 million. The evidence establishes that the range of considerations which were identified, for example, by Gilmour J in Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142 at [28] – [30] are satisfied in the present case. Specifically, I am satisfied that the proposed arrangements (the loan forming the first step thereof) are in the interests of the company's creditors and consistent with the objectives of Pt 5.3A of the Corporations Act. The arrangements will enable the companies to continue to trade for the benefit of the companies' creditors. Furthermore, the creditors of the companies are not prejudiced or disadvantaged by the orders sought and stand to benefit from the administrators entering into the arrangement. 8 In addition, notice has been given to those who may be affected by the order. In this regard, I again refer to the correspondence from the solicitors for KKR dated 14 December 2016, and the fact that in that correspondence, reference was made to this foreshadowed application which, at that time, was anticipated to be before the court yesterday. I also accept that, in circumstances where the loan agreement is $270 million, and the relevant provisions of the loan agreements themselves protect the administrators from liability, it is only to be expected that the administrators are not willing to proceed other than with appropriate orders pursuant to s 447A(1) of the Corporations Act. 9 In this regard, I refer in particular to paragraphs 51 and 52 of the affidavit of Christopher Hill, one of the administrators, where he says: 51. In view of the size of the transaction and the sums involved, the Administrators are not willing to incur personal liability in relation to the Intergen Loan, particularly where the relevant contracting counterparties have agreed to exclude or limit any such personal liability. 52. If the administrators are unable to obtain orders under section 447A of the Act to modify the operation of section 443A so that their personal liability under the Intergen Loan is excluded in accordance with the terms of the draft Loan Agreement, the Administrators are not prepared to cause Intergen to enter into the Intergen Loan. 10 The directions sought under s 447D are to the effect that the administrators are justified in entering into the loan agreement and the other aspect of the proposal. These other aspects involve a services agreement which will ensure the continued operation of the companies' businesses at the service provider's cost, and the immediate retirement of the receivers, resulting in what is estimated to be a saving of costs of around $50,000 per week. 11 This part of the application raises the kind of issues which Black J considered in Re Nexus Energy Ltd [2014] NSWSC 1041 (Nexus Energy) at [13], when his Honour said that it would be "the exception, rather than the rule" that the court would be prepared to give a direction under s 447D in respect of arrangements of this kind. By this, his Honour means that the direction relates to commercial issues which, in the ordinary course, are best weighed and assessed by the administrator rather than the court. However, in Nexus Energy itself, as explained in [13], Black J was satisfied that the direction should be made because of "the complexity of the issues that the administrator had to address", including the existence of various classes of creditors, which were seen as justifying the direction limiting liability, which was necessary to preserve the company's solvency. 12 I accept that there is similar complexity in the current case given the competing proposals in relation to the rehabilitation of the companies and as between the different classes of creditors have. Further, in the face of the communications from the solicitors for KKR, I believe there is justification for the making of the directions which have been sought. In the circumstances of this case, I am thus satisfied that I should make the orders as set out in the short minutes of order. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 9 January 2017 SCHEDULE OF PARTIES NSD 2183 of 2016 Plaintiffs Fourth Plaintiff: IG POWER HOLDINGS LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 876 Fifth Plaintiff: CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF IG POWER MARKETING PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 867 Sixth Plaintiff: IG POWER MARKETING PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 867 Seventh Plaintiff: CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF IG POWER (CALLIDE) LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 885 Eighth Plaintiff: IG POWER (CALLIDE) LTD (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 082 413 885