FEDERAL COURT OF AUSTRALIA Intergen Energy Holdings (Australia) Pty Ltd, in the matter of Intergen Energy Holdings (Australia) Pty Ltd [2017] FCA 445 File number: NSD 454 of 2017 Judge: GLEESON J Date of Judgment: 30 March 2017 Date of publication of reasons: 3 May 2017 Catchwords: CORPORATIONS – external administration – application under s 447A of the Corporations Act 2001 (Cth) – for termination of administration of a group of companies on the basis that companies are solvent – application granted CORPORATIONS – external administration – application under s 449E of the Corporations Act 2001 (Cth) – for approval of administrator's remuneration – where creditors likely to be paid in full – where lenders and holding companies support application – application approved Legislation: Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Court (Corporations) Rules 2000 (Cth) Cases cited: Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 Date of hearing: 30 March 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 46 Counsel for the Plaintiffs: Mr DL Cook SC Solicitor for the Plaintiffs: Ashurst Australia ORDERS NSD 454 of 2017 IN THE MATTER OF INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 090 996 142 (AND EACH OF THE COMPANIES LISTED IN THE SCHEDULE) CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 090 996 142 First Plaintiff INTERGEN ENERGY HOLDINGS (AUSTRALIA) PTY LTD (ADMINISTRATORS 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) ACN 082 413 876 (and others named in the Schedule) Third Plaintiff JUDGE: GLEESON J DATE OF ORDER: 30 March 2017, as varied on 6 April 2017 THE COURT ORDERS THAT: 1. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) ("Act"), the administration of each of the second, fourth, sixth and eighth plaintiffs ("Company Plaintiffs") end at the time this order is made. 2. Pursuant to s 447A(1) of the Act: (a) section 449E(1)(c) of the Act operate in relation to the Company Plaintiffs without reference to the procedural requirements under r 9.2 of the Federal Court (Corporations) Rules 2000 (Cth); and (b) the remuneration of the first, third, fifth and seventh plaintiffs ("Administrator Plaintiffs") be fixed and approved by the Court in the sum of $713,554.00 plus GST. 3. Costs of this application be costs in the administration of the Company Plaintiffs. 4. Pursuant to s 37AF(1) of the Federal Court of Australia Act 1976 (Cth), Confidential Exhibits "CA-L" to "CA-P" to the Administrators' Solvency Report be kept confidential and placed in a sealed envelope in a file marked "not to be opened without an order of the Court or a Judge", until further order. 5. Within one business day, 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. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 On 30 March 2017, I made an order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) ("Act") that the administration of each of the second, fourth, sixth and eighth plaintiffs ("companies") end at the time that the order was made. I also made an order fixing the remuneration of the first, third, fifth and seventh plaintiffs ("administrators") in the sum of $713,554.00 plus GST, and other ancillary orders. 2 On 6 April 2017, I made the following order varying the orders made on 30 March 2017: Pursuant to r 39.05(h) of the Federal Court Rules 2011, order 2(a) of the orders made on 30 March 2017 is varied so that the words "section 449E(c) of the Act …" are replaced with the words "section 449E(1)(c) of the Act …". 3 These are my reasons for making those orders. Background Facts 4 The following description is substantially taken from the plaintiffs' written outline of submissions dated 30 March 2017, which I accept is accurately based upon the affidavit of Grant Sparks, one of the joint and several administrators of the companies, affirmed 29 March 2017. Mr Sparks is a chartered accountant, a registered liquidator and an official liquidator. The annexures to Mr Sparks' affidavit include a report on solvency of the companies prepared by Mr Sparks and dated 29 March 2017. 5 The companies, which are related companies forming part of the "Intergen Group" of companies, have a 50% interest in the Callide C Power Station, a coal-fired power station located near Biloela in Central Queensland ("Callide Power Plant"). The Callide Power Plant was commissioned in 2001 in a joint venture with CS Energy Limited. 6 The eighth plaintiff ("IGPC") is the main trading entity among the companies. IGPC owns most of the assets which are used in the course of the companies' business, including 50% of the Callide Power Plant. The personnel who operate the Callide Power Plant are not employed by the companies. 7 The fourth plaintiff ("IGPH"), the sixth plaintiff ("IGPM") and the second plaintiff ("IEHA") are holding companies that play a structural role within the broader global business. 8 The financial statements of the companies are prepared on both an individual and consolidated basis. 9 The companies were placed into voluntary administration on 14 June 2016 pursuant to s 436A of the Act, following resolutions to the effect that the companies were likely to become insolvent at some future time. The present administrators were appointed on a joint and several basis. 10 The reasons for the directors forming the view that the companies may become insolvent appear from the solvency report. At [3.5.2] of that report, Mr Sparks explains that the companies' lending syndicate refused to extend a lending facility ("facility") under which an amount of approximately $285 million was owed when it expired on 15 June 2016. The major liability of the companies arose under the facility. 11 Immediately upon the appointment of the administrators, the National Australia Bank Limited, in its capacity as the security trustee of a security trust in favour of the companies' financiers, appointed receivers. 12 Following their appointment and after making a preliminary estimate of the financial position of the companies, the administrators formulated a plan to conduct detailed investigations of the companies' affairs. One of the objectives of these investigations was to identify possible alternatives to liquidation of the companies, including liaising with the receivers as to what proposals they wished to make. 13 In order to properly assess the alternatives to liquidation, the administrators sought an extension of the convening period for the second meeting of creditors of the companies. An extension of the convening period up to and including 18 April 2017 was granted by the Supreme Court of Queensland on 11 July 2016. 14 As a result of the enquiries and investigations referred to above, the administrators received a proposal in or around November 2016 from OzGen Holdings Australia Pty Ltd ("OzGen"). OzGen is the ultimate Australian holding company of the Intergen Group. OzGen proposed to procure the satisfaction, in full, of the debts of the companies and restore the companies to solvency through: (1) a shareholder loan of approximately $270 million advanced by Intergen Energy Group Holdings (Australia) Pty Ltd ("lender") ("loan agreement"); and (2) the entry of a related entity of the companies, InterGen (Australia) Pty Ltd ("service provider"), into a services agreement with the companies under which the service provider (at its own cost) would provide all required services (and those requested by the administrators from time to time) to conduct and manage the companies' interest in the Callide Power Plant ("services agreement"). ("shareholder proposal"). 15 Under the shareholder proposal, the shareholder loan was to be applied (along with $60 million of cash held by the companies) for the purpose of repaying the facility and paying the receivers' total remuneration, costs, charges, liabilities and expenses (including legal expenses). The receivers would then retire. 16 After considering the materials provided in respect of the shareholder proposal, and also considering an alternative proposal for a deed of company arrangement, the administrators formed the view that it was is in the best interests of the creditors and stakeholders of the companies, and the broader Intergen Group, and consistent with the objects of Pt 5.3A of the Act that the shareholder proposal be accepted and implemented. 17 On 20 December 2016, the administrators made an application to this Court in proceeding number NSD2183/2016, requesting, inter alia, orders that: (1) the administrators were justified in causing the companies to enter into the loan agreement and the services agreement; and (2) the administrators would not be personally liable for any debts incurred arising out of or in connection with the loan agreement, 18 On 20 December 2016, Justice Jagot made those orders. 19 On 22 December 2016, the companies entered into the services agreement and the loan agreement, and on the same day the amount of $270 million was advanced to IEHA under the loan agreement ("advance"). 20 On 22 December 2016, following the receipt of the advance, the financiers under the facility were repaid in full and the receivers were provided with sufficient funds to meet their full remuneration, costs, charges, liabilities and expenses (including legal expenses). The receivers subsequently retired on the same day. Solvency of companies 21 The administrators now consider that it is appropriate for the administration to end, on the basis that the companies are solvent. 22 The solvency report confirms that, in Mr Spark's view, as at the date of the solvency report the group comprising the companies was solvent on an individual and consolidated basis. Mr Sparks concluded that the group was solvent on a cash flow basis and a balance sheet basis because it had: (1) sufficient cash to pay all debts as they fall due and payable within the next 12 months, even under a downside scenario where electricity prices are forecast to be the same as the previous year (approximately 30% lower than the forward price curve); (2) a surplus of current assets over current liabilities and sufficient cash to meet its entire current liability position; (3) an overall positive net asset position; and (4) no indicators of significance which may adversely impact solvency of the group, having considered all key areas of risk associated with the group's ability to continue trading the business. 23 The application was supported by: (1) a letter of support from the lender under the loan agreement, which undertook that if the application were to succeed, it would not to seek repayment of the advance unless in doing so, the companies will remain solvent; (2) letters of forbearance from related party creditors; and (3) a letter of support from the service provider. 24 Part of the liabilities incurred by the companies comprises contingent liabilities under hedge contracts associated with their electricity trading. The counterparties to those contracts have not terminated their contracts, such that the contingent liabilities have not crystallised. The administrators have reached an agreement with one counterparty, ERM Power Retail Pty Ltd ("ERM") not to terminate the contract on condition that certain payments are made by the administrators. Mr Sparks formed his view of solvency on different scenarios, including the scenario that the hedge counterparties (other than ERM) terminate the contracts. 25 The evidence discloses that the companies have net current assets of $129.9 million. The companies' cash flow forecasts show a closing surplus cash balance for each month over the next 12 months. Mr Sparks' opinion that the group is solvent on a cash flow basis as at 29 March 2017 is based on the following matters: (1) Mr Spark's conclusion that there is expected to be sufficient cash to pay all debts as they fall due and payable within the next 12 months under a base case scenario and a downside scenario where electricity prices are forecast to be the same as the previous year (approximately 30% lower than the forward price curve); and (2) Mr Sparks is not aware of any material movements in the group's cash flows since 28 February 2017 which would adversely impact the group's solvency position on a cash flow basis. 26 The administrators also propose retaining funds in their control to ensure that their liability for debts incurred during the administration will be paid, including their remuneration and payments to ERM. Mr Sparks has included the proposed holdback amount in his analysis of the companies' financial position and has concluded that the companies are solvent taking into account the retention of those monies. Section 447A 27 Section 447A of the Act provides relevantly: (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. 28 Although s 447A itself confers "plenary powers" on the Court "to do whatever it thinks is just in all the circumstances" (Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 341), s 447A(2)(a) expressly provides that the Court has power to end the administration of a company if the Court is satisfied that the company is solvent. 29 On the basis of the evidence set out above, I was satisfied that it was appropriate that the administration of the companies comes to an end because the companies are solvent. Administrators' remuneration 30 The administrators sought approval of remuneration for work done to date in the sum of $713,554.00 comprising work performed to date in the sum of $683,554.00 and work likely to be performed in the sum of $30,000.00. 31 Section 449E of the Act (which applies by virtue of s 1581(1) of the Act in relation to the remuneration of an external administration of a company who was appointed before 1 March 2017) provides relevantly: (1) The administrator of a company under administration is entitled to receive such remuneration as is determined: (a) by agreement between the administrator and the committee of creditors (if any); or (b) by resolution of the company's creditors; or (c) if there is no such agreement or resolution—by the Court. … (1C) The Court may determine remuneration under paragraph (1)(c) even if: (a) there has been no meeting of the committee of creditors; or (b) there has been no meeting of the company's creditors. … (4) In exercising its powers under subsection (1), (1A) or (2), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work performed by the administrator was reasonably necessary; (b) the extent to which the work likely to be performed by the administrator is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the administrator; (d) the quality of the work performed, or likely to be performed, by the administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the administrator; (f) the extent (if any) to which the administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the administrator was, or is likely to be required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the administrator; (i) whether the administrator was, or is likely to be, required to deal with: (i) one or more receivers; or (ii) one or more receivers and managers; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis: (i) the time properly taken, or likely to be properly taken, by the administrator in performing the work; and (ii) whether the total remuneration payable to the administrator is capped; (l) any other relevant matters. 32 Ordinarily, an administrator would seek approval of their fees from the general body creditors of the company in the first instance. However, in the present circumstances where the general body of creditors have received or will receive full payment of their claims, and therefore do not have the same interest they would otherwise have in the approval of such fees, I accepted that it was appropriate that the administrators seek approval of their fees from the Court. 33 For the same reasons, I accepted that it was appropriate to approve the proposed remuneration although the general body of creditors were not given notice of the application for approval of the remuneration. 34 The onus was on the administrators to establish that the remuneration claimed was reasonable. It is the function of the Court to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues: cf. Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 at [54]. 35 Whilst not relieving the Court of its responsibility of determining the reasonableness of those fees, it is significant that the holding companies of the companies (Ozgen and the lender) support the administrators retaining amounts in excess of the remuneration they presently claim on account of administrators' fees and outlays. 36 Mr Sparks gave affidavit evidence of the following matters: (1) the administrators' dealings with the receivers in connection with their review of the financial position of the companies for the purpose of determining whether the companies could and should continue to trade; (2) the administrators' dealings with the receivers in relation to their conduct of the business until the latter's retirement on 22 December 2016; (3) the administrators' assumption of responsibility for trading the companies on a "business as usual" basis, including paying trade creditors, since the receivers' retirement; and (4) other key tasks undertaken by the administrators including, in particular, evaluating the competing deed of company arrangement and shareholder proposals, and making the application to this Court for orders and directions in December 2016, referred to above. 37 Mr Sparks' evidence included a detailed remuneration report, identifying the persons involved in doing the relevant work and the dates on which the work was done, and setting out the work completed on the relevant dates in detail. The work described in the remuneration report was performed by Mr Sparks or PPB Advisory staff acting under supervision by Mr Sparks or one of the other administrators. The remuneration report records 1,270.30 hours worked and remuneration claimed of $683,554. 38 Mr Sparks gave evidence of his belief that the report accurately sets out the work done, the time taken to do that work and the appropriate rate for the person performing the work. Mr Sparks also gave evidence that he is satisfied that the work done was necessary and that the time taken to do the work was reasonable. 39 The remuneration has been calculated on the basis of time-based hourly rates in accordance with the standards prescribed by the Australian Restructuring Insolvency & Turnaround Association. The rates appear to be reasonable. Summary of receipts taken and payments made by the administrators 40 Mr Sparks gave evidence summarising the receipts taken by the administrators between 14 June 2016 and 28 March 2017, totalling $407,140,917 as follows: (a) electricity sales in the amount of $115,931,636; (b) surplus funds from the receivership in the amount of $21,088,048; (c) GST refund in the amount of $34,271; (d) interest income in the amount of $86,962; and (e) the shareholder loan of $270,000,000 (which while not taken directly into the administrators' account was obtained by the administrators for the benefit of the companies), (together "administration receipts"). 41 The remuneration for which approval was sought represents approximately 0.18% of the administration receipts. 42 Mr Sparks also gave evidence that the receivers charged fees of $1,645,432.80 as at 22 December 2016. 43 The payments made by the administrators between the period of 14 June 2016 to 28 March 2017 total $17,610,071 and can be summarised as follows: (a) legal costs and disbursements in the amount of $178,134; (b) cash calls and other operating costs in the amount of $11,752,182; (c) GST payments in the amount of $5,170,785; (d) ancillary service transactions in the amount of $170,197; (e) pool fees in the amount of $79,179; and (f) other smaller amounts as set out in a summary annexed to Mr Sparks' affidavit. Position of creditors following the administrations 44 In support of the claim for remuneration, Mr Sparks noted that as a result of the implementation of the shareholder proposal, the secured creditors have been repaid in full. The receivers have also been paid their remuneration. There are seven unsecured creditors remaining , with a total value of $55 million in accrued liabilities and $44.7 million in contingent liabilities. Mr Sparks has determined that the companies are solvent and will be able to satisfy all debts as and when they fall due, including liabilities that accrued prior to the appointment of the administrators and contingent liabilities (if they crystallise) and including the payment of the administrators' remuneration. Consideration 45 I was satisfied that the administrators are entitled to receive remuneration in the sum of $683,554.00 for work performed on the basis that the remuneration is reasonable taking into account the following matters: (1) Mr Sparks' evidence that the work performed was reasonably necessary and the time taken to do the work was reasonable; (2) the remuneration represents approximately 0.17% of the administration receipts; (3) the holding companies of the companies (Ozgen and the lender) support the administrators retaining amounts in excess of the approved remuneration for remuneration and outlays; and (4) I did not identify any matter which suggested that the remuneration was not reasonable. 46 I am also satisfied that the administrators are entitled to receive remuneration up to $30,000 for work to be done to finalise the administration consequent upon the ending of the administration. Although the administrators did not provide an estimate of the work likely to be performed, I am satisfied that it is reasonable to make the allowance proposed (which is approximately 4% of the total remuneration costs to date) where the companies are solvent, the administrations have been complex and the holding companies have approved the retention of an amount well in excess of the total remuneration claimed on account of administration costs and outlays. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 3 May 2017 SCHEDULE OF PARTIES NSD 454 of 2017 Plaintiffs Fourth Plaintiff: IG POWER HOLDINGS LIMITED (ADMINISTRATORS APPOINTED) ACN 082 413 876 Fifth Plaintiff: CHRISTOPHER HILL, GRANT SPARKS AND MARTIN FORD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF IG MARKETING PTY LTD (ADMINISTRATORS APPOINTED) ACN 082 413 867 Sixth Plaintiff: IG POWER MARKETING PTY LTD (ADMINISTRATORS 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) ACN 082 413 885 Eighth Plaintiff: IG POWER (CALLIDE) LTD (ADMINISTRATORS APPOINTED) ACN 082 413 885