Federal Court of Australia Tucker (Administrator) v Bolten (Trustee), in the matter of Quintis Leasing Pty Ltd (Administrators Appointed) (No 4) [2024] FCA 189 File number: WAD 332 of 2023 Judgment of: JACKSON J Date of judgment: 27 February 2024 Date of publication of reasons: 5 March 2024 Catchwords: CORPORATIONS - company administration application under s 447A and s 443B(8) of the Corporations Act 2001 (Cth) to modify operation of the five-business day period in s 443B of the Act - three extensions already granted - application under s 439A and s 447A of the Corporations Act for extension of time for convening second meeting of creditors - two extensions already granted - no likelihood that further extensions will lead to viable deed of company arrangement proposal - further two week extensions not granted Legislation: Corporations Act 2001 (Cth) ss 439A, 443B, 447A, Chapter 5C Cases cited: Tucker Re Quintis Leasing Pty Ltd [2023] FCA 1673 Tucker (Administrator) v Bolten (Trustee) Re Quintis Leasing Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 46 Tucker (Administrator) v Bolten (Trustee) Re Quintis Leasing Pty Ltd (Administrators Appointed) (No 3) [2024] FCA 85 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 33 Date of hearing: 27 February 2024 Counsel for the Plaintiffs: Mr SJ Dundas Solicitor for the Plaintiffs: King & Wood Mallesons Counsel for the Respondents: Mr DP Butler Solicitor for the Respondents: MPH Lawyers Counsel for the Interested Person: Mr GD Maher Solicitor for the Interested Person: Laird Lawyers ORDERS WAD 332 of 2023 IN THE MATTER OF QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) BETWEEN: RICHARD SCOTT TUCKER IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATOR OF QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) First Plaintiff SCOTT BRADLEY KERSHAW IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATOR OF QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) Second Plaintiff QUINTIS LEASING PTY LTD (ADMINISTRATORS APPOINTED) (ACN 080 978 721) Third Plaintiff AND FRIEDRICH GEORG BOLTEN AND ANDREA MARIE BOLTEN AS TRUSTEES FOR THE PIONEER FARMS TRUST First Respondent FRIEDRICH GEORG BOLTEN Second Respondent MARGRET LISELOTTE CONLEY AND AIRPORT FAMILY INVESTMENTS PTY LTD Third Respondent CHRIS AND AMANDA HOWIE Fourth Respondent PHILIP AND ANNETTE HOWIE Fifth Respondent DES CALING Interested person order made by: jackson j DATE OF ORDER: 27 february 2024 THE COURT ORDERS THAT: 1. The interlocutory application filed 27 February 2024 is dismissed. 2. Paragraph 5 of the orders made 13 February 2024 (suppression of identity of interested parties) is vacated. 3. The plaintiffs' costs of, or incidental to, this application be costs in the administration of the third plaintiff. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JACKSON J: 1 On 27 February 2024, on very short notice, I heard an application for the further extension of the convening period for the second meeting of creditors in the administration of Quintis Leasing Pty Ltd under s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth), and for orders effectively extending the time during which the administrators were not liable for rent under leases where the company was lessee under s 443B(8) and s 447A(1) of the Corporations Act. I dismissed the application. These are my reasons. Background and previous decisions 2 The background to the matter appears in the following prior decisions concerning this administration: Tucker Re Quintis Leasing Pty Ltd [2023] FCA 1673 (Feutrill J) (Quintis Leasing (No 1)); Tucker (Administrator) v Bolten (Trustee) Re Quintis Leasing Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 46 (Quintis Leasing (No 2)) (Banks-Smith J); and Tucker (Administrator) v Bolten (Trustee) Re Quintis Leasing Pty Ltd (Administrators Appointed) (No 3) [2024] FCA 85 (Banks-Smith J) (Quintis Leasing (No 3)). By those three decisions, on the application of the plaintiff administrators, the Court extended the time during which the administrators were not liable for rent and, in the second and third decisions, also extended the convening period for the second meeting of creditors. 3 In Quintis Leasing (No 3), both of those extensions were granted until 27 February 2024. Hence the application I dismissed, which was lodged with the Court at just after 10.30 am on 27 February 2024, needed to be determined on the same day. 4 Save for the following brief background, these reasons assume familiarity with the above three decisions. The structure of the Quintis group, and the place of Quintis Leasing in it, will not be described again. The applicant 5 The application that I dismissed on 27 February 2024 was not brought by the administrators, but by one of the growers, Des Caling. Like the other persons described as 'growers' in the previous judgments, Mr Caling sub-leases a portion of land from Quintis Leasing and will be entitled to the benefit of any harvest of sandalwood trees growing on that land. Mr Caling is also a security agent for a number of other growers' interests in the managed investment schemes through which the growers hold their interests in the plantations. However the solicitor who represented him at the hearing, Mr Maher, confirmed that Mr Caling's application was made solely in his capacity as a grower. Suppression 6 Mr Maher swore an affidavit in support of the application on 27 February 2024 which was read into evidence. There was some debate at the hearing as to whether part of an annexure to the affidavit, an undated document entitled 'Indicative and Non-Binding DOCA Term Sheet', should be suppressed. A previous deed of company arrangement (DOCA) proposal had been the subject of suppression orders which Banks-Smith J made on 13 February 2024, on the basis that disclosure of details of the then-proposed DOCA might risk finalisation of negotiations, which would not be in the interests of creditors: Quintis Leasing (No 3) at [22]. 7 At the hearing on 27 February 2024, both Mr Maher and the solicitor for the administrators, Mr Dundas, initially submitted that it would be appropriate to make a similar order in respect of the DOCA Term Sheet, for similar reasons. But the solicitor for the respondent landowners, Mr Butler, opposed such an order, submitting that it would impede his ability to make the submissions he wished to make. He further submitted that at the stage the matter had reached, the prospect that any competing DOCA proponent might emerge and gain an advantage from knowledge of the DOCA Term Sheet was low. In reply submissions, Mr Dundas said that his clients could 'live with' the confidentiality of the DOCA Term Sheet being removed, and Mr Maher echoed that, accepting that there was unlikely to be 'a long line of people lining up to put some proposed terms' (ts 9). 8 In view of the ultimate position the parties reached, and of the heavy onus that an applicant for a suppression order must discharge, I decided that no such order would be made. Also, it was effectively common ground that there was no longer any need for suppression of the identities of certain persons that were suppressed by another of the orders made on 13 February 2024, so that earlier suppression order was discharged. The reasons for the application for further extensions of time 9 According to Mr Maher's affidavit of 27 February 2024, the further extensions of time were sought in order to give the administrators and the Sandalwood Growers Co-Operative (SGC) more time to negotiate a DOCA. Mr Maher is solicitor for the SGC as well as for Mr Caling. His affidavit describes the SGC as 'a co-operative nominated by approximately 400 growers to represent their interests in various legal proceedings' (para 1). He deposed as to the fact of the conduct of such negotiations since 13 February 2024. As a result of those negotiations, the DOCA Term Sheet had been presented to the administrators for consideration as to whether they would recommend the proposal to creditors at the second creditors' meeting. 10 It is only necessary to describe the terms of the DOCA Term Sheet in broad outline. The administrators would become deed administrators. A company (Newco), which I understood would be a vehicle for the respondents, would make a cash contribution to form a fund. The fund would be applied in part to costs of the administrators and deed administrators, and in part to meet the claims of unsecured creditors of Quintis Leasing. Subject to certain other conditions precedent, on payment of money into the fund, the leases of land from the respondents would be novated to Newco. It appeared to be contemplated that Newco would negotiate new leases with growers. Once these matters and the other conditions precedent were effectuated, Quintis Leasing would go into liquidation and the deed administrators would become the liquidators. 11 According to Mr Maher's affidavit, speaking on hearsay he attributed to Mr Butler, there were 'minor points still to be negotiated to finalise a proposal which is supported by his [Mr Butler's] clients, the administrators and the SGC on behalf of its represented growers' (para 17). He said later in the affidavit that he understood that 'there are only minor terms which need to be finalised for the proposed DOCA to be supported by the Administrator' (para 22). Mr Maher deposed further that (para 23): given the terms of the proposed DOCA are close to receiving the support of the Administrator, I believe that these terms could become the basis of a viable transaction for all the other landowners which would potentially continue [certain of the managed investment schemes]. 12 This, Mr Maher said, may result in a better return for the creditors of Quintis Leasing than a winding up. 13 At the hearing, Mr Maher said that the parties discussing the proposed DOCA were yet to reach agreement on three points: the structure for the projects in future, including whether they would be conducted by way of managed investment schemes and if so who the responsible entity would be; the amount of the fund that Newco was to contribute; and 'liability in claims between all the various group entities and indemnities'. (Given the urgency of the hearing, all concerned gave evidence from the bar table, without objection.) 14 Mr Maher further deposed to his belief that an extension would result in limited prejudice to landowners. That is because they were unlikely to receive rent from the administrators if the extension was not granted, as the administrators were likely to issue notices to the landowners under s 443B(3) of the Corporations Act, with the effect that the administrators would not become liable for rent or other amounts payable under the leases. Mr Dundas confirmed that his clients the administrators intended to issue those notices on the same day as the hearing if the extensions of time were not granted. Mr Maher believed that some landowners would then terminate the leases and that this would likely lead to an application by the responsible entity of the managed investment schemes, Sandalwood Properties Limited (SPL), to wind up the schemes. However Mr Maher believed that SPL would be likely to continue to supervise and manage all commercial silvicultural activities on the sandalwood plantations, minimising prejudice to creditors from a further extension. 15 In contrast, if the extensions of time were not granted, it was Mr Maher's belief that the administrators would be likely to recommend at the second meeting that creditors vote to wind up Quintis Leasing. Mr Dundas, appropriately, did not confirm in advance what his clients' recommendation would be, but he made no attempt to contradict Mr Maher's belief either. The respondents' position 16 The respondents opposed the application. They disputed the proposition that the trees were being properly cared for, albeit in the circumstances they were unable to adduce up to date evidence to the contrary. They were unsecured creditors of Quintis Leasing for unpaid rent and there appeared to be no prospect that rent payments would recommence. So the respondents' position was that they wanted their land back. They nevertheless (according to Mr Butler) had thought it appropriate to put a DOCA proposal, bearing in mind that if the leases are terminated, the respondents assert a reversionary interest in the trees. 17 That proposal, Mr Butler said, was 'to give the growers a potential future connection with this land' (ts 16), even though SPL was applying for the managed investment schemes to be wound up. But the respondents wanted to do it 'in a way that for all intents and purposes cuts out the baggage of the Quintis Group' (ts 16). By that I understood him to mean, broadly, that his clients would lease the land to the growers without the lease and management agreements that are intrinsic to the present managed investment scheme structure, and without other agreements of that kind. Mr Butler alluded to work that had been done to determine whether the structure could work without a responsible entity. In that regard, confirmation that Newco would not require (or will require someone else) to obtain registration under Chapter 5C of the Corporations Act (the chapter on managed investment schemes) is a condition precedent in the DOCA Term Sheet. 18 But the respondents did not accept that this, or the other remaining issues between the parties identified by Mr Maher, were likely to be resolved even if a further two weeks were allowed. Mr Butler submitted that there was no point in extending time further when his clients were not being paid for the occupation of the land. Being kept out of pocket for longer would be prejudicial to his clients. 19 Mr Butler did not accept that a recommendation by the administrators to place Quintis Leasing into liquidation would be the end of the DOCA proposal. He asserted that if that were to occur, it would still be open to his clients to propose a DOCA and have it approved at the second meeting. He further asserted that his clients could keep working to find a solution that involved the growers even if the company went into liquidation. The administrators' position 20 It emerged at the hearing that the administrators had made the previous two applications for extensions of time with funding from SPL. But at the time of the hearing on 27 February 2024, they were unfunded. The administrators did not join in the application, although they indicated that they did not oppose it. 21 Mr Dundas did, however, submit that the remaining issues between his clients and the respondents over the DOCA Term Sheet were not minor but, rather, fundamental. His clients considered that the funds to be provided, as then proposed, were inadequate. Also, there was no clarity as to how growers' ongoing investments were to be structured in compliance with Chapter 5C. 22 Mr Dundas said that his clients first raised these points on 12 February 2024. According to him, no adequate response had been received as to how these issues would be resolved, so it had been 'difficult for our clients to form that view about whether or not this is, in fact, a transaction which is viable and capable of being completed in compliance with relevant laws' (ts 27). 23 Mr Dundas said that the analysis of the likely consequences if Quintis Leasing were to go into liquidation was not a simple one. The relevant parties would need to take advice on the reversionary interest in the trees that the landowners are said to hold, and potentially the outcome would make the managed investment schemes untenable. SPL's position 24 SPL did not appear at the hearing, but Mr Butler tendered a letter from its solicitors sent on the day of the hearing. The letter indicated that SPL did not object to the proposed extensions. But it asserted that it had funded the previous applications in order that all avenues for a better outcome for investors could be explored, even though its view is that the managed investment schemes are unviable and should be wound up. The letter said that SPL's solicitors understood that the administration had been on foot for nearly three months, a number of issues remained unresolved in the DOCA negotiations, and they were unaware of how it was proposed those issues would be resolved. The letter expressed concern at the continued effluxion of time and associated costs. Why the application was dismissed 25 Feutrill J summarised the principles governing applications to extend the time by which administrators become liable for rent and other payments due under leases in Quintis Leasing (No 1) at [20]-[27] and [29]-[30], and Banks-Smith J similarly summarised the principles governing applications to extent the convening period in Quintis Leasing (No 2) at [53]-[59]. I respectfully adopt those summaries without repeating them. 26 Unsurprisingly, much depends on what the Court determines is in the best interests of creditors as a whole. But it does not follow that the Court must accede to an extension of time that is proposed on the basis that it might result in a better return to creditors than a winding up. As noted in Quintis Leasing (No 2) at [54]: the Court must have regard to the objects of Part 5.3A set out in s 435A and reach an appropriate balance between the expectation that an administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible and constructive options directed towards maximising the returns for creditors and any return for shareholders: Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J). 27 In this case, I was conscious that three extensions of the period before the administrators became liable under the leases, and two extensions of the convening period, had already been granted. From the point of view of the respondents, that has postponed their ability to pursue remedies for the non-payment of rent, including potentially recovery of possession, for a total of eight weeks. It has also postponed for a total of four weeks the time for the creditors to make a decision as to the future of the company. 28 Further, the reasons that made those postponements appropriate no longer applied. In particular, there was no real basis in the evidence to think that it was likely that further extensions of time would bring a DOCA proposal to fruition, or even that there was a significant chance of that occurring. The evidence advanced on Mr Caling's behalf to say that a varied DOCA proposal might emerge was very general in nature. It was unsupported by reference to the actual content of any negotiations. And that was not because some sudden development had suddenly made it necessary to bring the application within hours of the expiry of the relevant periods. That expiry had been known to Mr Caling and the SGC for two weeks. Mr Maher properly, and candidly, accepted that Mr Caling could have made the application sooner. 29 That being so, I did not consider that Mr Caling had discharged the burden of establishing sufficient reason to further extend the relevant periods. The evidence advanced in support of the application resolved to no more than hope that a DOCA proposal would emerge that provided for more money for unsecured creditors, and potentially engaged with more landowners and thus more of the managed investment schemes. That is not enough. 30 Further, in the face of that hope, the issues that meant that the DOCA Term Sheet did not have the assent of the administrators and the respondents were far from 'minor points'. I agreed with Mr Dundas's characterisation of them as fundamental. The amount of money to be contributed, and the extent to which it could be used to meet the fees of the administrators and deed administrators, would be central to the operation of the DOCA. The evidence did not suggest that the parties were only a few thousand dollars apart in relation to that. And while this was not the subject of evidence, it appeared to me unlikely that the fund would come close to meeting either of those groups of claims in full. There was, indeed, no evidence that it would be a better result for creditors than a winding up. 31 Further, the question of the legal structure by which growers could continue to hold interests in the scheme, with or without managed investment schemes and responsible entities, was plainly fundamental. There was no suggestion in the evidence that any proposal to deal with that question was on the horizon. Mr Dundas's submissions at the hearing belied any suggestion that the DOCA Term Sheet was close to receiving the administrators' support. 32 I therefore did not consider that Mr Caling had established any real chance that further extensions of time would lead to a better return to unsecured creditors than whatever the outcome would be if they were required to vote on the future of Quintis Leasing at the second meeting. Against that I gave weight to the policy behind Part 5.3A that, in general, company administrations should proceed to such a vote with reasonable expedition. 33 For those reasons, I made orders dismissing Mr Caling's application. The administrators did not press for costs against Mr Caling but they did seek that their costs of dealing with the application be costs in the administration of Quintis Leasing. The respondents sought an order that costs follow the event. I decided that while the application failed, Mr Caling brought it in circumstances of urgency for the purpose of determining the appropriate course of the administration, so that the only order for costs made was the one sought by the administrators. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson. Associate: Dated: 5 March 2024