Supreme Court New South Wales Medium Neutral Citation: In the matter of Green Camel Pty Limited [2024] NSWSC 1199 Hearing dates: 23 September 2024 Date of orders: 23 September 2024 Decision date: 23 September 2024 Jurisdiction: Equity - Corporations List Before: Nixon J Decision: See [53] Catchwords: CORPORATIONS – management and administration – orders sought for modification of operation of Corporations Act s 443A for limitation of administrators' liability in respect of relevant borrowings – whether the funding arrangement is in the interests of the company's creditors – whether the creditors stand to benefit from entry into the arrangement Legislation Cited: Corporations Act 2001 (Cth), ss 443A, 443D, 447A, 556 Court Suppression and Non-publication Orders Act 2010 (NSW), ss 7, 8 Cases Cited: Deputy Commissioner of Taxation, Italian Prestige Jewellery Pty Ltd (In Liq) v Italian Prestige Jewellery Pty Ltd [2018] FCA 983 In the matter of Renex Holdings (Dandenong) 1 Pty Ltd [2015] NSWSC 2003 In the matter of RCR Tomlinson Ltd [2018] NSWSC 1859 Mentha, in the matter of Griffin Coal Mining Company Pty Ltd [2010] FCA 1469 Onefone Australia Pty Ltd v One.Tel Pty Ltd [2010] NSWSC 498 Secatore, in the matter of Fletcher Jones and Staff Pty Ltd [2011] FCA 1493 Category: Principal judgment Parties: Stephen Hathway and Philip Hosking in their capacity as administrators of Green Camel Pty Limited (First Plaintiffs) Green Camel Pty Limited (Second Plaintiff) Representation: Counsel: E Keynes (Plaintiffs) Solicitors: SLF Lawyers (Plaintiffs) File Number(s): 2024/319625 Publication restriction: Nil EX TEMPORE JUDGMENT – REVISED 23 SEPTEMBER 2024 1. By Originating Process filed in Court on 29 August 2024, the First Plaintiffs, who are the Administrators of the Second Plaintiff, Green Camel Pty Ltd, seek an order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (the Act), modifying the operation of Part 5.3A of the Act so far as concerns the Administrators' personal liability in respect of a funding agreement which was entered into on 25 July 2024 between the Administrators, Green Camel and Arrow Funds Management Ltd (the Funding Agreement). The Administrators have entered the Funding Agreement in order to provide the funds necessary to keep the business of Green Camel operating, as well as to fund the costs of the administration, including the costs of a sale process. 2. Specifically, the Administrators seek orders pursuant to s 447A of the Act that: 1. the liabilities of the Administrators incurred with respect to any obligations arising out of, or in connection with, the Funding Agreement are in the nature of debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of Green Camel; and 2. Part 5.3A of the Act is to operate such that, if the Administrators' indemnity under s 443D of the Act is insufficient to meet any amount for which the Administrators may be liable arising out of or in connection with the Funding Agreement, then the Administrators will not be personally liable to repay any such amount to the extent of that insufficiency. 1. The Administrators also seek consequential relief. 2. In support of the application, the Plaintiffs rely on an affidavit of Stephen Hathway dated 29 August 2024 and a further confidential affidavit of Mr Hathway dated 28 August 2024. In addition, they rely on a solicitor's affidavit regarding the notification of this application to creditors and the Australian Securities and Investments Commission (ASIC). Background 1. On 18 July 2024, Mr Hathway and Mr Philip Hosking were appointed voluntary administrators of Green Camel. 2. Green Camel's business consists of: 1. the production and supply of organically certified vegetables and fish (Produce) to various supermarkets including Coles, Woolworths and Harris Farm Markets; and 2. the development of the technology to build and operate industry-leading commercial organic glasshouses. 1. Green Camel operates this business from a property at Cobbitty, New South Wales (the Property). Green Camel subleases the Property from Sandhurst Trustees Limited, which is a subsidiary of Arrow. The Property comprises an office and three warehouses. 2. As at the date of the Administrators' appointment, Green Camel had: 1. a total of fifty-three employees, comprising seventeen full-time employees, two part-time employees and thirty-four casual employees (the number of employees has not significantly changed since that date); 2. ongoing supply contracts with supermarkets for the supply of the Produce; and 3. approximately $21,000 in cash at bank. 1. Other than the amount of cash at bank and accounts receivable from trading operations (which are less than accounts payable), there are no other sources of funds available to Green Camel. 2. Mr Hathway explains that Green Camel's business requires constant attention and resources, otherwise the Produce will perish. In particular: 1. The tomato and cucumber plants are housed in greenhouses, and require constant temperature control, without which they will die. They also require organic pesticides to prevent bug infestation. 2. The fish require food, oxygen, heating and lighting, and the tanks require constant filtration as well as chemicals. Without food, heating, lighting and oxygen, the fish will die. In addition, as the fish grow larger, they need to be transferred between tanks to ensure that the biomass ratio to water is maintained at required levels. 1. Mr Hathway further deposes that Green Camel has the capacity to produce over 700,000kg of organic produce per year and over 12,000kg of barramundi per year. 2. Since the Administrators have been appointed, they have continued to trade Green Camel's business. This has been done by retaining staff, engaging a consultant to manage the business and entering into the Funding Agreement in order to make the payments necessary for the continued operation of Green Camel. 3. The Administrators have formed the opinion that selling Green Camel as a going concern will maximise the chances of Green Camel continuing to exist and will likely result in the best return to creditors. Mr Hathway deposes that the reasons for this view include the following matters: "a) the food production sector of Green Camel only survives through the maintenance of growth and supply of the Products; b) trading on ensures preservation of the goodwill and a significant portion of the assets of Green Camel, being the Products and supply of the products pursuant to the Supply contracts; c) without continual supply of the Products, the Supply Contracts will be terminated and/or Green Camel will be in breach of those contracts; d) those existing Supply Contracts are beneficial to creditors if preserved. They provide significant revenue for Green Camel; e) if the Products are not kept alive, maintained and farmed, the majority of the Green Camel business will essentially cease to exist. The business therefore cannot be sold to provide value to creditors; f) prospective purchasers will have the benefit of Green Camel's employees who hold a significant body of knowledge in respecting of growing and farming the Products. In a liquidation, these employees would have to be terminated; g) there are employee entitlements of approximately $804,903, which would crystallize should Green Camel cease to trade and the employee's employed be terminated; h) Green Camel holds specialised licences which would have no value if Green Camel ceases to operate;" 1. By reason of these matters, the Administrators estimate that the value of Green Camel's assets and business if it is sold as a going concern will be significantly higher than if it is sold via auction or private sale following the business's closure. 2. In addition, the Administrators formed the view, upon their appointment, that Green Camel required urgent funding in order to continue to trade as a going concern. In particular, it required funding in an amount sufficient: 1. to meet Green Camel's forecast expenditure, including wages and the costs of operations; 2. to preserve Green Camel's operations in their existing form for the purpose of maximising the sale process; 3. to fund the costs of the sale process; and 4. to allow Green Camel to continue operating while the Administrators performed their obligations to provide their opinion to creditors in respect of any proposal for a Deed of Company Arrangement (DOCA). 1. The Administrators formed the view that they required funding of approximately $500,000 for these purposes. 2. On 25 July 2024, the Funding Agreement was entered. Pursuant to that agreement, Arrow agreed to provide Green Camel and the Administrators with funds to enable Green Camel to continue trading, and to enable the Administrators to conduct a marketing campaign and sale process in respect of Green Camel's assets and undertaking. By the Funding Agreement, Arrow also agreed to provide Green Camel with an ongoing right of occupation of the Property pursuant to the sublease. 3. Relevant terms of the Funding Agreement include that: 1. the Initial Advance was $108,800, with a facility limit of $508,800; 2. any advances of further money in addition to the initial advance were at the discretion of Arrow; 3. Green Camel agreed to use the funds for specified authorised purposes, including the payment of wages and the costs of running its business; and 4. Green Camel was required to pay interest at a rate of 12% per annum, and any interest which was not paid on the required date might, at the election of Arrow, be capitalised and added to the principal debt. 1. The Funding Agreement contains an acknowledgement by Green Camel and the Administrators that the facility provided under the Funding Agreement is a debt for the purposes of s 443A of the Act, and is a priority debt for the purposes of s 556(a)(i) of the Act, if Green Camel is wound up. 2. Clause 23.1 of the Funding Agreement provides as follows: "Subject to the Conditions Subsequent being satisfied by the Administrators and the Borrower: (a) any liability of the Administrators pursuant to, or arising from, this Deed of whatever nature and howsoever arising is strictly limited to the extent of the assets of the Borrower from which the Administrators are indemnified for their personal liability under s443D of the Corporations Act 2001 (Cth) and for which the Administrators have a lien over the assets of the Borrower under section 443F of the Corporations Act 2001 (Cth). (b) the Lender acknowledges and agrees that the limitation set out in clause 23.1(a) applies whether such liability is incurred, or arises as a consequence of matters occurring, before or after the making of any 443A Orders." 1. Following entry into the Funding Agreement, and after performing certain tasks including paying certain aged payables, and paying for the costs of some necessary maintenance and repairs, the Administrators determined that a further drawdown of the facility under the Funding Agreement was required. 2. As at the date of this application, a total of $680,000 has been advanced under the Funding Agreement. 3. The Administrators have formed the view that the terms of the Funding Agreement are commercial and reasonable and are in the interests of Green Camel's creditors and shareholders. The reasons for this view are that: 1. the interest rate of 12% per annum is, in the Administrators' experience, a reasonable commercial rate of interest to distressed companies; 2. the loan facility is sufficient to cover the anticipated working capital and funding requirements of Green Camel, so as to allow Green Camel to continue to operate while the Administrators conduct the sale process; and 3. the funding will allow the Administrators to continue to cause Green Camel to meet its ongoing obligations. 1. Mr Hathway deposes that, given the ongoing costs required to operate Green Camel as a going concern, the Administrators are not willing to operate Green Camel until sale in circumstances where they may be personally liable for the debts and liabilities arising out of, or in connection with, the Funding Agreement. 2. Further, while the Funding Agreement includes (as outlined above) a clause excluding personal liability, the Administrators consider it appropriate to seek an order giving effect under Part 5.3A of the Act to the terms on which the Funding Agreement has been entered. 3. This application has been notified to ASIC and to creditors. No person has expressed any opposition to the orders sought. 4. Arrow, which has appeared in these proceedings as an interested person, has advised the Plaintiffs and the Court that it is supportive of the relief sought. 5. This application was not brought until some five weeks after the Funding Agreement was entered. Mr Hathway explains that the reasons for the delay in bringing the application include the following matters: 1. the administration of Green Camel has been an intensive process which has involved management of over fifty employees and a business that requires twenty-four hour a day maintenance and supervision; 2. in addition to the above, the Administrators and their staff have had to spend time dealing with necessary repairs to, and maintenance of, equipment which have been additional to those arising in the ordinary course of business, as well as addressing potential occupational health and safety matters; 3. the Administrators have also spent significant time preparing and providing a second report to creditors, dated 13 August 2024; and 4. the Administrators formed the view, as a result of their investigations, that other applications should be made to the Court (which are the subject of separate prayers for relief in the Originating Process, and which have been deferred to a separate, contested hearing). The Administrators formed the view that it was appropriate for these various applications to be brought before the Court in the one proceeding, which delayed the bringing of the application for the orders under s 447A which are sought today. Relevant Principles 1. Section 443A of the Act provides that the administrator of a company under administration is liable for debts which 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, including for repayment of money borrowed, interest in respect of money borrowed, or borrowing costs. 2. Section 447A of the Act provides that the Court may make such order as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. 3. An application under s 447A may be made by, inter alia, the administrator of a company under administration: s 447A(4)(c). 4. It is well established that the Court has power under s 447A of the Act to make orders limiting an administrator's personal liability under s 443A of the Act, including in respect of the repayment of money borrowed or interest on money borrowed. 5. In Secatore, in the matter of Fletcher Jones and Staff Pty Ltd [2011] FCA 1493 at [23], Gordon J stated as follows: "Section 447A(1) of the Act empowers the court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Orders in similar terms have frequently been made in circumstances where the court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors: see, for example, Re Ansett Australia Ltd (No 1) at [49]; Re Spyglass Management Group Pty Ltd (admin apptd) (2004) 51 ACSR 432 at [6]; Sims; Re Huon Corporation Pty Ltd (admins apptd) (2006) 58 ACSR 620 at [12]; Re Malanos [2007] NSWSC 865 at [13]." 1. In Mentha, in the matter of Griffin Coal Mining Company Pty Ltd [2010] FCA 1469 at [30], Gilmour J held that the principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows: "(a) the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Pt 5.3A of the Corporations Act … (b) typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors … (c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement … (d) notice has been given to those who may be affected by the order …" 1. This statement of principles has been adopted in subsequent authorities, including by Gordon J in Secatore at [24], and by Black J in In the matter of RCR Tomlinson Ltd [2018] NSWSC 1859 at [11] (and see the cases there cited). 2. In RCR Tomlinson at [11], Black J, after referring to and adopting those principles, continued as follows: "It seems to me that, in the present circumstances, the question ultimately becomes whether it is in the interests of the Companies that the borrowing take place, because it is plain enough that the Administrators could not be expected to assume unlimited personal liability for a borrowing of this magnitude, or the risk that their indemnity against the Companies' assets is ultimately not sufficient to discharge that borrowing." 1. On the facts in RCR Tomlinson, his Honour concluded that the proposed funding arrangements were in the interests of creditors and consistent with the objectives of Pt 5.3A of the Act. His Honour explained (at [12]) that: "Importantly, [the funding arrangements] will allow continued attempts to retain the value of the Companies' business so far as possible, at least by continuing their operations in part, and they will advantage creditors so far as they preserve value which would be lost on a closure of the Companies' businesses, and advantage at least some employees so far as they preserve both short-term employment, and a prospect of longer term employment if a deed of company arrangement preserves the Companies' businesses or businesses are sold as going concerns. In reaching that view, I have not neglected that any borrowing of this kind, which is given first priority over other debts so far as it is incurred by the Administrators, has the capacity to affect the interests of creditors and particularly employees. I also recognise that, in some circumstances, the possibility of recovery of employee entitlements may be affected by such an order, but the risk here is to some extent mitigated, at least for individual employees, by the Fair Entitlement Guarantee scheme. No doubt, that exposes the Commonwealth of Australia to a risk, in respect of the operation of that scheme, but the community generally has an interest, as do the Companies, their creditors and their employees, in preserving the prospect that any viable businesses of the Companies continue in operation." 1. Relief may be sought under s 447A of the Act retrospectively, that is, after the relevant borrowing has taken place. In the case of In the matter of Renex Holdings (Dandenong) 1 Pty Ltd [2015] NSWSC 2003, one of the two classes of borrowing under consideration was a borrowing which had already occurred. Black J noted that the relief under s 447A was sought retrospectively and continued as follows (at [14]) "However, as I noted above, that borrowing occurred on terms which contemplated that, so far as lawfully possible, the administrators would not incur personal liability for it and, in those circumstances, what is sought to be done by the order, in respect of that previous borrowing, is to give effect under Pt 5.3A of the Act to the terms on which that borrowing took place as a matter of contract. I see no particular difficulty with that course, so far as the Court would have been prepared, on the findings that I have reached, to give effect to such an order before it were made. Plainly, in seeking such an order after the event, the administrators have been exposed to a degree of commercial risk in the interim, but the fact that that order is sought after the event is no reason not to make it if it is otherwise a proper order to be made." 1. In the present case, the Administrators have formed the view that it is in the best interests of creditors for Green Camel to continue to operate during the Administration and sale process so that it can be sold as a going concern. 2. The Administrators have also formed the view, having regard to Green Camel's cash and financial position, that it is necessary to obtain funding to enable it to pay staff and the costs of operating the business as a going concern, as well as to run the sale process. 3. In the absence of funding, the Produce will perish, the supply contracts with supermarkets will be terminated, and the prospect of selling the business as a going concern, which is in the interests of creditors and employees, will likely be lost. 4. Further, in the absence of funding, the Administrators were not willing to undertake a sale process if there was a risk that they would have been required to repay debts incurred personally. 5. Finally, it should be noted that the Administrators have appropriately limited the relief from personal liability which they are seeking to relief from personal liability in respect of obligations under the Funding Agreement. 6. In summary, having regard to those matters, the evidence of Mr Hathway, and the principles outlined above, I am satisfied that: 1. the Funding Agreement is in the interests of Green Camel's creditors and is consistent with the objectives of Part 5.3A of the Act; 2. the Funding Agreement has been entered to enable Green Camel's business to continue to trade for the benefit of its creditors; 3. the creditors of Green Camel are not prejudiced or disadvantaged by the orders sought, and stand to benefit from entry into the Funding Agreement; and 4. notice has been given to those who may be affected by the orders. No opposition has been expressed to those orders by any of the creditors or by ASIC, and Arrow is supportive of the relief sought. 1. Although there was a delay in bringing the application, that delay has been explained and I do not consider the fact that the order is sought after the event to be a reason not to make the order in circumstances where, for the reasons set out above, I am satisfied that it is otherwise a proper order to be made. 2. For those reasons, I will make the orders under s 447A which are sought on this application. Other orders 1. I am satisfied that the Administrators' costs of and incidental to the application should be costs and expenses in the administration, given that the application is a necessary and appropriate step in progressing the administration. I will also make the consequential orders sought by the Plaintiffs, regarding the giving of notice of these orders to ASIC and creditors. 2. Finally, the Administrators sought an order under s 7 of the Court Suppression and Non-publication Orders Act 2010 (NSW) in respect of the material in Mr Hathway's confidential affidavit and exhibit, on the ground in s 8(1)(a) of that Act, namely, that such an order was necessary to prevent prejudice to the proper administration of justice. 3. The material in respect of this this order was sought included: 1. information relevant to the value of the business and assets of Green Camel, including valuations prepared for the Administrators in respect of the Produce, plant and equipment, and a list of aged receivables; and 2. proposed DOCAs received by the Administrators. 1. The non-publication order was sought on the basis that: 1. disclosure of the valuation documentation may provide a forensic advantage for prospective purchasers of Green Camel, which might prejudice the Administrators' ability to maximise return to creditors; and 2. disclosure of the proposed DOCAs might prejudice the Administration process for similar reasons, in that potential DOCA proponents might obtain a forensic advantage by receiving information which would otherwise be confidential to the Administrators. 1. There is a public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors. Where the loss of confidentiality in material which is placed before the Court in support of an application properly made in the administration of an estate would prejudice the due administration of the estate, this public interest can outweigh the public interest in open justice: see, for example, Deputy Commissioner of Taxation, Italian Prestige Jewellery Pty Ltd (In Liq) v Italian Prestige Jewellery Pty Ltd [2018] FCA 983 at [60]-[61] (Markovic J); Onefone Australia Pty Ltd v One.Tel Pty Ltd [2010] NSWSC 498 at [3] (Barrett J). 2. In the circumstances of this case, I was satisfied that the proposed non-publication order should be made, so that material which was plainly relevant to the relief sought by the Administrators could be placed before the Court, without thereby prejudicing the due administration of the estate of Green Camel. ORDERS 1. For those reasons, I make the following orders. 1. Order that, until 23 January 2025, pursuant to s 7 of the Court Suppression and Non-Publication Orders Act 2010 (NSW) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the confidential affidavit of Stephen Hathway sworn on 28 August 2024 and Confidential Exhibit SH-2 shall be made confidential and prohibited from disclosure to any person other than the Judge hearing the matter and the Judge's staff and assistants. 2. Order that, pursuant to section 447A (1) of the Act that Part 5.3A of the Act is to operate in relation to the Plaintiffs as if s 443A(1) of the Corporations Act provides that: 1. The liabilities of the First Plaintiffs (in their capacities as administrators of the Second Plaintiff) incurred with respect to any obligations arising out of, or in connection with any funding agreement substantially in accordance with the funding agreement in pages 1 to 38 of Exhibit SH-1 (Funding Agreement), between Arrow Funds Management Pty Ltd ABN 72 146 671 276 (Arrow) and the First Plaintiffs (in their capacities as administrators of the Second Plaintiff), and the Second Plaintiff, are in the nature of debts incurred by the First Plaintiffs in the performance and exercise of their functions as joint and several administrators of the Second Plaintiff; and 2. Notwithstanding that the liabilities referred to in Order 2(a) are debts incurred by the First Plaintiffs in the performance and exercise of their functions as joint and several administrators of the Second Plaintiff, the First Plaintiffs will not be personally liable to repay such debts or satisfy such liabilities to the extent that the property and assets of the Second Plaintiff are insufficient to satisfy the debts and liabilities incurred by the First Plaintiffs arising out of, or in connection with, the Funding Agreement. 1. The Plaintiffs' costs of and incidental to the application be costs in the administration of the Company and be paid out of the assets of the Company. 2. The First Plaintiffs, within seven days of the making of these orders, are to take all reasonable steps to give notice of such orders to the Australian Securities and Investments Commission (ASIC) and the creditors of the Company (including any persons claiming to be creditors of the Company) by means of a circular, such notice: 1. to be sent by email to ASIC and those creditors, or persons claiming to be creditors, for whom the Administrators have an email address; and 2. to be sent by ordinary post to ASIC and those creditors, or persons claiming to be creditors, for whom the Administrators do not have an email address. 1. Any person who can demonstrate a sufficient interest have liberty to apply to vary or discharge the Court's orders on two business days' notice. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 September 2024