Reported Decision : 47 ACSR 122 New South Wales Supreme Court CITATION : Nardell Coal Corporation Pty Ltd [2003] NSWSC 860 HEARING DATE(S) : 15/09/03, 17/09/03 JUDGMENT DATE : 19 September 2003 JURISDICTION: Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Leave for liquidators to appoint themselves administrators. Order varying meeting requirements in new administration CATCHWORDS : CORPORATIONS - voluntary administration - liquidators seek leave to appoint themselves administrators to progress deed of company arrangement proposal - matters to be considered - dispensing with first meeting of creditors in new administration LEGISLATION CITED : Corporations Act 2001 (Cth), ss.436B(2), 446A, 447A Re Allebart Pty Ltd [1971] 1 NSWLR 24 Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 Re Cobar Mines Pty Ltd (1998) 30 ACSR 125 CASES CITED : Re Depsun Pty Ltd (1994) 13 ACSR 644 Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796 John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622 Sutherland v Rahme Enterprises Pty Ltd (2003) 21 ACLC 1385 PARTIES : Nardell Coal Corporation Pty Limited (Receivers and Managers Appointed) (In Liquidation) - First Plaintiff Scott Cameron Turner and David Patrick Watson - Second Plaintiffs FILE NUMBER(S) : SC 4850/03 COUNSEL : Mr P.M. Wood - Plaintiffs SOLICITORS : Henry Davis York - Plaintiffs IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 19 SEPTEMBER 2003 4850/03 – NARDELL COAL CORPORATION PTY LIMITED (IN LIQUIDATION) & ORS JUDGMENT 1 The first plaintiff, Nardell Coal Corporation Pty Limited (which I shall call "the company"), is subject to the form of creditors' voluntary winding up produced by s.446A of the Corporations Act 2001 (Cth) as a sequel to voluntary administration. In addition, a secured creditor (which is associated with Macquarie Bank) has appointed a receiver and manager in respect of the company's assets and undertaking. 2 By an originating process filed on 15 September 2003, the liquidators, Mr Turner and Mr Watson (who were originally the administrators), seek (a) leave to appoint themselves as voluntary administrators of the company; (b) leave to be appointed as the administrators of any deed of company arrangement entered into by the company; (c) an order varying the operation of Part 5.3A, as it will apply to any voluntary administration resulting from the liquidators appointing themselves administrators, so as to dispense with the meeting of creditors required by s.436E and to allow the meeting required by s.439A to be convened on short notice; and (d) an order under s.482 terminating the winding up of the company. 3 Mr Wood, who appeared for the plaintiffs, made it clear that the claim for the last of the orders is not pressed at this point. Whether or not the winding up should be terminated depends on events that will flow from the first three orders in due course, assuming they are made. 4 The company is a wholly owned subsidiary of Nardell Holdings Pty Ltd. It operates a coal mine at Ravensworth. The assets of the mining business are owned in part by Nardell Holdings. On 20 February 2003, Mr Love and Mr Lewis, partners of Ferrier Hodgson, were appointed receivers and managers of the company's assets and undertaking. Mr Turner and Mr Watson became voluntary administrators on the same day and were given an undertaking by Nardell Holdings that it would meet the costs of the voluntary administration. The second meeting of creditors proceeded to business on 30 April 2003. A proposal for a deed of company arrangement was advanced by Nardell Holdings but was rejected by the meeting which then resolved that the company be wound up. Mr Turner and Mr Watson thereupon became liquidators. 5 On 8 July 2003, the liquidators received from Nardell Holdings a revised deed of company arrangement proposal. This is in several respects more favourable to creditors than the deed proposal considered and rejected on 30 April 2003. Apart from anything else, Nardell Holdings will, under the revised proposal, make available $3.5 million for creditors' benefit rather than $1.6 million. Nardell Holdings also agreed to fund the liquidators to take the steps necessary to enable them to appoint themselves as administrators and to place the enhanced proposal before creditors. 6 On 25 July 2003, the liquidators gave notice of a meeting of creditors to be held on 8 August 2003 for the purpose of obtaining an expression of wishes as to the enhanced deed of company arrangement proposal. I put it in these terms because the meeting was not convened by reference to any statutory provision and was not capable of producing any legally binding result. Minutes taken at the meeting show that 56 creditors were present or represented. It appears that far-ranging discussion of the deed proposal occurred and that, after about an hour and a half, a poll was taken, with a majority of creditors by number (but a minority by value) responding favourably to the liquidators' request for "an indication from creditors whether they would support a deed based on the proposal put forward by Nardell Holdings". 7 The foregoing summary of relevant events is taken from the affidavit of one of the liquidators, Mr Turner. Mr Turner also deposes to further matters of relevance as follows: "On 5 September 2003, I was informed by the Board of Nardell Holdings that they and the Receivers had agreed to sell the Nardell Coal Mine to Newpac Pty Limited ('Newpac') for $5.671 million … . The sale included two sub-leases in the name of Nardell Holdings, with Nardell selling its plant and equipment and a sub-lease. As this is a coal mining business, the sale is contingent on various assignments of leases and property to Newpac so that it can continue developing the mine and move to production. I am advised that those consents required by the NSW Minister for Mineral Resources ('Minister') will be provided in the event that a deed of company arrangement is considered by the unsecured creditors of Nardell … . However, until those consents are provided, the Receivers remain responsible for the mine. The sooner the deed of company arrangement is considered, the sooner the opportunity for Newpac to take over and continue development of the mine and possibly utilise the services of some of the creditors of Nardell." There is in evidence a letter of 8 July 2003 from the Minister for Mineral Resources to the chairman of Nardell Holdings making it clear that any favourable consideration by the Minister of matters associated with possible sale of the mine will only be forthcoming "following the DOCA being consented to by the unsecured creditors". 8 The application of Mr Turner and Mr Watson for leave to appoint themselves as voluntary administrators (and, in due course, also to be appointed deed administrators) is founded on s.436B(2). It is clear from the case law that the main question to be considered upon such an application is whether the liquidator is an appropriate person to be administrator: Re Depsun Pty Ltd (1994) 13 ACSR 644, Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796, Re Cobar Mines Pty Ltd (1998) 30 ACSR 125, John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd [1999] NSWSC 622. It was suggested by Young J in Re Depsun Pty Ltd that the court should also bear in mind "the general public interest involved in insolvent companies not going out into the market place" but, as Hodgson J observed in Foodcorp, those considerations really come to the fore, in a case such as the present (where a deed of company arrangement is to be propounded on the footing that an application to terminate the winding up will follow), upon the subsequent termination application: cf Sutherland v Rahme Enterprises Pty Ltd (2003) 21 ACLC 1385. On that basis, the suitability of the liquidators to be administrators (and, in due course, deed administrators if the deed proposal is advanced and approved) is really the only matter that need be addressed at this point. 9 Mr Turner says, quite candidly, in his affidavit that he is aware of some initial concern among creditors as to his independence which might have arisen partly from his having been until 1999 an employee of Ferrier Hodgson, the firm of which the receivers appointed by the Macquarie Bank associate are members. Despite this, there was no opposition at the first meeting of creditors under Part 5.3A to his continuing as one of the administrators and no one was put forward to replace him and Mr Watson. Creditors were also made aware that the administrators were being funded by Nardell Holdings which now, of course, is the proponent of the possible deed of company arrangement. Mr Turner also deposes to a belief that he and Mr Watson are not subject to any of the excluding factors referred to in s.448C(1). He further confirms that the administrators are without funds and will look, for their costs, to the funds provided by the revised deed of company arrangement (if it is executed), failing which Nardell Holdings will meet the costs. 10 This last matter concerning funding by Nardell Holdings is the only one requiring any comment. There is nothing else, in my view, that could possibly call in question the independence of Mr Turner and Mr Watson. In particular, I can see no issue as emerging from the fact that Mr Turner is a former employee of the firm of which the company's receivers are partners. That connection ceased some four years ago and there is no sound basis on which it can be seen as a source of lack of independence and impartiality or of any rational perception of such lack. 11 The funding by Nardell Holdings of the new administration up to the point where the new deed proposal is accepted or rejected by creditors will not of itself introduce any element of lack of independence and impartiality. It is sufficient to quote the following passage from the judgment of Austin J in Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 in which reference is made to the decision of Street J in Re Allebart Pty Ltd [1971] 1 NSWLR 24: "It is not impermissible, per se , for a liquidator to make an arrangement with a particular creditor for payment of the liquidator's costs and expenses (although, as I shall point out, it may be material to disclose such an arrangement to creditors). The position was explained by Street J in Re Allebart (at 27-28): 'Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It had already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticised, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticise on the grounds of propriety the arrangement under which a creditor provides money or indemnities to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case ....' " 12 It may be accepted that, because of the sale proposal in relation to the mine being advanced by Nardell Holdings and the company's receivers and the role that a deed of company arrangement would play in relation to the obtaining of the necessary consent of the Minister, Nardell Holdings has an interest in seeing the deed of company arrangement progressed. But I do not see that factor as compromising the ability of administrators funded by Nardell Holdings to perform their duties in a proper way in relation to the administration in general and the deed proposal in particular. 13 This assumes, of course, that the funding arrangement entails no more than a simple and unconditional undertaking by Nardell Holdings to pay the administrators' proper remuneration and expenses, with payment assured regardless of the steps they take, so as to enable them to do no more or less than to perform their duties as they see fit. Austin J commented in Bovis Lend Lease v Wily that it may be material for administrators to disclose funding arrangements to creditors That comment appears to me to have relevance to this case and to raise at least a strong expectation that the administrators, in order to ensure that such matters cannot be the source of perceptions of unsuitability, should inform creditors, in connection with any deed proposals, of the precise terms of the unconditional and unconstricting funding arrangements they have with Nardell Holdings. 14 I am satisfied that the relief sought under s.436B(2) should be granted. 15 The other aspect of the application concerns variation of the Part 5.3A regime, as it will apply to any new administration, so as to abolish what would otherwise be the first meeting of creditors under s.436E and to truncate the process for the convening of the s.439A meeting. That relief is sought on the practical footing that creditors have already had quite extensive opportunities to become familiar with the company's position and the issues confronting both it and them – including the reality that no return for ordinary unsecured creditors is expected in any winding up. These matters were covered at both the s.439A meeting of 30 April 2003 and the subsequent meeting of 8 August 2003 held after the company had passed into liquidation. 16 Ancillary orders of the kind now sought in relation to meetings were made by Bryson J in Re Cobar Mines Pty Ltd (above) and by Austin J in John R Turk & Sons (Artarmon) Pty Ltd v Newmont Television Pty Ltd (above). The following basis for making the order was stated in the latter case: "The first ancillary order is to dispense with the meeting of creditors which would otherwise be required under s436E within five business days of the appointment of the administrator. There are two reasons for making this order. The first is that the company has been the subject of a procedure, namely its liquidation, in which creditors have been given the opportunity to express their views and have appointed a committee of inspection which approves the present course of action. The second is that the orders which I shall make ensure that a meeting of creditors will be convened within a short period to consider the proposal for a deed of company arrangement and at that meeting creditors will have the option of deciding to continue with the liquidation." 17 In the present case, the circumstances are very similar, save that the meeting of creditors in the liquidation expressed approval in principle of the new deed of company arrangement proposal by a majority in number but did not approve it by a majority in value. The important point, however, is not the precise outcome of the meeting but rather that it occurred and enabled the static body of creditors to be informed. 18 The single meeting of creditors proposed in the new administration will have an opportunity to cause winding up to be the company's ultimate fate, should it consider that the deed of company arrangement ought not be adopted. The nature of that winding up (or more precisely, the question whether some form of new winding up is somehow superimposed and, if so, how that position should be rationalised) is not one that arises for consideration at this point. 19 The orders of the court are as follows: 1. Order, pursuant to s.436B(2) of the Corporations Act , that leave be granted for the second plaintiffs to appoint themselves as voluntary administrators of the first plaintiff. 2. Order, pursuant to s.436B(2) of the Corporations Act , that leave be granted for the second plaintiffs to be appointed as administrators of any deed of company arrangement entered into by the first plaintiff. 3. Order, pursuant to s.447A of the Corporations Act, that the operation of Part 5.3A as it affects any administration of the first plaintiff of which the second plaintiffs become administrators in exercise of the leave granted by Order 1 be altered as follows: (a) the first meeting of creditors in the administration under s.436E be dispensed with; and (b) notwithstanding s.439A(2), the administrators may convene the meeting under s.439A (which would ordinarily be the second meeting) during the convening period, at the earliest convenient date, as long as the period of notice stipulated in s.439A(3) of the Act is complied with. 4. Order that the costs of the proceedings be an expense of the second plaintiffs in the liquidation of the first plaintiff. ********** Last Modified: 09/19/2003 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.