New South Wales Supreme Court CITATION : In the matter of Cook Cove Pty Ltd (admins apptd) and Boyd Cook Cove Finance Corporation Pty Ltd (admins apptd) [2009] NSWSC 620 HEARING DATE(S) : 2 July 2009 JUDGMENT DATE : 2 July 2009 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Order made under s 447A modifying s 443A to limit administrators' liability for specified class of contracts; confidentiality order concerning evidence CATCHWORDS : CORPORATIONS - voluntary administration - liability of administrators for post-appointment debts - use of s 447A to modify administrators' liability - whether order should be made in respect of a category of commercial contracts - relevant considerations LEGISLATION CITED : Corporations Act 2001 (Cth), ss 443A, 443D, 447 CATEGORY : Principal judgment Carter, Re SFM Australasia Ltd (admins apptd) [2009] FCA 360 CASES CITED : Malanos [2007] NSWSC 865 Re Spyglass Management Group Pty Ltd (admin apptd); Mentha [2004] FCA 1469 Cook Cove Pty Ltd (admins apptd) (First Plaintiff) PARTIES : Boyd Cook Cove Finance Corporation Pty Ltd (admins apptd) (Second Plaintiff) Stephen James Parbery, Mark Julian Robinson and Brett Stephen Lord in their capacities as joint and several administrators of Cook Cove Pty Ltd (admins apptd) and Boyd Cook Cove Finance Corporations Pty Ltd (admins apptd) (Third Plaintiffs) FILE NUMBER(S) : SC 3523/09 COUNSEL : J Stevenson SC with C Spruce (Plaintiffs) SOLICITORS : Henry Davis York (Plaintiffs) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST AUSTIN J THURSDAY 2 JULY 2009 3523/09 IN THE MATTER OF COOK COVE PTY LTD (ADMNS APPTD) AND BOYD COOK COVE FINANCE CORPORATION PTY LTD (ADMNS APPTD) JUDGMENT 1 HIS HONOUR: The third plaintiffs ("the Administrators") were appointed administrators of the first and second plaintiffs (together "the Companies") on 2 April 2009. The first meeting of creditors of the Companies was held on 15 April 2009. On 5 May 2009, Brereton J made an order, under s 439A(6) of the Corporations Act, that the convening period for the second meeting of creditors of the Companies be extended to 19 August 2009. 2 In present proceedings, commenced by originating process filed in court today and made returnable instanter, the Administrators seek an order under s 447A(1) to the effect that Part 5.3A is to operate in relation to the Companies as if certain adjustments were made to the provisions (principally s 443A) governing the liability of the Administrators. Background 3 The following summary of the background facts is taken principally from the submissions of senior counsel for the plaintiffs, which I have checked and found to be supported by the affidavit evidence of Mr Parbery and the exhibits. Of course, the summaries of provisions in the complex documents in this case are necessarily general and approximate. 4 The Companies are special purpose vehicles that were incorporated for the purpose of implementing the Cook Cove Trade and Technology Zone Development Project ("the Project"). The first plaintiff ("Cook Cove") is the developer of the Project, on behalf of the Cooks Cove Development Corporation ("the Corporation"). 5 The Corporation was established under the Growth Centres (Development Corporations) Act 1974 (NSW) for the purpose of developing the site on which the Project is being developed ("the Site"). The Corporation is the owner of most of the Site. The Site comprises some 105 hectares and is located adjacent to the Cooks River and Sydney Airport. 6 Pursuant to a Project Development Agreement made between Cook Cove and the Corporation, as novated and varied by a deed dated 11 February 2008, Cook Cove is required to implement the Project for the Corporation and pay to the Corporation a portion of the gross proceeds from the sale of the Project as calculated pursuant to the Project Development Agreement. Cook Cove guarantees that, in any event, the Corporation will receive at least $10 million from the proceeds of sale of the Project. Cook Cove is entitled to retain the balance of any such proceeds of sale. 7 The second plaintiff is a wholly owned subsidiary of Cook Cove and is a guarantor in respect of some of the financial obligations relevant to the Project. 8 The Project involves various complex agreements between several Key Stakeholders, to design and build a new commercial business zone on the Site, and redevelop certain recreational community facilities (including the Kogarah Golf Club) on the Site. The location of the Site, and the existing and proposed use of the Site, are illustrated by a map and aerial photographs behind Tab 12 of Ex SJP1 to Mr Parbery's affidavit of 5 May 2009; see also tabs 4 and 5 of Ex SJP 2 to Mr Parbery's affidavit of 2 July 2009. 9 The Key Stakeholders of the Project fall into several categories, namely: those parties who have agreed to contribute funds to the Project; those with, or who will acquire (under the terms of the various Project Documents) proprietary rights in respect of the Site; and those who are contracted to perform works in respect of the Project. 10 They are identified as: (a) Sydney Harbour Foreshore Authority, as agent for the Corporation; (b) Kogarah Golf Club (which owns the golf course currently on the site, to be relocated as part of the project); (c) Westpac Banking Corporation, Bank of Scotland (International) Australia and its subsidiary BOSI Security Services Ltd (entities that provide certain complex Performance Undertakings in respect of Cook Cove's obligations under the Project Development Agreement); (d) Rockdale Council (the local government authority within whose jurisdiction the Site is located); and (e) Buildcorp Contracting New South Wales Pty Ltd, the contractor engaged by Cook Cove to perform work at the Project. Reasons for the extension sought from Brereton J on 5 May 2009 11 The following summary is also taken principally from senior counsel's submissions, and is supported by Mr Parbery's affidavit of 5 May 2009. 12 Prior to the appointment of the Administrators, the only work that had been done on the Project was part of Stage 1 of the Works. Stage 1 Works relate to the relocation of Kogarah Golf Club. Specifically, work had been done on the construction and upgrading of some sporting fields, known as the Scarborough and Bicentennial Park Works. Work on the Project was suspended when the Administrators were appointed. 13 The Administrators consider that the best strategy for the creditors of the Companies might well be a restructure of the Project by: (a) delaying the physical construction of the Project for a period of time (to be agreed upon by the Key Stakeholders) with the consequential postponement of the key construction milestones in respect of the Project; and (b) subject to agreeing on an appropriate funding arrangement with Westpac, Bank of Scotland (International) Australia and BOSI Securities, continuing with the planning of the Project and completion of construction of what is described as Stage 1 of the Project ("the Restructure Objective"). 14 The Administrators submitted to Brereton J that the proposed extension would allow them time to pursue the best strategy to achieve the Restructure Objective. They foreshadowed to Brereton J that if the Restructure Objective could be implemented, further funding might result in pre-appointment creditors being paid out. The present position 15 Again, I have taken the following summary principally from senior counsel's submissions, which are supported by Mr Parbery's affidavits of 5 May and 2 July 2009. 16 Westpac Banking Corporation is a party to a Performance Undertaking dated 11 February 2008 pursuant to which it undertakes to the Corporation the due and punctual performance by Cook Cove of its obligations in relation to the Project. Westpac is also a party to a Multiparty Agreement (made between, amongst others, Westpac and the Corporation) also dated 11 February 2008, under Part 7 of which Westpac has certain "Cure Rights" to "cure" any failure by Cook Cove to comply with its obligations in respect of the Project. 17 To facilitate the exercise by Westpac of its Cure Rights, Westpac, the administrators, Bank of Scotland (International) Australia and BOSI Security Services have agreed in principle that Westpac will exercise its Cure Rights in a certain way and the Administrators will commission contractors to do the works required to complete Stage 1 of the Project. 18 Westpac is to exercise its Cure Rights by doing two things. First, it will pay the amounts owing to pre-appointment creditors, including Buildcorp but subject to special arrangements for two disputed claims. It is proposed that each pre-appointment creditor (other than Buildcorp) will enter into a Payment Deed with Westpac, Cook Cove, the second plaintiff and the Administrators under which Westpac will agree to pay the creditor within 5 business days, and the creditor will acknowledge that the payment is in full and final satisfaction of its claim in the voluntary administration and will grant various releases. In the case of Buildcorp, Cook Cove, Westpac, and the Administrators will enter into a somewhat more elaborate agreement with Buildcorp, reflecting the fact that Cook Cove and Buildcorp were parties to a building contract. The agreement, which Mr Parbery calls the Buildcorp Deed, makes provision for payments to Buildcorp funded by Westpac to remedy any defaults under the building contract. 19 Second, Westpac will provide funding for certain Post Appointment Work which, once completed, will put the Project in a position where it can be properly restructured through a resetting of the milestone dates in the various Project Documents. To that end, Westpac, Cook Cove, Bank of Scotland International (Australia), BOSI Security Services and the Administrators will enter into a document described as the Funding and Indemnity Deed. Under that agreement the Administrators are to determine the nature of any Post Appointment Work and enter into Fixed Fee Contracts with contractors for the carrying out of work, by means of a procedure that requires Westpac's consent. Westpac is to make payments into the Administrators' account to cover Fixed Fee Contracts, and by the agreement, Westpac will provide an indemnity to the Administrators in respect of contract claims, as defined. 20 These agreements are to be put into effect once the court makes the orders presently sought. There is no other pre-condition to execution of the documents, drafts of which (some partly executed) are in evidence. 21 The Administrators are of the opinion that it is in the interests of the pre-appointment creditors and of the secured creditors that these arrangements proceed. If they do not, it is likely that (in the absence of some other party to the Multiparty Deed exercising its "Cure Rights" or the Corporation issuing a Performance Notice: see para 34 of Mr Parbery's affidavit made on 5 May 2009), the Project will proceed no further and the Companies will probably go into liquidation. In that event, pre-appointment creditors will receive little or nothing. 22 If the arrangements do proceed, the pre-appointment creditors will be paid in full, and contractors engaged to perform the Post Appointment Work (contractors who are anticipated to include most of the pre-appointment creditors) will, in effect, be funded by Westpac. Once the Post Appointment Works have been completed, the Project will be in a position where it can be properly restructured through the resetting of milestone dates in the Project Documents. 23 However, the Administrators have taken the view that they are not prepared to engage contractors to perform the Post Appointment Work unless they are relieved of any potential personal liability arising out of s 443A of the Corporations Act (beyond the value of their s 443D indemnity against the property of the Companies). They have taken this view for two reasons. 24 First, the Administrators are of the opinion that their right to indemnity under s 443D is of limited value. The Companies are not trading. Cook Cove's only assets are some cash and GST returns totalling about $521,000. The Administrators' costs to date are about $315,000 and further costs in the order of $190,000 are anticipated. The second plaintiff has no assets. 25 Second, while Westpac proposes to provide the Administrators with an indemnity as part of the arrangements, that indemnity will be limited in its nature. The indemnity will only be in respect of particular defined "Claims" made by contractors against the Administrators for non-payment of defined "Costs" and the like under the proposed contract. The Administrators say it is possible that, in circumstances not presently foreseeable by them, they may incur a debt, for which they would be personally liable under s 443A(1), which does not enliven the Westpac indemnity. Interests of creditors 26 The secured creditors (Westpac, Bank of Scotland (International) Australia and BOSI Security Services) have consented to orders being made as sought in the originating process. Pre-appointment unsecured creditors are to be paid by Westpac pursuant to the proposed arrangements. The proposed post-appointment work contractors have been informed of the Administrators' intention to make the present application. All but one of them have voiced no objection. 27 Resolution Services Group ("RSG") has claims in respect of pre-appointment work, and also a claim for $17,100 based on an alleged term in its agreement with Cook Cove, to the effect that if voluntary administrators were appointed to Cook Cove during the Project, RSG would be entitled to one month's future pay. It has taken the view that it will not support the proposal unless all of its claims are to be paid. Westpac has agreed to provide funding for the payment of RSG's pre-appointment work, but in relation to the claim by RSG for future pay in consequence of the appointment of administrators, Westpac and the Administrators propose to negotiate with RSG as to whether the administrators will engage RSG as a post-appointment contractor. 28 Senior counsel for the plaintiffs submits that in the circumstances, the attitude of RSG should not deter the court from making orders as sought. Although RSG foreshadowed in correspondence that it may wish to be represented at today's hearing, and it was notified of the time and place of the hearing, there was no appearance at the hearing other than for the plaintiffs. I agree that RSG's apparent opposition, not reinforced by an appearance, should not prevent the court from dealing with the application forthwith, or from making the orders if it decides that to do so would be in the best interests of creditors and the companies as a whole. The orders will not affect RSG's right to prove for a claim arising out of a pre-appointment contract. 29 Senior counsel for the plaintiffs also submits that the post-appointment work contractors (including RSG) will not be prejudiced by the making of the proposed orders, because they have made no commitment to enter into any contract to perform post-appointment works and they are free to decline to contract with the Administrators if they are not prepared to do so on a basis that involves no recourse to the Administrators personally. 30 I accept that submission so far as the contractors who have been identified are concerned. During the course of argument I expressed concern that, if the orders were made as proposed in the originating process, the Administrators might contract with others who were not aware of the limitation on the Administrators' liability. It seemed to me that in principle the orders should contain a provision designed to ensure that the Administrators disclose the limitation on their liability to all contractors with whom they propose to contract, subject perhaps to a threshold contractual value. 31 However, as senior counsel for the plaintiffs pointed out in a supplementary submission, the order sought by the plaintiffs will not limit the Administrators' liability in respect of all contracts but only in respect of a Fixed Fee Contract. That is a defined term in the Funding and Indemnity Deed. It means a contract between Cook Cove and a Contractor to give effect to a Work and Payment Proposal, and these terms are also defined. Essentially, the definitions have the effect that the limitation of liability only relates to the Fixed Fee Contracts that the Administrators enter into with contractors commissioned to carry out the Post Appointment Work. Should the Administrators enter into any other contract in their capacity as such, then their liability is governed by the unamended text of s 443A. In those circumstances there is no need for a special disclosure obligation in the orders. The orders sought 32 The Administrators seek orders under s 447A(1) of the Corporations Act limiting what would otherwise be their liability under s 443A to contractors engaged to perform Post Appointment Work and to Westpac pursuant to the Funding and Indemnity Agreement, to the value of their indemnity against the property of the companies under s 443D. 33 The principal order proposed by the plaintiffs is as follows: "1. An order pursuant to section 447A(1) of the Act that: (a) any liability (howsoever arising) of the Third Plaintiffs as administrators of the First Plaintiff to: (i) any Contractor in respect of any Fixed Fee Contract made in respect of any Post Appointment Work (as those expressions are defined in the Funding Indemnity Agreement referred to in the affidavit of the first Third Plaintiff sworn on 2 July 2009); and (ii) Westpac Banking Corporation pursuant to the Funding Indemnity Agreement; be limited to the property of the First Plaintiff from whom the Third Plaintiffs are entitled to an indemnity pursuant to section 443D of the Act ("Property"); and (b) in the event that the Property is insufficient to enable the Third Plaintiffs to meet any liability of the kind referred to in paragraph 1(a) above, that section 443A(1) of the Act not operate so as to impose on the Third Plaintiffs any personal liability in respect of any such insufficiency." The law 34 Section 443A of the Corporations Act is as follows: "(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for: (a) services rendered; or (b) goods bought; or (c) property hired, leased, used or occupied; or (d) the repayment of money borrowed; or (e) interest in respect of money borrowed; or (f) borrowing costs. "(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else." 35 Section 443D, dealing with the administrator's right of indemnity, is as follows: "The administrator of a company under administration is entitled to be indemnified out of the company's property for: (a) debts for which the administrator is liable under Subdivision A [which includes s 443A] or a remittance provision as defined in subsection 443BA(2); and (aa) any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and (b) his or her remuneration as fixed under s 449E." 36 The use of s 447A(1) to modify the operation of s 443A(1) so as to limit the liability of administrators in respect of post-appointment contracts has been considered in several recent cases. I respectfully agree with the summary observations made by Mansfield J in Carter, Re SFM Australasia Ltd (admins apptd) [2009] FCA 360 (16 April 2009) at [21]: "It is clear enough, in the light of the observations of Goldberg J in Re Ansett Australia Ltd (admins apptd) and Mentha (2002) 40 ACSR 389 at 398-9 and earlier in Re Ansett Australia Ltd and Mentha (2001) 39 ACSR 355 that the court has power to make [the order] as sought. As Goldberg J said at 399 in the first mentioned cases, the court should not pronounce upon the commercial prudence of an agreement entered into by administrators. The court will act in an appropriate case to protect administrators from claims that they have acted unreasonably in entering into particular agreements. In deciding whether the orders sought should be made, the court will give weight to the administrators' decision, and the consistency of the administrators' objectives with the operation of Part 5.3A of the Act: Re Ansett Australia Ltd (admins apptd) and Mentha (2002) 40 ACSR 389 at 400-1." 37 One can envisage cases in which it would not be appropriate to make an order limiting the normal liability of an administrator under Part 5.3A for post-appointment debts: for example, where the administrator proposes to enter into many business transactions in the course of carrying on the company's business, contracting with suppliers and service providers for relatively small amounts in circumstances where those with whom the administrator contracts would not be aware of the court's order and would be entitled to assume that the normal liability provisions of Part 5.3A were applicable. But the decided cases are of a different kind. 38 All the cases cited by senior counsel for the plaintiffs concerned the provision of funding to administrators. In both the Ansett case and the SFM case the proposal before the court was to modify the operation of s 443A in relation to a particular proposed funding agreement with an identified counterparty. In Malanos [2007] NSWSC 865 the modification related to advances and other financial accommodation to be made, evidently from time to time, but it was limited to advances made by an identified person in accordance with an identified funding deed. In Re Spyglass Management Group Pty Ltd (admin apptd); Mentha [2004] FCA 1469; (2004) 51 ACSR 432 the limitation of liability was with respect to advances made to the administrators by two of the largest creditors of the company so that they could continue to operate the company's business and sell it as a going concern. One of the concerns in those cases was that, prior to the 2007 amendments, it appeared the lending of money to the administrators did not fall into any of the categories of transactions listed in s 443A(1). Consequently the indemnity in s 443D seemed to be unavailable in respect of any lending transaction entered into by the administrators, and consequently the administrators in those cases were seeking to amend the effect of s 443A and also s 443D. That problem has been overcome by the 2007 amendments. 39 In the present case the modification will extend to the Administrators' liability under various contracts, but the contracts are carefully defined by the proposed order, as any "Fixed Fee Contract made in respect of Post Appointment Work". As I have said, these terms are defined in the Funding Indemnity Agreement. Fixed Fee Contracts will be in a form specified in Schedule 2 to the Funding and Indemnity Deed. The Schedule 2 form discloses to the contractor that the court has made an order limiting the Administrators' personal liability to the extent of the property of Cook Cove. 40 Unlike the precedent cases, the present case is not a case about lending; rather it is about building contracts of a certain kind entered into by the Administrators in Stage 1 of the Project. There is no doubt that these contracts fall within s 443A(1) and that the proposed order will therefore give the Administrators a degree of protection from liability, in respect of the Fixed Fee Contracts, going beyond the statutory scheme of Part 5 .3A. It cannot be said here that there is an anomaly in the classes of transactions covered by s 443A(1) that would deprive the administrators of their statutory indemnity against the company's assets unless an order is made. The problem here is not the availability of the indemnity but the utility of it. Reasons for decision 41 Mr Parbery has expressed the view that the exercise of Westpac of its Cure rights in the manner outlined and the completion of the Post Appointment Works funded through the Funding and Indemnity Deed is in the best interests of creditors and will maximise the chances of Cook Cove and the second plaintiffs surviving. Senior counsel for the Administrators submits that it is appropriate for the orders to be made because: (a) in the special circumstances of the Project, it is reasonable for the Administrators to have the protection sought; (b) the making of the orders will facilitate the exercise, by Westpac, of its Cure Rights for the benefit of the unsecured pre-appointment creditors, and probably, for the benefit of the Project as a whole; (c) consequently the making of the orders will also benefit the secured creditors of the Project, and the contractors willing to undertake the Post Appointment Work with the security of the proposed funding from Westpac; (d) no creditor of the Companies will be disadvantaged; indeed, the contrary is the case; (e) no creditor, other than RSG, objects to the orders sought; and (f) the secured creditors including Westpac had consented to the proposed order. 42 I agree with these reasons, which are made out on the evidence before me. I shall therefore make the order as proposed. ********** 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.