Supreme Court New South Wales Medium Neutral Citation: In the matter of Maria's Farm Veggies Pty Limited (administrators appointed) [2016] NSWSC 1457 Hearing dates: 29 September 2016 Decision date: 29 September 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: The Court orders pursuant to s 447A of the Corporations Act 2001 (Cth) that Pt 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to the Company such that, if the indemnity of the administrators under s 443D of the Corporations Act is insufficient to meet any amount for which the administrators may be liable arising out of or in connection with the advance not exceeding $2,199,000 then the administrators will not be personally liable to repay such amount to the extent of that insufficiency. Catchwords: CORPORATIONS — voluntary administration — application by administrators of company under s 447A of the Corporations Act 2001 (Cth) – where administrators sought orders for modification of operation of Pt 5.3A of the Corporations Act to limit personal liability of administrators in respect of certain borrowings by company – where company was developing project that could provide increased returns to creditors if part of the project was completed – where completion of part of the project would not be possible without further borrowing by the company – where secured creditors committed to making the relevant advance to the company – whether interests of company's creditors best served by proposed arrangement – whether creditors of company are prejudiced or disadvantaged by orders sought. Legislation Cited: - Corporations Act 2001 (Cth), ss 443D, 447A, Pt 5.3A Cases Cited: - Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142 - Re Nexus Energy Ltd [2014] NSWSC 1041 - Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2003 Category: Procedural and other rulings Parties: Rahul Goyal and David Winterbottom in their capacities as voluntary administrators of Maria's Farm Veggies Pty Limited (administrators appointed) (Plaintiffs) Representation: Counsel: C N Bova (Plaintiffs) Solicitors: Baker & McKenzie (Plaintiffs) File Number(s): 2016/21649 Judgment – EX TEMPORE 1. By Interlocutory Process filed by leave today the Plaintiffs, Messrs Goyal and Winterbottom, in their capacities as voluntary administrators of Maria's Farm Veggies Pty Ltd (Administrators Appointed) ("Company"), apply under s 447A of the Corporations Act 2001 (Cth) for orders to modify the operation of Pt 5.3A of the Corporations Act in relation to the administrators and the Company, in substance, to avoid personal liability of the administrators if a further borrowing by the Company, in an amount not exceeding $1,199,000 (in addition to the amount previously borrowed subject to a similar order) would exceed the indemnity available to the administrators under s 443D of the Corporations Act. 2. The application follows a similar application made in respect of an earlier borrowing of up to $1 million, which was determined by Barrett AJA on 25 July 2016. His Honour there indicated, by reference to Mr Goyal's affidavit dated 22 July 2016, which was also read in this application, that he was satisfied that the due and beneficial conduct of the administration would be enhanced by the borrowing to cover certain outgoings which were to be applied in progressing study of the feasibility of completing a glasshouse project undertaken by the Company, and his Honour granted the orders then sought by the administrators. 3. The application before me seeks essentially the same orders, albeit in respect of a further borrowing of up to $1,199,000, which would take the total borrowing to up to $2,199,000. 4. The application before me was supported by detailed affidavit evidence and detailed submissions by Mr Bova, who appears for the Plaintiffs in the application. Mr Goyal gave short, but helpful, oral evidence which clarified certain critical aspects of the application. 5. By his first affidavit dated 15 July 2016, Mr Goyal set out the history of the Company and the project with which it is involved, which is the development of a very substantial glasshouse project in Williamtown, New South Wales, which, when completed, would be the second-largest glasshouse in Australia. Mr Goyal there refers to information which has been provided to him, which anticipates that work on the first stage of that project is between 60–70 per cent complete, although he indicates that further steps were being taken to verify that information. That affidavit also makes clear some information that is important to this application. The Company presently has very substantial liabilities, totalling in excess of $83.5 million, of which amounts due to secured creditors are in excess of $38 million, amounts due to trade creditors are in the order of $19.8 million, and amounts due to shareholder lenders are in the order of a further $25.3 million. Mr Goyal's evidence, which was expanded in his oral evidence and which I accept, is that there is little or no prospect that realisation of the land in its present state would realise value sufficient to repay the secured loans of the Company. It follows that, as matters presently stand, and absent further steps being taken by the administrators, it is highly unlikely that unsecured creditors of the Company would obtain any recovery in respect of the project. 6. The Plaintiffs read also a further affidavit of Mr Goyal dated 22 July 2016 in respect of the application, which, as I noted, had also been read in the application before Barrett AJA. 7. Mr Goyal's third affidavit dated 28 September 2016 in turn refers to the manner in which moneys borrowed by the Company, subject to the terms of the order previously made by Barrett AJA, have been expended and provides a detailed breakdown of that expenditure. Mr Goyal refers also to the manner in which the further amount that is proposed to be borrowed by the Company would be applied, including to funding the Company's administration; the care and maintenance of the site; and undertaking further studies in respect of the First Stage Project, which are necessary before the administrators would be in a position to put a recommendation as to whether the Company should proceed – presumably under their control – to complete the construction of the First Stage Project to seek to maximise the value of the Company's business. It appears from the evidence that the additional borrowing which is sought would take the Company through the process of the completion of those additional works so that the administrators may form a view as to those matters and bring any necessary application if they conclude that the benefit of completing the First Stage Project warrants its costs. 8. Mr Goyal also makes clear that no funds are available to the Company to complete the First Stage Project, or to complete the necessary investigations, other than by a borrowing of this kind and that appears to be plainly correct given the extent of advances already made by secured creditors. Mr Goyal's evidence is that, although secured creditors have advanced the additional amount, and it is presently held in the administrators' trust account, the administrators would not be prepared to proceed with a borrowing of that amount if they were to be personally liable for that amount. Again, that view is hardly surprising given the evidence as to the present position in respect of the existing claims against the Company and the value of the land in its present state. 9. Mr Goyal expresses the view that it is in creditors' best interests and in accordance with the objectives of Pt 5.3A of the Corporations Act for the administrators to cause the Company to obtain the second funding advance and apply it in the manner which he sets out in his affidavit. So far as secured creditors are concerned, it seems to me that the Court can readily form that view because secured creditors have committed themselves to making that advance and are sophisticated parties who would likely assess that question for themselves. So far as unsecured creditors are concerned, Mr Goyal's evidence is that a sale of the land in its present position would not create a return to unsecured creditors. The prospect of such return depends on the further steps which the administrators may now take to investigate the feasibility of completing the first stage of the project and the possible completion of that first stage of the project. In other words, the borrowing may preserve an opportunity, or create an opportunity, for a return to unsecured creditors in circumstances where it would not presently be available. 10. Mr Bova, in his careful submissions, outlines the relevant case law, including the decisions in Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142, where Gilmour J noted that such an order may be made where the proposed arrangements are in the best interests of the company's creditors and consistent with the operation and objectives of Pt 5.3A of the Corporations Act; observed that, typically, that may enable a company to continue to trade, or in this case to continue to develop the relevant project for the benefit of creditors; and that other relevant factors are that creditors are not prejudiced or disadvantaged and notice had been given to those who are affected. Mr Bova also referred to my decisions in Re Nexus Energy Ltd [2014] NSWSC 1041 and Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2003, which was in turn applied by Barrett AJA in his earlier decision in this matter on 25 July 2016. 11. Mr Bova submits, and I am satisfied for the reasons set out in Mr Goyal's evidence to which I referred above, that creditors will not be prejudiced by the relief sought, so far as employees are being paid in the ordinary course; PPSR secured creditors are being paid in full in the ordinary course in relation to rental expenses and their priority is otherwise not affected; secured creditors have had the opportunity to consider whether to make the relevant advance, and determined to do so; and unsecured creditors may benefit from the further investigation as to the completion of the project, and in any event have no prospect, as matters stand, for a return beyond the amount owed to secured creditors. 12. Notice of the application has been given both to the Australian Securities and Investments Commission and creditors, although that occurred relatively recently, and the orders contain the usual and desirable provision which permits liberty to apply to interested persons. 13. For the reasons set out above I am satisfied that the orders which are sought are orders that may properly be made. I make orders in accordance with the short minutes of order as amended and initialled by me and placed in the file. ********** 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: 14 October 2016