In the matter of BCD Resources NL (Subject to Deed of Company Arrangement) [2018] NSWSC 1605

Supreme Court New South Wales

Medium Neutral Citation: In the matter of BCD Resources NL (Subject to Deed of Company Arrangement) [2018] NSWSC 1605 Hearing dates: 23 October 2018 Date of orders: 23 October 2018 Decision date: 23 October 2018 Jurisdiction: Equity - Corporations List Before: Parker J Decision: See [20] Catchwords: CORPORATIONS – voluntary administration – deed of company arrangement - application by deed administrators for leave to transfer shares in company under Corporations Act 2001 (Cth), s 444GA – whether transfer of shares would unfairly prejudice the interests of members of the company – where shares have no current residual value and there is no realistic prospect of the shares having any value in the future Legislation Cited: Corporations Act 2001 (Cth), s 444GA, 606, Schedule 2 (cl 90-15) Cases Cited: Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53 Re Nexus Energy Ltd (2014) 105 ACSR 246; [2014] NSWSC 1910 Category: Principal judgment Parties: Christopher John Palmer (Plaintiff) Representation: Counsel: J Knackstredt (Plaintiff)

Solicitor: Macpherson Kelley (Plaintiff) File Number(s): 2018/292822 Publication restriction: Nil

Judgment – EX TEMPORE

Revised and reissued on 24 October 2018 1. The Corporations Act 2001 (Cth), s 444GA, provides that where a company is subject to a deed of company arrangement the administrator of the deed may transfer shares in the company to a third party with either the written consent of the owner of the shares or the leave of the Court. In these proceedings, BCD Resources NL (to which I will refer as "the Company") is subject to a deed of company arrangement and the deed administrator, Christopher John Palmer, seeks an order from the Court under s 444GA for leave to transfer all of the shares in the company to Moina Gold Pty Ltd, which is the party which has funded the scheme. 2. The Company is the holding company of a corporate group and its shares were formerly listed on the Australian Stock Exchange. Before 2012, the group operated a gold mine at Beaconsfield in Tasmania which has been referred to in the evidence as the Tasmania mine or the Beaconsfield mine. 3. In June 2012 commercial operations at the mine ceased and thereafter closure and rehabilitation activities have been carried out on the site. For a period the mine itself was maintained on a care and maintenance basis but the main shaft has now been back-filled and the mine has flooded, so that the workings are now at least 80 metres below the water level. Mining and processing plant and equipment remain on the site. 4. In 2013 and 2014, the group undertook mining and processing activities at two other gold deposits in northern Tasmania, one of which was carried on pursuant to a joint venture arrangement known as the Stormont Gold Project. In July 2013, the Company entered into a joint venture with a subsidiary of an ASX listed company, Malachite Resources Limited, to develop and mine a gold project at Cloncurry in north Queensland. Under the joint venture agreement, the group was required to manage and finance the construction, commissioning and operation of the processing plant. In July 2014 the Company borrowed $3 million from a company now called MKS Precious Metals Pty Ltd ("MKS"). The loan was secured and subsequently further monies were borrowed from MKS. 5. The Stormont Gold Project in Tasmania did not result in sufficient gold production to sustain the cash flow needed to fund the final stages of the development in Queensland, as had been hoped. In December 2014 the Company became aware of expenditure overruns in the Cloncurry project. In January 2015 the directors of the Company had the trading of shares on the ASX halted and a few days later MKS indicated it would not provide any further financial support and appointed Mr Palmer and one of his partners as receivers and managers over the Group's assets. Work on the project at Cloncurry ceased and the joint venture arrangement with the Malachite company was terminated. On 10 April 2015, MKS' secured creditors appointed Greg Hall and Will Honner of PriceWaterhouseCoopers as voluntary administrators of the Company. 6. This was followed by a deed of company arrangement put forward by another creditor of the Company, Eclectic Investments Pty Ltd. The arrangement resulted in some $750,000 being made available to meet employee entitlements and was approved by the Company's employees and creditors. In October 2015 Mr Palmer and his partner retired as receivers and managers and the directors effectively returned to control of the Company. Mr Hall and Mr Honner formally retired as deed administrators in October 2016. 7. After control of the Company returned to the directors, agreement was reached for a merger between the Company and Ivy Resources Pty Ltd with a view to acquiring tailings and processing plant assets of another project in north western Tasmania. The Company also entered into negotiations with Moina Gold, among others, to dispose of the remaining assets of the Beaconsfield mine. None of these transactions appear to have come to fruition. In November 2017, MKS exercised the power as secured creditor to appoint Mr Palmer and another of his partners as voluntary administrators of the Company. 8. In January 2018 the Company was delisted from the ASX, following approval of a deed of company arrangement put forward by Moina Gold. It is this deed of company arrangement, of which Mr Palmer is the deed administrator, which has led to the application before me. 9. Under the latest deed of company arrangement Moina Gold contributed the sum of $2 million in return for the transfer of all of BCD's issued shares to Moina Gold (subject to approval by the Court). The effect of this arrangement, if approved, is that the Company will become a wholly owned subsidiary of Moina Gold, the $2 million will go to the benefit of MKS as secured creditor, and ordinary unsecured creditors will receive nothing (as will shareholders). 10. After negotiations with the Australian Security and Investments Commission concerning relief from the operation of s 606(1) of the Act, the current proceedings were commenced in late September 2018. Pursuant to directions made by Black J, information has been provided to the shareholders for their consideration and to allow them the opportunity to be heard on the application. An independent expert's report was prepared and circulated. The process also involved valuations being obtained of the mineral assets at the Beaconsfield mine and of the plant and equipment still located there. 11. I am satisfied on the evidence that a full and accurate description of the proposal has been given to shareholders and they have been given full opportunity to appear on the application. None have done so. But the evidence records that Mr Palmer's solicitors received a number of verbal and email communications about the proposal. Mr Owen Byrnes, on behalf of one of the shareholders, wrote in an email on 15 October: I strongly disagree with the proposal to relinquish our shares...without some form of share replacement in Moina gold or cash pay out let's not forget that beacons field gold was a profitable business before the tragic event that had it closed down. There should be substantial funds put up to government for rehabilitation. The plant and equipment have value and the mine lease is worth something. It is all to common where administrators and receivers move in empty all the available funds and leave share holders and creditors unpaid. I am also disappointed in the short notice for us as share holders to respond before this take over and for me to attend the court hearing is not practical or financially sustainable. I would like this letter put up to the court and a formal response. 1. Communications from other shareholders, while not stated in such strong terms, expressed a similar degree of frustration, but a resigned attitude that there was no point in throwing good money after bad in making any challenge to the proposal. 2. The principles on which the Court exercises the power under s 444GA are well-established. In Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53 White J stated (at [19]): Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted. 1. A similar approach emerges from the decision of Black J in Re Nexus Energy Ltd (2014) 105 ACSR 246; [2014] NSWSC 1910 at [16]-[30]. 2. In the present case the evidence shows the Company's financial position to be dire. The independent expert's report sets out details of the Company's most recent audited accounts (30 June 2014) and subsequent management accounts. The most recent management accounts are dated November 2017. They show the Company indebted to the secured creditor MKS for more than $7 million and that there are trade and other payables of approximately $1.3 million. The Company has also raised provisions of $1.3 million for rehabilitation of the Beaconsfield mine site. 3. Against this, the Company has cash of only $32,000, trade and other receivables of approximately $440,000 and inventories of approximately $690,000. The Company is carrying property, plant and equipment valued on the balance sheet at $6.5 million. The valuation of that equipment based on market value for existing use is $5.8 million, but its estimated auction realisation is only $860,000. Liabilities to MKS may in fact be higher than those stated in the management accounts. The net asset figure is negative (approximately $1.3 million in deficit) but in a liquidation the shortfall will be much wider. 4. It is clear that the Company has current negative net value and is only being sustained by the fact that MKS supports the deed of company arrangement, no doubt as a means of recovering something from the moneys which it has lent. If the deed of company arrangement does not proceed the Company will be liquidated and the shareholders will get nothing. 5. On the evidence before me, the shares have no current residual value and there is no realistic prospect of the shares having any value in the future. It is clear from the responses to which I have referred that the shareholders, while understandably disappointed in the failure of the Company, have no appetite whatever and probably no means to recapitalise the Company. If the proposal does not proceed, they will be no better off. Indeed, all that will happen will be a further delay in crystallising the capital loss which they have made on their shares. 6. In the circumstances, there is no reason to deny Mr Palmer, as administrator of the deed of company arrangement, the opportunity to transfer the shares to Moina Gold in the interests of raising moneys for the benefit of the creditors of the Company. Accordingly, I will grant leave as requested. 7. The orders of the Court are: 1. An order that leave be granted to the Plaintiff pursuant to Corporations Act 2001 (Cth), s 444GA, to transfer all issued shares in BCD Resources NL ACN 057 793 834 to Moina Gold Pty Ltd ACN 607 767 055 in accordance with the Deed of Company Arrangement. 2. An order pursuant to Corporations Act 2001 (Cth), s 447A, and clause 90-15(1) of Schedule 2 of that Act that the Plaintiff may: (a) execute on behalf of the Members share transfer forms and any other documents ancillary or incidental to effecting the transfer referred to in Order 1; (b) enter or procure the entry of the name of Moina Gold in the Share register for the Company in respect of all Shares transferred to Moina Gold in accordance with Order 1.