Supreme Court New South Wales Medium Neutral Citation: In the matter of RCR Tomlinson Ltd (administrators appointed) & Ors [2018] NSWSC 1859 Hearing dates: 23 November 2018 Date of orders: 23 November 2018 Decision date: 23 November 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: Direction given under s 90-15 of the Insolvency Practice Schedule (Corporations) that the Administrators would be justified in procuring the relevant Companies to borrow loan funds pursuant to a facility agreement. Order made under s 447A of the Corporations Act 2001 (Cth) altering the operation of s 443D of the Act to permit the Administrators' liability to be limited in respect of the borrowings. Catchwords: CORPORATIONS – voluntary administration – application by administrators for directions under s 90-15 of the Insolvency Practice Schedule (Corporations) – whether administrators would be justified in procuring companies to borrow loan funds pursuant to a facility agreement – application under s 447A of the Corporations Act 2001 (Cth) for limitation of administrators' personal liability in respect of relevant borrowings – whether it is in the interests of the companies that the borrowing take place. Legislation Cited: - Corporations Act 2001 (Cth) ss 447A, 443D - Insolvency Practice Schedule (Corporations) s 90-15 Cases Cited: - Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142 - Re Nexus Energy Ltd [2014] NSWSC 1041 - Re Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) [2017] FCA 1144 Category: Principal judgment Parties: Jason Preston, William James Harris, Robert Conry Brauer and Matthew Wayne Caddy in their capacity as joint and several administrators of RCR Tomlinson Ltd (administrators appointed) (and the companies listed in Schedule 1) (Plaintiffs) Representation: Counsel: M A Izzo SC/M L Rose (Plaintiffs) Solicitors: King & Wood Mallesons (Plaintiffs) File Number(s): 2018/361179 Judgment – ex tempore judgment (revised 27 november 2018) Nature of the application 1. By Originating Process filed on 23 November 2018, Mr Preston and others ("Administrators") in their capacity as joint and several administrators of RCR Tomlinson Ltd (admins apptd) and numerous other companies within the RCR Tomlinson Group (together, "Companies") apply for a range of relief. Broadly, that relief includes an order under s 90-15 of the Insolvency Practice Schedule (Corporations) directing that the Administrators are justified in procuring the Companies, with several exceptions which are not presently party to joint and several guarantees to lenders, to borrow loan funds not exceeding a specified amount from the Commonwealth Bank of Australia ("CBA") pursuant to a facility agreement substantially in a specified form. 2. The Administrators also seek orders under s 447A of the Corporations Act 2001 (Cth), broadly, limiting their personal liability in respect of the borrowing, such that it will not exceed the amount of any indemnity available from the assets of the Companies, and modifying the operation of that indemnity so that it operates collectively amongst the borrowing Companies, reflecting the position that the facility agreement would in turn expose all of the borrowing Companies to joint and several liability. A similar order is sought limiting the Administrators' personal liability in respect of inter-company administration loans. 3. Other less significant orders are sought in respect of the maintenance of a single bank account for the Companies and the manner in which notification of these orders and notification of the first meeting of creditors should be given to creditors. 4. The application is supported by a detailed affidavit dated 23 November 2018 of Mr Preston, one of the Administrators, which provides a full review of a number of the relevant issues, and submissions of Mr Izzo and Mr Rose which draw attention to those issues and also to the relevant case law. Background facts 1. I will briefly outline the relevant facts. The Administrators were appointed as voluntary administrators to RCR Tomlinson Ltd (admins apptd) and 40 subsidiaries and related companies. That appointment occurred, on 21 November 2018, although the Administrators disclose in their affidavit evidence and their proposed Declaration of Independence, Relevant Relationships and Indemnities ("DIRRI") that they undertook specified contingency planning work and assisted the Companies in assessing their financial position and forecast cash flow prior to the appointment. That matter will, as I have noted, be drawn to creditors' attention in the DIRRI. 2. The Administrators provide an overview of the structure and operations of the RCR Tomlinson Group which, plainly, is a very substantial corporate group, operating in seven countries, with a large number of employees, and across several areas of business. Mr Preston also refers to the assets of the RCR Tomlinson Group, as reported in its 30 June 2018 accounts, which are again of substantial magnitude, and to its liabilities which are also substantial, and he sets out the manner in which the RCR Tomlinson Group has been funded. Mr Preston fairly recognises that the assets of the Companies may have altered since that date, no doubt partly due to the passage of time and events, and partly because the value of their businesses and undertakings may be adversely affected when they are placed in voluntary administration. Mr Preston points out that all but five of the Companies to which voluntary administrators have been appointed had given security, under existing security arrangements in respect of the RCR Tomlinson Group. The orders sought by the Administrators reflect that position, so far as further borrowings, on the basis proposed, are to be made in respect of those companies but not other companies which had not previously provided such joint and several guarantees to lenders. Mr Preston also refers to the circumstances which may have contributed to the Companies being placed in voluntary administration. 3. Mr Preston refers to the present position of the Companies, and the steps which the Administrators propose in order to seek to maximise the value of the Companies, or at least preserve that value and seek to avoid an immediate liquidation of the Companies. Mr Preston recognises that retained contracts are one of the Companies' most significant assets, and that it is likely to be in the interests of creditors of the Companies to take appropriate steps to ensure the Companies are able to continue to perform retained contracts, at least where that will maximise the value of the Companies. Mr Preston also refers to the position in respect of profitable businesses of the Companies, and the possibility that some of those businesses would have inherent value which could be realised by the Companies to the benefit of their creditors. 4. Importantly, Mr Preston identifies the fact that the Administrators now do not have access to available funds in the Companies, because their primary lender, the CBA, has cancelled their overdraft facility and set off amounts held in the Companies' bank accounts against their liabilities to CBA. In these circumstances, absent orders of the kind sought by the Administrators, Mr Preston recognises the likelihood, or inevitability, that the Companies would shortly need to cease to trade and any alternatives other than a liquidation would likely be lost. 5. Mr Preston identifies a number of expenses that are projected for the Companies, which bring about the urgency of the application, including payments to employees and subcontractors and in respect of leased premises and materials used in the Companies' business. Mr Preston also refers to negotiations with CBA to provide funding, to a specified amount and possibly to a somewhat larger amount, which have progressed to the point of a substantially final facility agreement, but subject to CBA's credit approval which remains to be obtained. Mr Preston identifies the benefits which a funding agreement will, in his view, provide for the Companies in the conduct of the administration, including avoiding an imminent cessation of trading in the Companies, and allowing an opportunity to consider the alternative outcomes of the voluntary administration process, allowing the opportunity for continued employment of at least a portion of the Companies' employees and the payment of at least some of its subcontractors, and permitting continued payments at least to some lessors and asset financiers. Mr Preston expresses the view that there is likely to be no alternative source of financing, which appears likely to be correct where CBA currently holds security over a majority of the Companies' assets. 6. Mr Preston expresses the view that, in these circumstances, the proposed funding agreement is likely to be in the best interests of creditors of the Companies as a whole, where it is the only available source of funds for the Companies, and the alternative is likely to be an immediate shutdown which would, very likely, bring about a significant loss of value available to the Companies by contrast with the position if businesses remained as going concerns. Mr Preston also points to other, more specific, advantages of the continuance of the businesses, at least for those employees who may retain employment, and so far as it will permit the realisation of value from profitable contracts. Determination 1. The initial question is whether the Court should make an order under s 447A of the Corporations Act altering the operation of s 443D of the Act to permit the Administrators' liability to be limited, in respect of the borrowings, to the extent of their indemnity against the assets of the Companies, and varying the operation of the indemnity, as I noted above, so that it operates across the borrowing entities collectively. As Mr Izzo points out, the considerations applicable in such an application have been dealt with in a number of cases, including Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142 and subsequent cases which have adopted the same approach, of which recent examples include Re Nexus Energy Ltd [2014] NSWSC 1041 and Re Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) [2017] FCA 1144. 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. 2. It seems to me that, for the reasons set out in Mr Preston's affidavit, the proposed arrangements are in the interests of the Companies' creditors and consistent with the objectives of Pt 5.3A of the Act. Importantly, they 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. 3. I have also had regard to the fact that, in the time available, notice has not been given of the application to creditors other than CBA. That is the inevitable consequence of the urgency of the application, and the question ultimately is whether it is preferable to make the order, in the absence of such notice, rather than leave the Companies to close their operations where the Administrators would have no alternative to that course. I am satisfied that it is preferable to make the orders in these circumstances of urgency, and to reserve to creditors the ability to apply to vary or set aside those orders. I am conscious that, in such a future application, it may be difficult to set aside the orders to the extent that the Administrators have already acted upon them, in drawing down at least some of the funds on the current basis, and I have had regard to that matter in making the proposed orders. 4. The Administrators also seek a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) that they are justified in procuring the relevant Companies, being some but not all of the Companies, to borrow loan funds not exceeding the specified amount from CBA. I recognise that that decision has a commercial character, at least in substantial part, but it also seems to me that it involves a balancing of complex interests, where there are advantages and disadvantages to that course, as recognised in Mr Preston's affidavit evidence. The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies. I am satisfied that such a direction may properly be made in these circumstances, where Mr Preston's affidavit identifies the relevant considerations in detail and indicates that the Administrators have had regard to the balancing of those considerations in forming the view they have formed. Other orders sought 1. The Administrators also seek other orders which raise less difficult issues. In particular, they seek an order dispensing with the requirement to maintain separate administration bank accounts for each of the Companies. I am satisfied that such an order may properly be made, given the time and expense that would be involved in operating 41 separate bank accounts, and where the Companies' existing procedure is that the holding company has operated as a treasury for the RCR Tomlinson Group and on lent funds to subsidiaries. I note that similar orders were made in Re Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) above. 2. The Administrators also seek orders, in common form, that notice of this application and notification of the first meeting of creditors and publication of the DIRRI be given to creditors in electronic form. The Courts have readily made such orders, where email addresses of creditors are known, particularly where creditors are likely to be numerous, as here, and where email addresses for them are likely to be recorded in the Companies' books and records. It may well be that, in the case of a large scale administration, involving numerous creditors, notification in this manner is more, rather than less, likely to bring matters to creditors' attention promptly, and with greater reliability, as well as more cheaply, than notification by mail. I consider that such an order should be made. 3. I am satisfied that the Administrators' costs of and incidental to the application should be costs and expenses in the administration, where the application is plainly a necessary and appropriate step in progressing the administration. Status of CBA approval 1. I note that, after the delivery of the substantial part of my judgment, the Court was advised that whether credit approval will be given by CBA, which the Administrators had originally hoped would be known this afternoon, will not now be known until Monday, 26 November 2018. The Administrators have indicated, by their Counsel, that they consider the advantages from the proposal continue to exist, notwithstanding the delay in obtaining any such credit approval. It is implicit in that position that the Administrators' anticipate, or hope, the Companies can continue their businesses, or some of them at least until the point at which any credit approval may be provided and any funds are advanced by CBA. It does not seem to me that that matter affects the orders sought. Even if the Companies were ultimately not able to continue their businesses, as a result of that delay, that would not affect the reasons for which this approval should be given today, to maximise the prospect that these arrangements could be implemented if CBA's credit approval is obtained. Orders 1. I therefore make orders in the form 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: 17 December 2018