FEDERAL COURT OF AUSTRALIA

Transcription

1 FEDERAL COURT OF AUSTRALIA Gothard, in the matter of Sherwin Iron Limited (Administrators Appointed) (Receivers and Managers Appointed) [2014] FCA 826 Citation: Parties: Gothard, in the matter of Sherwin Iron Limited (Administrators Appointed) (Receivers and Managers Appointed) [2014] FCA 826 PETER JAMES GOTHARD AND JOHN MELLUISH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF SHERWIN IRON LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN , AND IN THE MATTER OF THE COMPANIES LISTED IN THE ATTACHED SCHEDULE File number: NSD 803 of 2014 Judge: YATES J Date of judgment: 5 August 2014 Catchwords: Legislation: CORPORATIONS application for extension of convening period under s 439A(6) of the Corporations Act 2001 (Cth) Corporations Act 2001 (Cth) ss 436A, 436E, 439A Environment Protection and Biodiversity Conservation Act 1999 (Cth) Cases cited: Re Riviera Group Pty Ltd (2009) 72 ACSR 352 Date of hearing: 5 August 2014 Place: Division: Category: Sydney GENERAL DIVISION Catchwords Number of paragraphs: 32 Counsel for the Plaintiffs: Solicitor for the Plaintiffs: Mr B Koch Minter Ellison

2 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 803 of 2014 IN THE MATTER OF SHERWIN IRON LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN BETWEEN: PETER JAMES GOTHARD AND JOHN MELLUISH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF SHERWIN IRON LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN AND IN THE MATTER OF THE COMPANIES LISTED IN THE ATTACHED SCHEDULE Plaintiffs JUDGE: YATES J DATE OF ORDER: 5 AUGUST 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT, on the undertaking of the plaintiffs solicitors to pay the required filing fee: 1. The application be made returnable instanter. 2. The plaintiffs have leave to file in Court the affidavit of John Melluish sworn 4 August Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period specified by s 439A of the Act for the covening of a meeting of creditors of each of the companies listed above and in the annexed schedule of companies (together, the companies) be extended to midnight on 14 April 2015, or such other date as the Court sees fit. 4. Pursuant to s 447A(1) of the Act, for each of the companies, Part 5.3A of the Act take effect as if the meeting of creditors required by s 439A(1) of the Act may be held at any time on or before 14 April 2015 or within 5 business days after that date. 5. The plaintiffs costs of the proceeding be paid pro rata as a cost in the administration of each of the companies. 6. Any director, creditor or contributory of the companies, or any other persons having a sufficient interest, have liberty to apply on 3 days notice to vary or amend the order extending time. 7. These orders be entered forthwith.

3 - 2 - Note: Entry of orders is dealt with in Rule of the Federal Court Rules 2011.

4 - 3 - SCHEDULE OF COMPANIES SHERWIN IRON (NT) PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN SOUTH MURCHISON MINES PTY LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN

5 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 803 of 2014 IN THE MATTER OF SHERWIN IRON LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN BETWEEN: PETER JAMES GOTHARD AND JOHN MELLUISH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF SHERWIN IRON LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN AND IN THE MATTER OF THE COMPANIES LISTED IN THE ATTACHED SCHEDULE Plaintiffs JUDGE: YATES J DATE: 5 AUGUST 2014 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 On 10 July 2014, the plaintiffs were appointed as the joint and several voluntary administrators of Sherwin Iron Limited (Receivers and Managers Appointed) (Administrators Appointed) (Sherwin Iron), Sherwin Iron (NT) Pty Limited (Receivers and Managers Appointed) (Administrators Appointed) (Sherwin Iron (NT)) and South Murchison Mines Pty Limited (Receivers and Managers Appointed) (Administrators Appointed) (South Murchison Mines) (together, the companies), pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). 2 The first meeting of creditors required by s 436E of the Act has been held. The period within which the plaintiffs must convene a meeting of the companies creditors to be held pursuant to s 439A of the Act ends on 7 August 2014, unless extended. The plaintiffs seek an extension of the convening period to midnight on 14 April 2015, a period of 172 business days.

6 - 2 - The companies operations 3 The companies are part of a broader group of companies called the Citizen Group, which comprises 16 members undertaking mining operations across Australia. Sherwin Iron is a public company listed on the Australian Securities Exchange (ASX). Sherwin Iron (NT) and South Murchison Mines are both wholly-owned subsidiaries of Sherwin Iron. 4 Prior to the plaintiffs appointment as administrators, the companies operations were directed to mining ore at the Roper River Iron Ore Project (the project), which covers over 4,000 square kilometres near Mataranka in the Northern Territory (the project site). In order to conduct the project, Sherwin Iron and Sherwin Iron (NT) had been granted four exploration licences by the Northern Territory Minister for Resource Development and the Northern Land Council. In addition to these licences, and prior to the plaintiffs appointment, Sherwin Iron (NT) had also lodged applications with the Northern Territory Department of Mining and Energy (DME) and the Northern Land Council for further exploration licences over additional mining tenements in or around the project site. These applications are pending. The aim of the project is to extract as much iron ore as possible from the project site for transportation to Darwin and subsequent export to various steel mills in China. I will return to consider the current status of the project. 5 On 10 July 2014, following the plaintiffs appointment, Jannamaria Robertson and Scott Kershaw were appointed by The Trust Company (Australia) Limited (Trust Company) as joint and several receivers and managers of the companies (the receivers and managers). Trust Company is the security trustee under an instrument described as the Cherokee-Security Trust Deed, which was entered into on 31 December Trust Company s security extends to, substantially, all the assets of the companies. The receivers and managers have possession of the books and records of the companies and have taken control of the companies assets and affairs. 6 On the evidence before me, the current status of the project is as follows. Test samples of iron ore have been mined from the project site pursuant to a mining management plan. The mining management plan had been submitted by Sherwin Iron and was approved by a delegate of the Northern Territory Minister for Mines and Energy on 31 May The approval granted was limited to removing ore on a one-off basis to test the quality of the ore and to provide test samples to potential customers in China. Sherwin Iron did not have

7 - 3 - permission to begin exploiting these deposits for the purpose of continuing its supply to customers. 7 Of the 450,000 tonnes extracted for this purpose, 272,000 tonnes have been shipped to steel suppliers in China for sampling. At the present time, 180,000 tonnes of ore remain at the project site. Other than those parts from which the sample ore has been extracted, the project site is undeveloped and not subject to mining activities. Those parts of the project site from which the test samples were extracted have been placed under a care and maintenance regime. 8 Originally, 24 employees and approximately 15 consultants were retained by the companies to undertake work associated with developing and exploiting the project site. Since the implementation of the care and maintenance regime, many of the employees have been requested to take accrued annual leave. The receivers and managers have since made 16 positions redundant. At the present time, six employees remain engaged to manage the project site. Two employees have been retained to manage the companies corporate function. The future of the project 9 A mining management plan for commercial mining from the project site is in the course of preparation. This plan will require a number of documents to be submitted to the DME. Further, the plan requires a number of approvals to be obtained. Sherwin Iron has submitted an environmental impact statement with the DME. This statement will be assessed by the Northern Territory Environmental Protection Authority. The Authority s assessment will also be used by the Commonwealth Department of Environment to consider granting approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (Environment Protection and Biodiversity Conservation Act). The commitments made in the environmental impact statement and any conditions imposed by an approval under the Environment Protection and Biodiversity Conservation Act will be included in the mine management plan currently being prepared. 10 At the present time, the Commonwealth is currently awaiting confirmation from the DME that it is satisfied that certain elements of the environmental impact statement, including a water management plan, a dust management plan, and acid and metalliferous draining management plans, adhere to regulatory requirements.

8 In order to obtain the necessary environmental and mining approvals, certain capital works must be undertaken and completed before the summer wet season. These works include the construction of a creek crossing and erosion control earthworks to prevent environmental damage which may result from heavy rainfall washing away exposed earth and existing temporary access roads. 12 In an affidavit made on 4 August 2014, the second-named plaintiff, Mr Melluish, who has had the principal conduct of the administrations to date, has deposed that he has held discussions with the receivers and managers concerning the future of the project. In these discussions, the receivers and managers expressed their view that completing the mining management plan could add substantial value to the project, as it would give a potential purchaser or financier of the project certainty that mining operations on the project site could commence immediately. Without the relevant approvals, the project would be left as, essentially, a set of undeveloped mining tenements without any clear path to production. 13 Accordingly, the receivers and managers intend to take steps over the next eight months to secure approval of the environmental impact statement and approval under the Environment Protection and Biodiversity Conservation Act, with a view to completing the mining management plan and then seeking to undertake a recapitalisation of the project. These steps include the following: liaising with Ministers and officers of government departments, both Commonwealth and Territory, to obtain approval of the environmental impact statement for the project which was submitted on 18 July 2014; undertaking the creek crossing and erosion works; finalising and submitting the mining management plan, and undertaking investigations to determine whether it is possible to achieve a recapitalisation of the project, following approval of the mining management plan. The companies creditors 14 On information provided by the receivers and managers, approximately $46 million is owed by the companies to Trust Company under its security arrangements. Further, CNBM Hong Kong Limited (CNBM Hong Kong) or one of its associated entities is owed approximately $USD 6.9 million in respect of prepayments made for iron ore shipments under a bulk sampling arrangement with the DME. The receivers are still investigating

9 - 5 - whether these moneys are subject to security held by CNBM Hong Kong. Apart from security interests registered by Trust Company and CNBM Hong Kong, there are a large number of other security interests registered by other creditors on the Personal Property Securities Register. These relate to plant and equipment which have been leased to the companies, or purchase money security interests which have been claimed by various suppliers. 15 On currently available information, there are 118 unsecured creditors who claim to be owed approximately $14.75 million. The largest unsecured creditor is Balmoral Mining and Construction Pty Limited, which claims to be owed approximately $11.8 million. The companies have 24 employee-related creditors who would appear to be owed between $1,221 and $51,558. The majority of the companies unsecured creditors are suppliers or professional service firms who have delivered goods or provided services in relation to the project. Further, the rent due and owing on office premises leased by the companies in Perth and throughout the Northern Territory is up to date. The premises continue to be occupied under agreements reached by the receivers and managers with the relevant landlords. Status of the administration 16 To date, the administrators have undertaken a number of general administrative tasks, including preparation for and conduct of the first meeting of creditors; preparation of documents relating to the first meeting of creditors; communications with clients and creditors via circulars posted on the Ferrier Hodgson website; lodging notices with the ASX regarding the cancellation of the general meeting of shareholders originally scheduled for 5 August 2014, and liaising and corresponding with the receivers and managers and directors of the companies in relation to a number of matters to which I have referred in these reasons. Reasons for the extension 17 In his affidavit, Mr Melluish has said that, at the present time, he is in no position to furnish creditors with a statement under s 439A(4)(b) of the Act as to whether the companies should execute a deed of company arrangement, if such a proposal is forthcoming; whether the administration of the company should come to an end; or whether the companies should be wound up. This is because:

10 - 6 - until the receivers and managers plans are finalised and further developed, he will not be in a position to properly assess the value of the project and to determine whether there is likely to be any return for the unsecured creditors of the companies; he has not at the present time received any proposal for a deed of company arrangement; and in the time available, he has not had a chance with the benefit of appropriate material, to properly investigate, whether: (a) (b) the companies may have traded whilst insolvent, or entered into transactions which may be voidable under Pt 5.7B of the Act, or whether there are any assets at or associated with the project which may be available for distribution to the unsecured creditors. 18 The receivers and managers have indicated that they will need until March 2015 to complete the steps they wish to take in order to achieve a recapitalisation of the project. Mr Melluish has said that he and his co-administrator, Mr Gothard, will need a further month to consider and take advice on the status of the project and to negotiate with all interested stakeholders regarding either a sale of the project or, potentially, a deed of company arrangement proposal for the companies. 19 Mr Melluish has expressed the view that it would be in the interests of creditors that the convening period be extended to midnight on 14 April 2015 for a number of reasons. 20 First, he will be better able to advise creditors as to the likely dividends and their options, as more information becomes available over the next eight months. As I have noted, at the present time he does not have sufficient information to make an informed recommendation to creditors. 21 Secondly, the assets of the companies remain undeveloped. The receivers and managers hope that an environmental impact statement and mining management plan for the project, which may be approved by late November 2014, will result in a significant increase in the value of the companies assets. Mr Melluish is concerned that placing the companies into liquidation immediately may be interpreted by the DME and other stakeholders as meaning that the project itself has no future. This might have the consequence of prejudicing

11 - 7 - the approval process which, in Mr Melluish s view, should be given a chance to run its course in the interests of maximising the possible return for creditors. 22 Thirdly, the receivers and managers have undertaken to pay employee creditors all their priority entitlements in full, pending verification of amounts due. This will avoid the plantiffs having to lodge a claim against the Commonwealth Government s Fair Entitlement Guarantee Program, and will result in faster dividends being paid to employees than would arise in a liquidation. 23 Fourthly, it is Mr Melluish s understanding that while the receivers and managers continue to seek approval of the environmental impact statement and mining management plan, they will continue to pay rent on the premises leased by the companies. Premises which are surplus to their needs will be vacated and turned over to the relevant landlords. These landlords will then be free to prove as unsecured creditors against the companies. 24 Finally, keeping the companies in administration will allow for the moratorium and other mechanisms under Pt 5.3A of the Act to be available. 25 Mr Melluish has expressed his view that there will be little, if any, scope for a deed of company arrangement proposal or some other restructuring process to be proposed unless the convening period is extended. Depending on what terms might be proposed, the process may result in creditors receiving a greater return than if the companies were immediately wound up. 26 At the first meeting of creditors held on 22 July 2014, the possibility of seeking an extension of the convening period for up to six months was discussed. As Chairman of the meeting, Mr Melluish called for a vote by a show of hands of those in favour of and those against supporting an application to extend the convening period. The creditors voted unanimously in favour of supporting an extension of the convening period. Mr Melluish has deposed that he is not aware of any objection by any person to an extension of the convening period being granted as sought. Further, he has deposed that he is not able to identify any significant prejudice to any relevant stakeholder, should the proposed extension be granted. Consideration 27 In considering an application of this nature, the Court is involved in a balancing exercise. A balance needs to be struck between the expectation that an administration under Pt 5.3A of the Act be conducted with relative speed, to which the relevant provisions of the

12 - 8 - Act give due recognition, and the requirement that speed not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders. 28 In Re Riviera Group Pty Ltd (2009) 72 ACSR 352, Austin J surveyed the case law that informs the exercise of the discretion arising in the present case. His Honour observed that if the approach is to balance the expectation of a speedy administration against the risk of prejudice, there cannot be any predisposition in favour of speedy administration, because that would skew the balancing process: 17. It seems to me the degree of complexity of the administration is the key to understanding the Court's current approach. It is obvious from the nature of the applications that have been made in recent years that, while there remain many voluntary administrations of small business companies that are relatively simple and can be carried out within the statutory timetable, there is an increasing number of more complex tasks for insolvency practitioners. Obviously, an increased number of the larger corporate groups are likely to be placed in administration in economically difficult times, and when they are, their sheer size, and their complex corporate structures and intercorporate finances, will create many problems for their administrators. Increasingly, companies in administration will have entered into complex funding arrangements, treasury instruments, and perhaps arrangements involving the use of trusts and managed investment schemes, rather than traditional funding. Business transactions are frequently overlaid with complexity because they are supported by collateral arrangements: for example, retention of title clauses or the use of derivatives for hedging and other purposes. Certain kinds of business are inherently complex, such as the securities lending arrangements in the Lift Capital case. 18. Where there is evidence of complexity of these kinds, it seems to me there is no place for a predisposition against extension. However, an important principle from the older cases remains good law: the applicant for an extension must adduce evidence establishing grounds, adequate to enable the court to carry out the balancing exercise about which the modern cases speak. The administrator is expected to explain with some particularity the problems that make the extension necessary (see Re Levi (1996) 19 ACSR 521; Re Allbuild Construction Co Pty Ltd, above). Additionally, where there is a particular person or group who might be prejudiced by the extension that has been sought or the accompanying moratorium, evidence should be adduced about their position. Indeed, one can envisage cases where particular creditors who will be prejudiced by the extension should be notified of or joined as respondents to the application. The longer the extension that is sought, the more important it is for the court to be given a clear and complete explanation of the state of the administration, the grounds for the extension and any potential prejudice that would flow from granting it. 29 I am satisfied that the convening period should be extended until midnight on 14 April 2015 for the reasons advanced by Mr Melluish. It is an important factor in my consideration that the application for an extension has been supported by creditors at least, those who attended the first creditors meeting and the receivers and managers. It is true that the prospect considered by the creditors at the first creditors meeting was for an extension of up to six months. The present extension sought is longer than that. However, I give importance

13 - 9 - to the fact that there seems to have been no opposition whatsoever by the creditors to the principle that an extension of the convening period be granted for a suitable period. 30 It makes obvious sense that if the receivers and managers can complete the steps they envisage, the project should progress from a set of undeveloped mining tenements to an approved mining operation offering, by then, the prospect of immediate commencement. Development of the project in that way has the potential to enhance the prospects of recapitalising the project, selling the project, or providing for an arrangement with creditors, that could well lead to a greater recovery than if the companies now went into liquidation. 31 Although the period of the extension sought is a substantial one, there seems little point in granting an extension for a shorter period. The practicalities are that a number of approvals need to be obtained and a significant amount of work to generate those approvals needs to be done. Consideration by the relevant government agencies will take time. I have no reason to doubt the assessment of the receivers and managers that the approval process and their investigation of whether a recapitalisation of the project is possible, will take until about March A period of time will also be necessary for the plaintiffs, as administrators, to then take stock of the companies positions so that a considered recommendation can be made to creditors as to where their best interests lie. Disposition 32 For these reasons, orders substantially as sought should be made. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 5 August 2014