This case provides clarification and guidance to practitioners and administrators in relation to:
- The considerations taken into account by the Court when considering an application pursuant to section 444GA of the Corporations Act 2001 (Cth) to allow the transfer of shares in a company by administrators; and
- The Court’s interpretation of the phrase “unfair prejudice” in the context of shareholder interests.
This is a matter in which the Plaintiffs, being Mark Korda, Jennifer Nettleton and Jarrod Villani (Deed Administrators) made an application to the Court to seek orders pursuant to sections 447A and 444GA of the Corporations Act 2001 (Cth) (Act) to vary the Deed of Company Arrangement (DOCA) prepared by CBS Australia (CBS) and for leave to allow a transfer of all the shares in Ten Network Holdings Limited (TNHL) to CBS or its nominee (Share Transfer).
Following the decision made by Justice Black in In the matter of Ten Network Holdings Limited (Administrators Appointed) (Receivers and Managers Appointed) and Others  NSWSC 1247 on 18 September 2017, the second creditors’ meeting took place on 19 September 2017. Shortly after the second creditors’ meeting, the DOCA proposed by CBS (CBS DOCA) was executed by the Deed Administrators. As conditions precedent to the CBS DOCA taking effect, TNHL was required to, among other things, transfer all of its shares to CBS or its nominee. In order to facilitate this transfer, the Deed Administrators commenced these proceedings with a view to obtaining leave from the Court pursuant to section 444GA of the Act to allow the Share Transfer to take place.
The Plaintiffs had already obtained an “in principle” relief from the Australian Securities and Investments Commission to allow the Share Transfer to take place. This in principle relief was subject to the Deed Administrators also obtaining leave from the court the Court pursuant to section 444GA of the Act.
Variation of the CBS DOCA
By way of Interlocutory Application filed on 2 November 2017, the Deed Administrators sought an order under section 447A of the Act to allow the CBS DOCA to be varied. The purpose of the variation was to allow a section 444GA order made by the Supreme Court of New South Wales to be sufficient to satisfy the terms of the condition precedent in relation to the Share Transfer. The CBS DOCA in its original form only contemplated an order made by the Federal Court of Australia being able to satisfy the condition precedent. Therefore, any order made by the Supreme Court of New South Wales in the present proceeding would not satisfy the condition. Given that the amendments sought by the Deed Administrators would promote the operation of Part 5.3A of the Act and of the CBS DOCA, Justice Black found it was appropriate to make an order to allow the CBS DOCA to be varied.
Grounds of Opposition to the Share Transfer
Messrs Du, Gubbay and Leung (Interested Persons), who hold 34,890, 4,733 and 40,213 shares respectively in TNHL appeared as interested parties in the proceeding and opposed the Plaintiffs’ application on the following grounds:
- The expert report prepared by KPMG for the purpose of assessing the value of the shares in TNHL contained “fallacies” and was prepared with a view to falsely represent that the TNHL shares held no value;
- The Deed Administrators failed to properly consider the DOCA prepared by Birketu Pty Ltd and Illyria Nominees Television Pty Ltd (BI DOCA);
- The shareholders would suffer unfair prejudice as a result of the Share Transfer;
- The conduct of the Deed Administrators prior to the Ten Group of companies being placed into voluntary administration and their conduct throughout their appointment was improper; and
- The Deed Administrators exhibited a complete disregard for the interests of the shareholders.
Considerations and Findings of the Court
- The evidence tendered by Mr Leung did not sufficiently support the allegation that KPMG had manipulated data and information to reach a conclusion that TNHL’s shares held no value;
- Justice Black found that the Deed Administrator’s alleged failure to consider the BI DOCA, and the proposition that the BI DOCA remained open for acceptance, was not of any relevance to the question of whether the proposed Share Transfer would unfairly prejudice TNHL’s shareholders. The creditors of TNHL and the Ten Group chose not to defer the second creditors’ meeting to allow further time to consider the BI DOCA. Rather, the creditors voted to implement the DOCA proposed by CBS. As a consequence of this decision, the BI DOCA is no longer capable of being implemented;
- The Court found that in circumstances where the TNHL shares had no residual value, the Share Transfer would not unfairly prejudice the interests of the shareholders. Further, a transfer of shares without consideration is not alone sufficient to establish unfairness, particularly in circumstances where the alternative to the Share Transfer would likely be a liquidation which in turn would not return a dividend to the shareholders;
- To the extent that Mr Du pursued the ground that the Deed Administrators did not act impartially in their role as voluntary administrators, Justice Black found that this criticism was adequately addressed by the Federal Court of Australia in Korda, in the matter of Ten Network Holdings Ltd (administrators appointed) (receivers and managers appointed)  FCA 914, whereby a special purpose administrator was appointed by the Court; and
- In regard to Mr Du’s assertion that the Deed Administrators had completely disregarded the interests of shareholders, Justice Black found that the decision to execute the CBS DOCA was not made by the Deed Administrators, but a decision made by the creditors of TNHL at the second creditors’ meeting. Further to this, a consideration as to whether the Deed Administrators did in fact completely disregard the interests of the shareholders would only be relevant in so far as such conducted resulted in unfair prejudice.
The circumstances in which the Court will not grant an under section 444GA of the Act is where by doing so would cause unfair prejudice to the shareholders of the company. There are no discretionary grounds upon which the Court will not exercise this power.
The Interested Persons were unable to establish any prejudice or unfair prejudice that would be suffered by TNHL’s creditors as a result of the Share Transfer. Therefore on the application of the Plaintiffs, the Court granted leave pursuant to section 444GA of the Act to permit the transfer the shares of TNHL to CBS or its nominee.
This article was written by Sherry Napadow, Solicitor, in our Sydney office.
Publication Editor: Grant Whatley