Destination Brisbane Consortium Integrated Resort Operations Pty Ltd as Trustee v PCA (Qld) Pty Ltd (subject to a Deed of Company Arrangement) [2024] QSC 178

SUPREME COURT OF QUEENSLAND CITATION: Destination Brisbane Consortium Integrated Resort Operations Pty Ltd as Trustee v PCA (Qld) Pty Ltd (subject to a Deed of Company Arrangement) [2024] QSC 178 PARTIES: DESTINATION BRISBANE CONSORTIUM INTEGRATED RESORT OPERATIONS PTY LTD AS TRUSTEE FOR THE DESTINATION BRISBANE CONSORTIUM INTEGRATED RESORT OPERATING TRUST AND QWB RESIDENTIAL PRECINCT OPERATIONS PTY LTD AS TRUSTEE FOR THE QWB RESIDENTIAL PRECINCT OPERATIONS (applicants) v PCA (QLD) PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 141 148 245 (first respondent) SALVATORE ALGERI, JASON TRACY, DAVID ORR AND MATT DONNELLY IN THEIR CAPACITIES AS DEED ADMINISTRATORS OF THE DEED COMPANIES (second respondents) DEXUS FUNDS MANAGEMENT LIMITED AS TRUSTEE OF THE DEXUS MARTIN PLACE TRUST (third respondent) WADREN PTY LTD IN ITS CAPACITY AS TRUSTEE FOR THE HOPPERS CROSSING UNIT TRUST AND QIC WERRIBEE PTY LTD AS TRUSTEE FOR THE QIC WERRIBEE TRUST (fourth respondents) WBHO CONSTRUCTION (PTY) LTD, A COMPANY INCORPORATED PURSUANT TO THE LAWS OF SOUTH AFRICA WITH REGISTRATION NUMBER 1983/011953/07 (fifth respondent) CBUS PROPERTY BRISBANE PTY LTD AS TRUSTEE FOR THE BRISBANE UNIT TRUST (sixth respondent) FILE NO: BS 4023 of 2023 -- 1 of 13 -- 2 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 22 August 2024 DELIVERED AT: Brisbane HEARING DATE: 26 April 2024 JUDGE: Hindman J ORDERS: 1. Pursuant to s. 447A of Corporations Act 2001 (Cth) the relevant deed of company arrangement be varied as the parties have otherwise agreed. 2. The application for judicial advice is dismissed. 3. Submissions to be received in respect of costs. CATCHWORDS: CORPORATIONS – VOLUNTARY ADMINISTRATION – APPLICATION FOR DIRECTIONS – where certain creditors apply to the court seeking an order pursuant to s. 447A of the Corporations Act 2001 (Cth) to vary a deed of company arrangement to allow insured persons to pursue claims against the relevant deed companies as if s. 562 of the Corporations Act 2001 (Cth) applied – whether the court should vary the deed of company arrangement as the parties have otherwise agreed CORPORATIONS – MANAGEMENT AND ADMINISTRATION – MEETINGS – MEETINGS Of MEMBERS – CALLING OF MEETINGS – BY COURT – where administrators apply to the court for opinion, advice or direction – whether the court give the administrators judicial advice that they would be justified in convening a meeting of creditors to consider certain proposals Corporations Act 2001 (Cth) ss. 445B, 445D(1)(f), 447A, 562 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, cited Lehman Brothers Holdings v City of Swan [2010] 240 CLR 509, cited Macedonian Orthodox Community Church St Petka Inc v Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160, cited Matheson Property Group Pty Ltd (trustee) v Virgin Australia Holdings Ltd (2022) 165 ASCR 550, cited Re Australian Pipeline Ltd [2006] NSWSC 1316, cited -- 2 of 13 -- 3 Re Morgan [2013] 96 ACSR 232, cited Re Whittingham [2009] NSWSC 1426, cited COUNSEL: P O’Higgins KC with E Robinson for the applicants CA Wilkins KC with V Bell for the second respondents J Hynes for the third respondent B O’Donnell KC for the fourth respondents BS Cook (solicitor) for the fifth respondent PE O’Brien for the sixth respondent M Hickey for GPT Funds Management Limited SOLICITORS: Carter Newell for the applicants King & Wood Mallesons for the second respondents MinterEllison for the third respondent Allens for the fourth respondents Clayton Utz for the fifth respondent Carter Newell for the sixth respondent Baker McKenzie for GPT Funds Management Limited Synopsis [1] On 23 February 2022, the second respondents (the administrators) were appointed as the joint and several administrators of nineteen companies within the Probuild Group. The Probuild Group was involved in project management, building and infrastructure construction services across Australia. At the time of appointment of the administrators, the Probuild Group had nineteen active projects on foot. [2] At meetings held on 30 June 2022 for sixteen of the companies in the Probuild Group (referred to as the Deed Companies), creditors of each of the Deed Companies voted in favour of a single deed of company arrangement (DOCA). The DOCA was executed on 21 July 2022. [3] All parties to the proceeding accept that by some mechanism the DOCA requires variation to achieve one aspect of what the DOCA had been intended to achieve, and was either not achieved or leaves doubt as to whether it was achieved. That is, that insured persons be free to pursue their claims against the relevant Deed Companies as if s. 562 of the Corporations Act 2001 (Cth) (CA) applied. [4] Section 562 of the CA provides: (1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in -- 3 of 13 -- 4 respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary. [5] The remaining disputes between the parties concern the administrators’ proposals that: (a) the above variation to the DOCA ought be referred to a creditors’ meeting for consideration by the creditors rather than implemented by Court orders (proposal one); (b) the variation ought be accompanied by further variation to the DOCA that in effect see (some of) the insured creditors bear costs, including general administration costs, associated with their insurance litigation being ongoing, from a specified point in time at which the administration would otherwise likely come to an end (if not for that ongoing insurance litigation) (proposal two, also referred to as the costs mechanism or the pay-as-you-go scheme). [6] The administrators’ proposals in the applications presently before the Court are advanced as an application for judicial advice. That is, the administrators ask the Court to advise if they would be justified in convening a meeting of creditors to consider proposal one and proposal two. [7] The administrators’ proposals have little presently evident support from the body of creditors who have been asked about same. One uninsured creditor, Essence Project Management, has supported the administrators’ proposals in writing. And one uninsured Pool C creditor, GPT Funds Management Limited, whilst not supporting proposal one, did appear at the hearing of the applications in support of proposal two. [8] The administrators’ proposals should not be thought of as entirely separate to each other. If there sensibly is to be a creditors’ meeting relating to one of the proposals, that meeting could consider both proposals at limited additional cost. But where the variation to the DOCA the subject of proposal one is otherwise uncontentious -- 4 of 13 -- 5 between the parties, it is the Court’s view of proposal two that will be most important in the overall resolution of the applications. [9] I am not satisfied that the administrators’ proposals are a just or efficient way to proceed. I will accede to the applicants’ application and will order, pursuant to s. 447A of the CA, that the DOCA be varied as the parties have otherwise agreed. I decline to give the judicial advice sought by the administrators. My reasons for those conclusions follow. Further background to note [10] Key features of the DOCA are: (a) the assets of Deed Companies are pooled, the Deed Companies are treated as a single company, a creditor of any of the Deed Companies is a creditor of the single company; (b) WBHO Construction Pty Ltd (WBHO Construction), a South African company and the deed proponent, contributed $9,080,000 to create a deed fund (augmented by other assets); (c) the deed fund is to be accessed (in order) by Pool A creditors (employees), Pool B creditors (small creditors), Pool C creditors (most other unsecured creditors) and the Pool D creditor (ATO for certain liabilities). [11] The relevant administrators’ report prior to the second creditors’ meetings importantly identified these matters (inter alia, in summary): (a) the statement of opinion of the administrators that it was in the interests of creditors to execute the DOCA in the form proposed; (b) that the return to Pool C unsecured creditors would be greater under the DOCA than a liquidation; (c) the low scenario estimate of funds available to Pool C creditors was $9.4m;1 (d) that there may be claims by principals under building contracts (principal claims), that the estimated range of such claims was between $30-76m but the amount was highly uncertain and subject to change; 1 Note the low scenario is now expected to be $13.6m. -- 5 of 13 -- 6 (e) that “Principals may have substantial unsecured claims which may not be able to be quantified until projects have been completed and defect liability periods expired”;2 (f) the return to be received would depend on two things – asset recoveries and the claims of creditors; (g) the dividend could be expected to be paid about 12 months after execution of the DOCA (that is, around mid year 2023: my note - that seems to have been unreasonably optimistic given the above information supplied). [12] Administration of the DOCA to date has seen Pool A and Pool B creditors paid in full from the deed fund. It is unlikely distributions to the Pool D creditor will ever be made. There will be a distribution to Pool C creditors – at least $13.6m now appears likely to be available for distribution to those creditors. [13] Claims by Pool C creditors, excluding the principal claims, appear to be in the order of $360m. The principal claims appear to exceed $500m. [14] The risks identified in the administrators’ report at [11](d) and [11](e) above have materialised. There are a number of ongoing claims/proceedings involving certain of the Deed Companies, including principal claims. Insurance may respond to some of the claims/proceedings. The claims/proceedings include: (a) fourteen personal injury / workers compensation claims; (b) three proceedings in respect of allegedly defective work; (c) eight further claims in respect of allegedly defective work. Creditors heard on the applications DBC [15] The applicants, DBC, claim to be creditor of PCA (Qld) Pty Ltd (subject to DOCA) (PCA). DBC was represented by Mr O’Higgins of Kings Counsel and Mr Robinson of counsel at the hearing of the applications. 2 [10.2.1], exhibit page 445 of court documents 10/11. -- 6 of 13 -- 7 [16] DBC has leave to commence and prosecute a claim against PCA. That claim is a multi-million dollar claim in relation to a construction project in Brisbane. The claim is complex litigation, commenced in 2023, and likely to take some years to reach resolution. The claim amount is in the order of $44m. There are insurance policies likely to respond to DBC’s claim. [17] DBC has not yet lodged a proof of debt in the administration of PCA. Dexus [18] The third respondent, Dexus, claims to be creditor of Probuild Constructions (Aust) Pty Ltd (subject to DOCA) (Probuild). Dexus was represented by Mr Hynes of counsel at the hearing of the applications. [19] Dexus’s claim is a multi-million dollar claim in relation to a construction project. The claim is complex litigation and is likely to take some years to reach resolution. The claim amount was initially in the order of $29m, and now appears to exceed $58m. There are insurance policies likely to respond to Dexus’s claim. [20] Dexus has not yet lodged a proof of debt in the administration of Probuild. Wadren and QIC [21] The fourth respondents, Wadren and QIC, claim to be creditors of Probuild. They were represented by Mr O’Donnell of Kings Counsel at the hearing of the applications. [22] Wadren and QIC have leave to commence and prosecute a claim against Probuild in the Supreme Court of Victoria. That claim is a multi-million dollar claim (between $310-355m) in relation to a construction project, specifically alleged structural defects in a shopping centre. The claim is complex litigation, commenced in 2023, and likely to take some years to reach resolution. There are insurance policies likely to respond to Wadren and QIC’s claim. [23] Wadren and QIC have other claims against Probuild in relation to the same shopping centre, including in respect of alleged non-structural defects. There are insurance policies likely to respond to Wadren and QIC’s further claims. Proceedings have not yet been commenced in that respect. -- 7 of 13 -- 8 [24] Wadren and QIC have not yet lodged a proof of debt in the administration of Probuild. Cbus Property [25] The sixth respondent, Cbus Property, claims to be creditor of both PCA and WBHO Australia Pty Ltd (subject to DOCA) (WBHO). Cbus Property was represented by Mr O’Brien of counsel at the hearing of the applications. [26] Cbus Property says it has various claims for breach of contract by, and for defective works completed by, PCA who failed to complete a large residential construction project in Brisbane. Proceeding have not yet been commenced. There are three insurance policies potentially available to respond to some of Cbus Property’s claims. There will be some uninsured claims. [27] Cbus Property has lodged a proof of debt in the administration of PCA, which it wishes to vary to include all insured and non-insured claims. [28] Cbus Property’s claim against WBHO arises from its guarantee of PCA’s obligations under the relevant contract. Cbus Property has not yet lodged a proof of debt in the administration of WBHO. GPT Funds [29] GPT Funds Management Limited (GPT Funds) is not a party to the proceeding but was given leave to appear on the hearing of the applications. [30] GPT Funds is a Pool C unsecured creditor who has lodged a proof of debt in the administration. GPT Funds was represented by Mr Hickey of counsel at the hearing of the applications. [31] GPT Funds is not an insured creditor. Other parties heard on the applications [32] The administrators of the Deed Companies were represented by Mr Wilkins of Kings Counsel and Ms Bell of counsel at the hearing of the applications. [33] The fifth respondent, WBHO Construction (see at [10](b) above) also appeared, represented by Mr Cook (solicitor) at the hearing of the applications. WBHO -- 8 of 13 -- 9 Construction does not have an insured claim and is not seeking to prove as a Pool C creditor. WBHO Construction’s position in respect of the applications was: (a) the agreed variation to the DOCA should be made by the Court without the expense of it being referred back to creditors; (b) it had no position in respect of the costs mechanism (proposal two) save that if the Court was of the view that any such mechanism was susceptible to being set aside then it would not support judicial advice being given as sought by the administrators. The disputed issues [34] The first disputed issue is whether the proposed variation to the DOCA ought be referred to a creditors’ meeting for consideration by the creditors rather than implemented by court orders (proposal one). I note for completeness that I agree that the proposed variation to the DOCA should be made. The DOCA in its terms does not reflect what was intended. Where all parties now are agreed that the variation should be made there seems little practical benefit in referring the matter to creditors. [35] However, the administrators contend that would still be appropriate because that would allow the creditors to consider proposal two at the same time, namely whether the variation ought be accompanied by a variation to the DOCA that in effect sees the insured creditors bear costs, including administration costs, associated with the ongoing insurance litigation, from a point in time at which the administration would otherwise likely come to an end (proposal two). The administrators point out that administration is a creditor driven process and any variation should ordinarily be left to the creditors to determine.3 I agree with that as a general proposition. [36] The evidence reveals that: (a) the administrators believe that but for the remaining litigation, they consider the administration could end by about July 2025; (b) the holding costs associated with keeping the DOCA on foot after that time are anticipated to be in the order of about $96,000 per year (even after the agreed 3 Lehman Brothers Holdings v City of Swan [2010] 240 CLR 509 at [30]-[33]. -- 9 of 13 -- 10 implementation of an early effectuation mechanism which should result in the companies under the DOCA reducing to three or four companies); (c) the ongoing costs (remuneration and expenses) incurred by the administrators responding to the litigation on foot is expected to be in the order of about $600,000 per annum, but may well increase. [37] The administrators only seek to apply the costs mechanism to those creditors pursuing what they consider are the complex insured claims. Creditors such as personal injury litigants, self-represented litigants, and body corporates are not intended to be subject to the costs mechanism. Personal injury and workers compensation claims are expressly excluded. Other claims are expected by the administrators to be able to be resolved before July 2025, but if not in fact resolved by that time, could be caught by the costs mechanism. [38] Further supporting their position the administrators point to: (a) the administration taking longer to finalise in light of the various litigation, thereby delaying a return to unsecured creditors from the deed fund; (b) the impact of the various litigation being to deplete the deed fund (both because of a delayed finalisation of the administration and the administrators incurring costs assisting insurers with defending litigation where all defence costs will not be paid by the insurers). [39] I note that Mr O’Donnell KC raised on his clients’ behalf several concerns about the detail of the costs mechanism that appeared to me to be valid concerns. For example, the likely unintended consequence that a creditor who elects not to proceed in any way might be liable for certain costs if the administrators lodge an insured claim notice on the creditor’s behalf, or the risk that existing clause 8.5 and proposed clause 13.11 of the DOCA are potentially inconsistent if the costs recoverable under each are different in scope. I do not propose to go to the detail of such concerns as I consider the applications can be resolved without descending into those matters which might be able to be addressed by the administrators before the proposed costs mechanism was put to a creditors’ meeting. [40] There are several other reasons why I will not give the administrators the judicial advice sought. -- 10 of 13 -- 11 [41] First, the insured creditors are unsecured creditors, just like the uninsured unsecured creditors. By one means or another, all unsecured creditors’ claims need to be adjudicated upon. For simple claims that will likely occur by way of the administrators accepting proofs of debt from unsecured creditors. For disputed claims, the process of resolution of claims is likely to be protracted whether that occurs as a consequence of administrators rejecting proofs of debt and that being challenged by the creditor in litigation, or the creditor obtaining leave to proceed with a claim against the relevant company in administration. In complex insured claims the latter is not unusual. The choice is between two forms of procedure. In either circumstance final dividend payments to unsecured creditors will be delayed. That is not the fault of the unsecured creditors involved. The unsecured creditors should not, as a general principle, be treated differently in the administration based on whether they are insured or not, nor based on what procedure for adjudicating upon their claim is appropriate. [42] Second, there may ultimately be a benefit to uninsured unsecured creditors in permitting insured unsecured creditors’ claims to be resolved outside of the administration process. Where insurance responds to a claim, the creditor will not need to claim upon the deed fund in respect of that claim, leaving more deed funds for distribution to other creditors. [43] Third, it is an unusual position to advance that the insured creditor should effectively have to fund the defence costs (or some of the defence costs) of the company it is pursuing for a claim. That is so even if the costs the administrators incur should not be viewed so much as “defence costs” but instead costs incurred in responding to the claim in a manner that allows the plaintiff’s claim to advance to resolution (the administrators put it that they are effectively caught as the middleman in the litigation between plaintiff and insurer). But even more unusually, the funding is by way of advance payments. [44] Fourth, there are practical difficulties associated with the fact that sixteen companies are affected by the DOCA and Pool A and Pool B creditors are no longer creditors of the companies. Who gets to vote may be contentious. Can the insured creditors’ claims advanced by way of a proof of debt be admitted, even for voting purposes, without affecting the companies’ insurance position. For what amounts the unsecured -- 11 of 13 -- 12 insured creditors get to vote would also be contentious (admission for voting purposes at $1 might not appropriately reflect the true value of the claims). It is contentious as to whether one creditors’ meeting is required or potentially up to sixteen. If more than one creditors’ meeting, what occurs if the creditors for each company do not vote in the same way. [45] Fifth, the administrators’ proposal in its terms is inconsistent with s. 562 of the CA of which the insured unsecured creditors should have the benefit. That section allows a deduction for certain expenses from the money the company receives from the insurer but does not otherwise require the creditor to pay those expenses. The expenses deductible are those expenses of and incidental to getting in the insurance payment, and arguably do not extend to any of the administrators’ “holding costs” whilst the claims remain unfinalised. There is also potentially an issue as to whether those expenses extend to the administrators’ remuneration of or incidental to getting in the amount paid by the insurer – but there is some dicta supporting that to be the position (Re Morgan [2013] 96 ACSR 232 at paragraphs 140, 160-163). [46] Sixth, there is a real risk that the costs mechanism if passed at a creditors’ meeting would be liable to be set aside under s. 445B of the CA (or the DOCA cancelled under s. 445D(1)(f) of the CA) on the basis that the varied DOCA puts certain categories of creditors in a worse position than they would have been in under a liquidation scenario. The administrators conceded that certain categories of creditors could end up significantly worse under a pay-as-you-go type scheme than if there was a liquidation – but says that was for the creditors to vote upon as administration is a creditor-driven process. It is not necessary for me to decide that on this application. [47] The administrators referred to a case in which the creditors in a DOCA adopted a similar sort of costs mechanism, Matheson Property Group Pty Ltd (trustee) v Virgin Australia Holdings Ltd (2022) 165 ASCR 550, but the case did not concern a direct challenge being made to the costs mechanism and so the case is of little assistance. It is sufficient to recognise the risk, which is a real risk. Generally the Court would refrain from providing judicial advice about contentious matters and leave such issues to a usual adversarial process.4 4 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 440; Re Australian Pipeline Ltd [2006] NSWSC 1316 at [26]; Re Whittingham [2009] NSWSC 1426 at [25]; Macedonian Orthodox -- 12 of 13 -- 13 [48] There are other concerns with the detail of the administrators’ proposal two that may be able to be addressed but at the moment also point against it being an acceptable proposal, including: (a) the terms considering election whereby the creditor has to make an irrevocable election between accepting insurance proceeds or proving in the administration (in circumstances where the creditor may not yet have even seen the relevant insurance policy); (b) the terms whereby if the creditor defaults in its payment obligations to the administrators it may lose the benefit of its claim entirely; (c) what occurs with the relevant creditors’ ongoing liability to pay holdings costs as insured claims resolve. Outcome [49] For reasons given above, I am not satisfied that the administrators’ proposals are a just or efficient way to proceed. I will accede to DBC’s application and will order, pursuant to s. 447A of the CA, that the DOCA be varied as the parties have otherwise agreed. I decline to give the judicial advice sought by the administrators. Community Church St Petka Inc v Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160 at [42]. -- 13 of 13 --