Administrator ordered to disgorge as DoCA injuncted

A decision by an administrator to use his casting vote to push through a deed of company arrangement (DoCA) at the recently held second meeting of creditors of WMINES Limited has blown up after a secured creditor obtained orders in the Federal Court restraining the administrator from giving the deed effect.

“The Chairperson stated it was his belief that the interested parties may have somehow obtained a copy of the Report and utilised the relevant information to formulate their final offers to influence creditors at the meeting.” WMINES Limited meeting Minutes, November 19, 2024.

Last Friday the court heard that serious allegations had been made and determining the veracity or otherwise of those allegations is now the job of Federal court judge Roger Derrington, who made a series of orders restraining the deed administrator from doing pretty much anything that involves paying dividends or distributions as per the deed terms and paving the way for an acute scrutinising of the processes by which Salea Advisory’s Sule Arnautovic came to recommend that the WMINES DoCA be endorsed.

This was a meeting after all at which Arnautovic produced an updated DoCA proposal that creditors hadn’t seen.

It was a meeting at which an adjournment resolution was declared lost despite the vote in favour of adjournment exceeding those opposed in value if not number and Arnautovic declining to exercise his casting vote.

It was a meeting at which ordinary unsecured creditors were told their best case scenario in a liquidation was 2.24c in the dollar whereas the revised DoCA delivered a certain 2.66c.

And it was a meeting at which those assembled learned that the secured creditor would fund liquidators to the tune of $250,000, as long as those liquidators were BDO partners Andrew Fielding and Duncan Clubb, who since June this year have been the Controllers appointed of WMINES Limited.

Arnautovic told iNO yesterday that he received the revised DoCA proposal in writing on November 18 at 10.12pm and he tabled it at the meeting of creditors on 19/11/24 at 11:00am.

“It’s a pity that the pre-appointment strained relationship between the Board of Directors and Stacey Radford has continued into these insolvency proceedings,” Arnautovic said, in reference to the WMINES’ shareholder, secured creditor and plaintiff in the proceedings before Justice Derrington.

“But if Stacey ends up being owed circa $4.5 million after BDO realise the relevant secured assets under their Agent for the mortgagee in possession job it may just be a case of dissatisfaction with a poor investment and lend.

“Anyway, we will deal with the matter through the Courts and see where it lands,” Arnautovic said.

The meeting in question was held on November 19. Six days later Radford commenced proceedings in the Federal Court seeking to prevent Arnautovic from determining creditors claims and their priority and restraining him from paying out any dividends in accordance with the DoCA terms.

In this Radford was aided by Mills Oakley litigator Ashley Tiplady who’d already given his client value for money via a robust performance at the meeting.

According to the Minutes Tiplady had queried the “personal exertion charges” contained in the WMINES’ directors’ proofs of debt, prompting Arnautovic to explain that they were being adjudicated for voting purposes only.

Having familiarised himself with the company’s constitution, Tiplady also asserted that the Directors’ remuneration did not appear to have been paid in accordance with the rules which required the documenting of director resolutions or shareholder approval for the fees.

His client he said suspected that the Directors’ fees “appeared to be unlawful as the appropriate process for approval had not been followed”.

Arnautovic said the proofs of debt of the directors and their related parties were supported by internal management accounts from Xero and by draft financial statements prepared by Millers Point accounting firm Traverse Accountants, which had been engaged by Arnautovic for the task. But Tiplady wasn’t finished.

He also queried Arnautovic’s bundling of three resolutions into one, asked to know how much work the administrator had put in and what investigations were undertaken prior to the preparing of the resolutions to be voted on.

Finally he questioned the terms of the $50,000 indemnity provided by the company’s directors, which as Arnautovic’s DIRRI discloses, is subject to “a priority creditor claim entitlement (ahead of all other priority unsecured and ordinary unsecured creditors of the Company) with respect to the repayment of the funds advanced, that is, should sufficient funds become available (after my professional fees and costs) in the external administration of the Company”.

Next came general discussion, where it was revealed that all the offers received for the company – after the report was distributed to creditors – were between $300,000 and $310,000.

“The Chairperson (sic) stated it was his belief that the interested parties may have somehow obtained a copy of the Report and utilised the relevant information to formulate their final offers to influence creditors at the meeting,” the Minutes stated.

After attempting to extract details from director, appointor and DoCA proponent Andrew Sparke about the existence or otherwise of any Directors and Officers insurance policies Arnautovic requested that Tiplady “moderate his tone” because a creditors meeting was not an appropriate forum to conduct an informal public examination.

Tiplady was somewhat less rigorous in returning iNO’s calls.

With the resolution to adjourn not carried the creditors were asked to vote on the DoCA proposal.

Wielding Radford’s proxy Tiplady opposed and had the most votes by dollar value. But 15 creditors voted in favour and to break the deadlock Arnautovic deployed his casting vote, providing a host of reasons as to why the deed was compliant with the objective of the Act under Part 5.7B, kept the business alive and delivered a more certain outcome to creditors sooner than they’d likely enjoy in a liquidation.

Within a week Radford moved, obtaining an injunction restraining Arnautovic from giving effect to the DoCA’s terms and obtaining orders for production from Arnautovic for multiple categories of communications which include all emails, texts, whatsApp messages etc between Arnautovic, his staff, WMINES’ directors and related parties.

During the hearing of the injunction application Justice Derrington mentioned that serious allegations were being made by the plaintiff and an application to have the DoCA set aside must be considered likely, though Radford will have a better idea about the viability of such an approach once Mills Oakley has trawled through the material Arnautovic has been ordered to disgorge by December 12.