Levesque-Hocking.
The voluntary administrators (VAs) of Strong Room Technology Pty Ltd (SRT) have failed for a second time to obtain a court’s imprimatur for entry into a controversial sale agreement, paving the way for creditors to vote on the company’s future, an outcome the VAs have resisted on the basis that a sale promises a superior return.
On Wednesday Federal Court judge Roger Derrington dismissed an application brought by HLB Mann Judd trio Todd Gammel, Matthew Levesque-Hocking and Barry Taylor seeking declarations that they would be acting reasonably in entering into the sale agreement, which if executed would thwart the designs of SRT deed proponent Intervalley Ventures Pty Ltd (IVV), which opposed the application.
Whilst expressing sympathy for the difficult position the trio find themselves in – limited funds to trade the business and an unresolved freezing order locking up $10 million odd – his honour found that the VAs hadn’t satisfied him that the proposed sale – being fronted by the very recently incorporated SRSPV Pty Ltd – was so superior that creditors should be denied the opportunity to consider IVV’s proposed deed of company arrangement (DoCA).
Counsel for the VAs Nicholas Mirzai told the court that his clients would not recommend the DoCA in its current form as it provided no funds for a trade on but when pushed to explain precisely why the DoCA was so unpalatable to the VAs replied that the deal on the table is the best outcome for creditors.
Mirzai could’ve added ‘whether the creditors like it or not’ as it would hardly have added to the judge’s already burgeoning dissatisfaction.
“So the administrators refuse to disclose to the court why they won’t put the DoCA to creditors,” his honour said tersely. All that was missing was “harrumph!”
The judge asked Mirzai if there was evidence suggesting the deed proponent might manipulate the votes to influence the outcome of any resolutions put to a meeting. There wasn’t.
Mirzai then fanned the judicial embers further by informing the court that the VAs also wanted expansive confidentiality orders made on the basis that this is what they had agreed to with the publicity-shy parties to the term sheet underpinning the proposed sale agreement.
“I don’t care what the parties say,” the judge replied. That’s entirely irrelevant,” the judge said.
At this point New Chambers’ David Robertson – appearing for IVV – decided it would be helpful to remind Justice Derrington what his colleague Justice Michael Lee said about how the VAs had handled the sale process and their obligations to creditors when they made the same application before him on the morning of May 13, after opening and then adjourning the second meeting.
According to Robertson, Justice Lee had said the VAs were holding the conditions precedent and term sheet conditions like a gun to the head of creditors.
“The administrators are a bit reluctant to expose the reasons why they don’t want to put the proposed DoCA to creditors?” Justice Derrington said.
“Yes your honour that is my submission,” Robertson replied, adding that the court shouldn’t be used to remove any liability the VAs might have for making a commercial decision.
Mirzai sought to rebut Robertson’s points but it was always going to be hard yakka persuading one judge to make orders another would not, particularly when the evidence in the second application mirrored that which failed to elicit the declarations sought the first time round.
iNO’s mail is that the Strong Room business is burning approximately $100,000 per month and barring the VAs obtaining further funding they would seem to have little choice but to reconvene the second meeting as soon practicable given the scarcity of cash and their potential liability.
We sought comment from Gammel but he had not responded by our deadline. Maybe he was busy reconsidering the DIRRI that can’t be recommended?
Further reading:
Perhaps the VAs have forgotten their duties during the period of administration?