When a secured creditor funding deed administrators gets told that the $250,000 it handed over to fund a section 444GA application is insufficient because the deed administrators’ costs have absorbed it, well, you can imagine that the relationship might become a little strained.
Certainly it could be expected that an at least temporary chill descended in respect of exchanges between KPMG trio Will Colwell, Tim Michael and Peter Gothard, deed administrators of failed Chinese miner Wealth Mining Pty Ltd, and resources contractor Maca Limited.
“After the Deed Administrators had provided what they claimed to be an explanation for the difference between their earlier estimate of costs and their actual costs, MACA requested that it be afforded seven days’ notice if they intended to discontinue to the s 444GA application. Somewhat surprisingly, that apparently reasonable request was rejected.” Justice Roger Derrington.
After Wealth was placed into VA in November last year a DoCA was proposed, the key term of which required that all shares in Wealth Mining owned by related party Wealth Resources be transferred to MACA, which is Wealth Mining’s primary secured creditor and owed about $90 million.
The deed administrators envisaged undertaking an application under section 444GA of the Corporations Act to give effect to the DoCA terms and MACA agreed to stump up the estimated $250,000 required to fund it.
The deed administrators commenced the application – which was opposed by Wealth Resources – then hit a stumbling block.
As is helpfully detailed by Federal Court judge Roger Derrington in Colwell (Deed Administrator), in the matter of Wealth Mining Pty Ltd (Subject to Deed of Company Arrangement) v Wealth Resources Pty Ltd [2021] FCA 857 costs estimates can be dreadfully elastic, particularly when there’s three senior restructuring partners from KPMG on the clock.
“By an email from the Deed Administrators to MACA’s advisors on 7 July 2021, it was asserted that the Deed Administrators held insufficient funds to further progress the s 444GA application,” the judge said.
“It appears that the Deed Administrators’ costs of the administration exceeded the amount of $250,000 previously paid by MACA. It was also asserted that the total amount of those costs was then in excess of $450,000. That amount exceeds MACA’s total contribution to the Deed Fund as contemplated by the DOCA.
“After the Deed Administrators had provided what they claimed to be an explanation for the difference between their earlier estimate of costs and their actual costs, MACA requested that it be afforded seven days’ notice if they intended to discontinue to the s 444GA application. Somewhat surprisingly, that apparently reasonable request was rejected.
“The legal representatives for the Deed Administrators did confirm that no step would be taken for a brief period, but also reserved their clients’ right to discontinue the application and/or resign their office if a further $150,000 were not deposited to the Deed Fund by 11.00am on Friday, 16 July 2021,” the judge said.
We particularly like his honour’s line:”After the Deed Administrators had provided what they claimed to be an explanation for the difference between their earlier estimate of costs and their actual costs”. An explanation a judge declines to endorse as such is an explanation worth hearing.
Unsurprisingly, MACA reasoned that if it had to spend more money to get the Section 444GA application heard, it might be better off spending it directly on its own legal advisors rather than hand it over to the deed administrators’. And that’s exactly what MACA did.
It does seem a lot of money for an application which generally would be regarded as being fairly simple according to fairly well settled law, and therefore relatively inexpensive at least so far as the judgements of the Supreme Court of New South Wales are concerned