Receivers in a Nickel: directions under s 424 of the Corporations Act 2001

This week’s TGIF examines the determination of an application by receivers and managers (Receivers) for directions under section 424 of the Corporations Act 2001 (Cth) (Act). The receivers sought directions from the Supreme Court of Western Australia on whether they were justified in distributing the proceeds from a sale of assets to a secured party despite proceedings brought by a third party.

BACKGROUND TO THE RECEIVERSHIP

In Re Mirabela Nickel Ltd (receivers and managers appointed) (in liq); Ex Parte Madden [2018] WASC 335, Receivers were appointed to Mirabela Nickel Ltd (in liq) and Mirabela Investments Pty Ltd (in liq) (Mirabela Companies). The primary assets of the Mirabela Companies were shares in and loans owed by a Brazilian mining company (Mirabela Assets).

On 28 October 2015, the Receivers were appointed over all of the Mirabela Companies’ present and after-acquired property by AET Structured Finance Services Pty Ltd (AET) pursuant to the terms of a General Security Deed.

SALE OF THE MIRABELA ASSETS

In late 2017, Mining Standards International Pty Ltd (MSI), presented the Receivers with an offer for the Mirabela Assets. The Receivers, MSI and the Mirabela Companies subsequently entered into an Asset Sale Agreement (MSI Sale Agreement). Particulars of the MSI Sale Agreement remain in dispute between the Receivers and MSI. One issue in dispute concerned the date on which MSI was required to satisfy a condition precedent requiring it to obtain finance for the purchase price under the agreement.

On 22 November 2017, the Receivers issued a notice of termination in relation to the MSI Sale Agreement, relying on that condition precedent. The Receivers contended that the MSI Sale Agreement was validly terminated at this time. MSI contended that the Sale Agreement remained on foot, that it was entitled to specific performance and that it was therefore the equitable owner of, or had an equitable interest in, the Mirabela Assets.

The Receivers subsequently sold the Mirabela Assets to a group of Brazilian companies which were nominees of Appian Capital Advisory LLP (Appian). On 30 July 2018, the Receivers informed MSI that the Appian agreement had completed. Since late August 2018, the Receivers had been holding the proceeds of sale, being more than US$59.5 million.

THREATENED PROCEEDINGS BY MSI

On 23 October 2018, MSI applied to the Court for leave to issue a writ against Appian, the Mirabela Companies, the Receivers and the Brazilian mining company and its related advisers to be served overseas, in which it claimed specific performance of the MSI Sale Agreement and pleaded that the termination of the MSI Sale Agreement was wrongful, the MSI Sale Agreement remained on foot, and MSI’s interest in the Mirabela Assets was superior to that of Appian (MSI Proceeding).

RECEIVERS' APPLICATION FOR DIRECTIONS

The Receivers applied to the Supreme Court of Western Australia for various directions under s 424 of the Act.

Justice Vaughan based his decision on the following principles emerging from case law as to the nature and scope of available directions under s 424:

1. the directions that may be provided are a form of personal guidance or advice; they articulate the approach the controller is justified in taking;
2. the power is to give directions in relation to matters identified in s 424(2), which should be interpreted broadly;
3. there must be an issue calling for the exercise of legal judgment which is more than merely a business or commercial decision;
4. the making of directions is not an adjudication which is determinative of parties’ rights. The Court has no power to make directions that would have that consequence; and
5. the fact that directions are sought in the context of an adversarial dispute does not mean that it is inappropriate to provide directions.

His Honour also determined that these principles must be interpreted consistently with the duties and functions of a receiver.

FIRST DIRECTION - NOT GRANTED

Justice Vaughan did not grant the first direction, which was that, subject to any contrary findings in the MSI Proceedings, the Receivers may act on the Appian agreement as though they had entered into the agreement after receiving a direction that they were justified in doing so (First Direction). Justice Vaughn held that the direction was of no practical effect as the Receivers conceded they had no remaining obligations under the agreement.

SECOND DIRECTION - GRANTED

The Court granted the second direction that the Receivers could distribute amounts from the sale of the Mirabela Assets to AET under the General Security Deed upon giving prior notice to MSI, because otherwise, the prospect of the MSI Proceedings created a considerable degree of risk that might adversely affect the proper conduct of the receiverships.

This direction was made despite MSI’s contention that the direction would require the Court to adjudicate on the substantive dispute between the parties. His Honour noted that it would be incompatible with the Receivers’ principal duty to the secured creditor to defer the distribution to account for the mere chance that the third party might, at some point, commence proceedings.

THIRD DIRECTION - GRANTED

Finally, the Court granted the direction that the Receivers were justified in defending the MSI Proceeding, as the Receivers’ evidence established that its defence had a real, rational and logical prospect of succeeding.

COMMENT

This decision shows that a Court’s directions can provide assistance to receivers in the context of hotly contested disputes and transactions, but they must have some degree of utility in order for the Court to make them.

Further, it emphasises that Courts will interpret receivers’ powers and duties consistently with their basic purpose and functions.