Court addresses delicate interplay between special purpose and general administrators

Sev.en Gamma a.s v IG Power (Callide) Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 184
What is the test for approving a funding agreement for special purpose administrators?

Overview

This case highlights the interesting dynamics at play when general purpose and special purpose administrators are appointed to a company. The Court considered a request by a company’s special purpose administrators to approve a funding agreement for their remuneration and various qualifications proposed by the general purpose administrators. The Court ultimately approved the funding agreement and also some (but not all) of the qualifications proposed by the general purpose administrators, demonstrating the delicate balancing act to be undertaken in dual insolvency appointments.

Background

The Callide Power Station, located at Biloela, is one of Queensland’s major power stations. It is a coal-powered electricity generator comprised of two power plants, Callide B and Callide C, each of which has two generating units. Callide C is operated by an unincorporated joint venture between IG Power (Callide) (“IG Power”) and an entity ultimately owned by the Queensland Government.

On 29 January 2024, John Park and Benjamin Campbell of FTI Consulting were appointed as special purpose administrators of IG Power (the “Special Purpose Administrators”). Richard Hughes and John Park of Deloitte had been appointed general purpose administrators on 24 March 2023 (the “General Purpose Administrators”). The Special Purpose Administrators were appointed to conduct investigations into the cause of two catastrophic incidents at the power station - the explosion of a turbine in 25 May 2021 and the partial collapse of a cooling tower in October 2022, and any potential claims available to IG Power in connection with the incidents.

The Special Purpose Administrators then filed an application seeking approval of a Deed of Funding and Indemnity (the “Deed”) with Sev.en Gamma a.s. (“Sev.en”) for the funding of their remuneration and legal expenses. Sev.en has a 25% economic interest in IG Power, and also has an economic interest as a creditor of one of its subsidiaries which is, in turn, a substantial creditor of IG Power.

The General Purpose Administrators did not oppose the application, but requested that the draft orders be qualified to require the Special Purpose Administrators to: (1) consult the General Purpose Administrators before providing any confidential or privileged documents or information to Sev.en; and (2) provide a report to IG Power’s creditors prior to any repayment to Sev.en under the Deed, and that the creditors be given 14 days to apply to the Court for a re-determination.

The Parties’ Arguments

Special Purpose Administrators

The Special Purpose Administrators argued that the Deed should be approved, since they will not be able to undertake the investigations for which they were appointed without the funds under the Deed. The Deed does not create any liability for IG Power as funding is provided, at the initial stage, for the purposes of determining whether there are claims available for the benefit of IG Power. If there are, separate funding for those claims might be provided. Sev.en has no entitlement to recover any of the funding provided unless a recovery is made in a proceeding brought by the Special Purpose Administrators. As such, the Special Purpose Administrators argued there was no need to for an additional funding condition to be made at this point in time.

With respect to confidentiality, the Special Purpose Administrators took the position that they have the same duties and obligations to IG Power under the Corporations Act as the General Purpose Administrators. They also noted that the confidentiality of the documents is protected under the Deed, and argued that, rather than imposing the orders sought by the General Purpose Administrators, it would be a lesser administrative burden for the General Purpose Administrators to notify the Special Purpose Administrators, on production of documents, which documents are (or are likely to be) privileged.

Ultimately, the Special Purpose Administrators took the position that the orders they were seeking were not unusual and are frequently made by the Court, and that the qualifications sought by the General Purpose Administrators constituted an attempt to have some control of the Special Purpose Administrators, and to create a brake on their ability to undertake their tasks.

General Purpose Administrators

For their part, the General Purpose Administrators pointed out that the Special Purpose Administrators, in carrying out their functions, will obtain documents that have been provided to the General Purpose Administrators which will attract, at least, claims for privilege. There is a contractual obligation that the Special Purpose Administrators disclose documents to Sev.en as the funder. This will result in Sev.en, as a third party to the administration, having access to documents that it ordinarily would not. This is particularly troublesome in light of Sev.en’s participation in the expression of interest process currently being undertaken. If Sev.en obtains access to information via the funding arrangement, there may be a view taken by other potential bidders that Sev.en has received an advantage over those other potential bidders.

In relation to remuneration, the General Purpose Administrators argued that the qualifications proposed by them did not seek to interfere with the relationship between the Special Purpose Administrators and Sev.en, for so long as the Special Purpose Administrators were only utilising the funds of Sev.en. The qualification sought by the General Purpose Administrators only allows creditors to engage in an assessment of the Special Purpose Administrators’ remuneration in the event funds that would otherwise be available to creditors were to be used to pay for this remuneration. The purpose of the qualification is to bring the Special Purpose Administrators’ remuneration determination process within the usual operation of the Corporations Act, which ordinarily includes a report to the decision-making body setting out the work done, the justification for that work and the amount charged, and allows an opportunity for the interrogation of that information.

The Court’s Decision

Confidentiality

The Court refused the General Purpose Administrators’ request to impose a limitation on the Special Purpose Administrators’ ability to disclose privileged or confidential documents to Sev.en. Among other things, the Court noted that the Special Purpose Administrators, like the General Purpose Administrators, are subject to obligations of directors and office holders of corporations under Part 2D.1 of the Corporations Act. Both sets of administrators are required to act in the interests of IG Power and its creditors. The fact that the Special Purpose Administrators are being funded by Sev.en does not overcome these obligations, and would not automatically prevent the Special Purpose Administrators being in breach of their obligations under the Corporations Act should such disclosure of confidential material to Sev.en breach the Corporations Act.

There is nothing to prevent the Special Purpose Administrators liaising with the General Purpose Administrators, in the ordinary course of their duties, to identify documents in the possession of the Special Purpose Administrators which are either confidential or potentially privileged. The Court agreed that the administrative burden on the Special Purpose Administrators would be significantly increased by a requirement that they liaise with the General Purpose Administrators as contemplated by the draft orders proposed by the General Purpose Administrators.

Finally, the Court noted that the Deed imposes limitations on the disclosure by the Special Purpose Administrators of documents to Sev.en, and the use of such documents by Sev.en.

Remuneration

The Court granted the qualification sought by the General Purpose Administrators requiring the Special Purpose Administrators to provide a report to IG Power’s creditors in advance of any re-payment to Sev.en and giving the creditors 14 days to apply to the Court for a re-determination. In the Court’s view, this was a reasonable qualification to the orders proposed by the Special Purpose Administrators.

As Counsel for the General Purpose Administrators submitted, the ordinary course of approval of remuneration payable to voluntary administrators appointed under Part 5.3A of the Corporations Act is that a remuneration determination is made by either a resolution of the creditors or, if one is appointed, a committee of inspection: para 60-10 of the Insolvency Practice Schedule. A review of a remuneration determination for an administrator can be made on application by, among others, a creditor (para 60-11(1)(b)), however not if the remuneration determination is made by the Court: para 60-11(5).

Under the Deed, the funding of the Special Purpose Administrators is by Sev.en. In the event that the investigation gives rise to no recovery proceedings, that is the end of the matter insofar as concerns funding. However, in the event that the investigation does give rise to recovery proceedings, and monies are recovered from one or more defendants for the benefit of IG Power and its creditors, the Deed contemplates that the monies advanced by Sev.en to the Special Purpose Administrators will be repaid to Sev.en.

In such circumstances, the Court considered it reasonable for any creditor to be allowed to seek review of the remuneration payable to the Special Purpose Administrators, where that remuneration is ultimately coming from monies recovered from proceedings against third parties, and where those monies would plainly be available to creditors.

Conclusion

Accordingly, the Court refused to order the Special Purpose Administrators to consult with the General Purpose Administrators before providing any confidential or privileged documents or information to Sev.en, but did grant the qualification sought with respect to the creditors’ right to apply to the Court for a re-determination in advance of any repayment to Sev.en.

Judge: Collier J

Counsel for the Special Purpose Administrators: Christopher Johnstone

Solicitor for the Special Purpose Administrators: White & Case

Counsel for the General Purpose Administrators: Stewart Maiden KC with Bernice Chen

Solicitor for the General Purpose Administrators: Gilbert + Tobin