In the matter of Gulf Energy Ltd

1. [1]

   HER HONOUR: This is an application, by originating process filed 1 November 2019 pursuant to s 447C of the Corporations Act 2001 (Cth) (the Act) for a declaration concerning the validity of the appointment of administrators to the plaintiff company. That declaration is sought pursuant to s 447C(2) and s 1322(4)(a) of the Act. In the alternative, an order is sought pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to Gulf Energy Limited (Gulf Energy) as if each of Bruce Gleeson and Daniel Robert Soire was validly appointed as joint administrators of Gulf Energy by resolution of the board of directors of Gulf Energy Limited on 21 October 2019 pursuant to s 436A of the Act. An order is sought that the first and second plaintiffs’ costs in the originating process be costs in the administration of Gulf Energy.

2. [2]

   In support of the application, the applicants have read an affidavit sworn 30 October 2019 by Wolfgang Siegfried Fischer, one of the two current directors of Gulf Energy, and an affidavit sworn 7 November 2019 of Daniel Robert Soire, who is a registered liquidator and one of the joint and several voluntary administrators of Gulf Energy with his fellow principal, Mr Gleeson.

3. [3]

   The application was bought by the applicants seeking urgent relief. The urgency of the application is not immediately apparent on the affidavits filed for the applicants, other than that the position is that the current joint and several voluntary administrators are concerned that there may be a doubt as to the validity of their appointment and, in circumstances where it is anticipated that a proposal will be put for a deed of company arrangement and where there is a major asset of the company worth some $10 million in the form of a petroleum exploration tenement, the concern on the part of the administrators, as I understand it, is to have clarified the validity of their appointment as administrators.

Background

1. [4]

   By way of background I note from Mr Soire’s affidavit that he and Mr Gleeson were appointed as joint and several voluntary administrators of Gulf Energy on 21 October 2019 by resolution of the company’s board of directors. Mr Soire has deposed (at [5] of his affidavit) that the current board of directors is constituted by two members, being Scott Riley and Wolfgang Siegfried Fischer.

2. [5]

   Clause 3.1 of the company’s constitution requires the board of directors to have at least three members. However, cl 3.11 of the company’s constitution states that if the board of directors has less than three members the board of director may (only) act in “emergencies”.

3. [6]

   Mr Soire has deposed to his process of receiving and reviewing books and records of the company to investigate its financial affairs, since his appointment, and has referred in his affidavit to the circumstances leading up to the voluntary administration, including the indebtedness on the part of the company to Seabird Exploration Asia Pacific Pte Ltd (Seabird) in an amount of approximately AUD $6.346 million in relation to seismic survey data services undertaken by that company.

4. [7]

   Mr Soire has deposed that, based on his review of the 208 financial year statement and preliminary investigations of the company’s financial affairs, he is of the view that the company was insolvent from at least the date of his appointment. His reasons for that conclusion are that: at the time of his appointment the company’s auditors provided a qualified report for the year ended 30 June 2018 and had raised concerns regarding the ability of the company to continue as a going concern and it may not be able to realise its assets and discharge its liabilities for the normal course of business; the company was required to pay the Seabird liability; the company was required to pay a sum of $625,000 plus interest owed to a Mr Charles Alexander; the company possibly had other outstanding liabilities due and payable; and that the company’s major asset is the petroleum exploration tenement to which I have earlier referred (and which is said not to be readily convertible to cash).

5. [8]

   Mr Soire has deposed (at [22] of his affidavit) that, given the financial position of the company, he is of the view that the two members of the board of directors were entitled to act to place the company into voluntary administration under cl 3.11(c) of the company's constitution, but seeks, as I have adverted to already, an order from the Court to validate the appointment of the joint and several voluntary administrators for reasons that: first, he wishes to resolve the validity of the appointment before he takes any further steps in the voluntary administration; and, second, he anticipates receiving at least one proposal for a deed of company arrangement and would like to insure that there are no concerns regarding the validity of actions undertaken by him operating as voluntary administrator. He has also deposed to his activities and investigation as an administrator of the company.

6. [9]

   Mr Fischer in his affidavit sworn 30 October 2019 has deposed to the fact that Gulf Energy has two directors and has deposed to the position under the 2018 and 2019 financial records of the company. He has further deposed (at [15]; [18]) to a meeting of the directors of Gulf Energy on 21 October 2019 and to the fact that he and his fellow director formed the view that Gulf Energy was likely to become insolvent. He has set out (at [19]) the reasons for that view.

7. [10]

   Mr Fischer has deposed (at [21]) to his understanding that there are parties that have expressed interest in putting forward a deed of company arrangement for the continued operation of the business or the acquisition of the permit, and (at [22]) to the fact that he is not aware of any creditors that are challenging the appointment of the administrators.

Determination

1. [11]

   Section 201A(2) of the Act relevantly requires that a public company must have at least three directors, not counting alternate directors, and that at least two directors must ordinarily reside in Australia. It is clear that that requirement has not been satisfied in the present case. I have already referred to Gulf Energy’s constitution which requires a minimum of three directors but which makes provision for the directors to act even if their number falls below the minimum number fixed for certain purposes including in emergencies.

2. [12]

   The doubt as to the efficacy of the resolution on 21 October 2019 pursuant to which the first and second plaintiffs were appointed as voluntary administrators of Gulf Energy arises because of the fact that there are only two directors of the company. The possibility that, notwithstanding the fact that there were only two directors of the company at the time, this is a valid resolution arises because of the exception contained in cl 3.11 of the constitution for a lesser number of directors to act for certain purposes including emergencies.

3. [13]

   I have been taken to the decision of Brereton J, as his Honour then was, in In the matter of DH International Pty Limited (Administrators Appointed) ACN 143 461 849 [2013] NSWSC 1120, in which his Honour concluded that the appointment in that case of administrators was not invalid by reason of the fact that the resolution on which the appointment was purportedly made was not a valid resolution of the board of directors as the relevant plaintiff. One of the reasons for his Honour’s view that the appointment was not invalid by reason of the Act was that, while the constitution stipulated a minimum number of two directors, it recognised that continuing directors might act even if the number fell below the minimum number fixed in accordance with the constitution for certain limited purposes including emergencies and his Honour considered that the appointment of a voluntary administrator in circumstances of insolvency met that requirement (see at [15] of his Honour’s reasons).

4. [14]

   I was also taken to the decision of Hammerschlag J in In the matter of Creative Memories Australia Pty Ltd (Administrators Appointed) [2013] NSWSC 652. There, the company at first had three directors (two resident in the United States of America and one local) but the local director had resigned and the two remaining non-resident directors determined that the company was insolvent and unable to pay its debts as and when they fell due; and passed a resolution appointing the applicants as administrators. His Honour was “far from convinced” that the resolution was ineffective or invalid, but said that if it was this was clearly a case where any doubt could properly be dispelled by the making of an order under s 447A(1) of the Act.

5. [15]

   In the present case, the submission put for the applicants is that it could be concluded that the appointment of voluntary administrators in the company in the present circumstances was in an emergency, such that the appointment of the voluntary administrators would not be invalid, but that if there were to be a doubt then in order to remove any doubt it would be appropriate to exercise the power under either one or both of s 447A of the Act and s 1322 of the Act.

6. [16]

   Section 447A of the Act states:

7. [17]

   Further, s 1322(4) of the Act states:

8. [18]

   In Hayes v Doran (No 2) [2012] WASC 486, relevant principles in relation to the exercise of the power conferred by s 447A to cure defects in administrator appointments were considered (from [263]ff):

9. [19]

   I refer also to the decision of Black J in Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 3) [2012] NSWSC 526 (Dolores Correa), where his Honour considered those principles. His Honour noted, in particular, that it was relevant to the exercise of the discretion to validate an appointment under s 447A of the Act that the Club was insolvent or very likely to become insolvent when the appointment was made (see at [83]). His Honour noted (at [96]):

10. [20]

    His Honour also noted in that case that, before making an order under s 447A or s 1322 of the Act, the court must be satisfied that no substantial injustice has been or is likely to be caused to any person. In the present case, it is submitted that there will be no substantial injustice by the making of such an order.

11. [21]

    It is further submitted that there is particular reason to validate an appointment of an administrator made by the directors of a company where the number is short of legislative and/or constitutional requirements, given the likely difficulty in persuading another person to become a director, or a company is expected to become insolvent (see Dolores Correa at [79]).

12. [22]

    Reference was also made to the decision of Black J in In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration); Lime Gourmet Pizza Bar (Darby Street) Pty Ltd (formerly under administration) (in liq); Lime Gourmet Pizza Bar (Hamilton) Pty Ltd (formerly under administration) [2015] NSWSC 244 (at [21]-[22]) where his Honour summarised the principles concerning the necessity for a director’s opinion as to insolvency to be held genuinely and in good faith:

13. [23]

    It is submitted in the present case that the opinion formed by Mr Fischer about the insolvency or likely insolvency of Gulf Energy was bona fide and genuinely formed and that, although there is no direct evidence before the court as to the state of mind of the second director (Mr Riley), his state of mind can be inferred from the minutes of the meeting of directors and his signature appearing on the instrument of appointment of administrators (see In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 at [77]).

14. [24]

    The applicant submits that it is relevant to take into account that the administrators have taken steps consequent to their appointment; have, in particular, corresponded with creditors of Gulf Energy and convened the first meeting of creditors (see Mr Fischer’s affidavit at [20]) and undertaken the matters deposed to by Mr Soire (at [25] of his affidavit). It is submitted that no-one is prejudiced by the decision of the directors to appoint administrators to Gulf Energy; that the company appears to be insolvent; and that the preferable outcome for creditors and members is administration with the eventual outcome determined after the administrators’ investigation. The administrators have consented to their appointment and Mr Fischer is not aware of any creditor who has challenged their appointment.

15. [25]

    Insofar as the objects of Part 5.3A of the Act are concerned, it is submitted that it would serve those objects for the Court to make an order curing any defect in the appointment of the first and second plaintiffs as voluntary administrators of Gulf Energy, having regard to the circumstances set out above.

16. [26]

    As to the application for an order under s 1322(4) of the Act, it is submitted that the prerequisites to such an order are satisfied in the present case: that a resolution to appoint an administrator is of a procedural character because it authorises the taking of a procedural step (namely, an administrative appointment, see Dolores Correa at [96]) and that it is just and equitable in the present case that the order be made (for the reasons that have been put forward in the administrators’ submissions and because no substantial injustice has been or is likely to be caused to any person).

17. [27]

    In the circumstances, it is not necessary to reach a concluded view as to whether or not a declaration should be made as to the validity of the appointment of the joint and several administrators because the plaintiffs will be satisfied by an order made that will cure any doubt in that regard. Thus, I am satisfied that the relief sought in the alternative prayer 2 of the originating process should be granted.

18. [28]

    For the above reasons, I make the following orders:

    1. (1)

       Order pursuant to s 447A of the Corporations Act 2001 (Cth) that Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to Gulf Energy Limited as if each of Bruce Gleeson and Daniel Robert Soire was validly appointed as joint administrator of Gulf Energy Limited by resolution of the Board of Directors of Gulf Energy Limited on 21 October 2019 pursuant to s 436A of the Corporations Act 2001 (Cth).

    2. (2)

       Declare pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) that Mr Gleeson and Mr Soire’s appointments as administrators of Gulf Energy Limited on 21 October 2019 and all acts, matters or things purporting to have been done or any proceedings purported to have been instituted or taken under the Corporations Act 2001 (Cth) in relation thereto pursuant to that appointment, are not invalid by reason reason of any contravention of a provision of the Corporations Act 2001 (Cth) or any provision of the Club’s constitution.

    3. (3)

       Order that the first and second plaintiffs’ costs of the originating process be costs in the administration of Gulf Energy Limited.

    4. (4)

       Order that these orders be entered forthwith.