In the matter of Orinoco Gold Limited (subject to Deed of Company Arrangement)

HER HONOUR: This is an application under section 247A of the Corporations Act 2001 (Cth) for an order to inspect the books of Orinoco Gold Limited (subject to Deed of Company Arrangement). The applicant, Tony Palasovski, is a shareholder of Orinoco Gold. He, until recently, owned 17 million shares in the company but has in recent times substantially reduced his shareholding so that he now only holds 10,000 shares. He appears to have retained these shares for the purposes of being able to avail himself of his right as a shareholder to inspect the books and records of the company under the Corporations Act.

Administrators were appointed to the company in April 2019 and the company resolved to enter into a Deed of Company Arrangement (DOCA) in May 2019. On 23 May 2019, the plaintiff requested books and records of the company and the administrators declined absent a court order. These proceedings were commenced on 15 October 2019 and it is apparent from the evidence of Mr Palasovski and the submissions made in the matter before the court on the last occasion, being 11 November 2019, that Mr Palasovski wishes to inspect the books and records, primarily for the purposes of ascertaining whether a class action may be brought against Orinoco Gold.

The principles governing such applications are not controversial. Section 247A(1) of the Corporations Act provides:

Further, section 247B provides:

Katzmann J, with whom Siopis and Gilmour JJ agreed, considered the requirements of the section in Mesa Minerals Ltd v Mighty River International Ltd (2016) 111 ACSR 289; [2016] FCAFC 16 at [22] by reference to the decision of Debelle J in Acehill Investments Pty Ltd v Incitec Ltd (2002) 233 LSJS 97; [2002] SASC 344, which I will not recite here. Relevant for present purposes is that “good faith” and “proper purpose” together form a composite notion which may be satisfied where “the plaintiff could reasonably take the view that its investment in the company may be at risk and there is a “case for investigation”: In the matter of Sirrah Pty Limited [2017] NSWSC 1683 at [23], citing London City Equities Ltd v Penrice Soda Holdings Ltd (2011) 84 ACSR 573; [2011] FCA 674. The requirements were put succinctly by Brereton J in In the matter of Tolco Pty Limited [2016] NSWSC 1069 at [16]:

On the second point, his Honour further explained, at [26] (citations omitted):

Particular issues arise when a company is in administration, or, as here, subject to a DOCA. First, leave must be granted to proceed with the application under section 444E, to which the deed administrators have consented in this case: Mehan v Arrium Limited (formerly Onesteel Limited) [2016] NSWSC 1680. There is also a provision in the DOCA in the same terms as that in Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365, that shareholders may not institute proceedings without the leave of the Court, which Barrett J held, in that case, extends to proceedings brought under section 247A. In those circumstances, it is appropriate that the Court exercise its discretion in favour of a grant of leave, where the cost of the application itself will be minimal to the administrators, who do not seek to be heard, and where the nature of the application is not brought against the company’s property such that it does not affect any party’s entitlement to dividends under the DOCA.

Second, it is relevant to a grant of leave under section 440D or section 444E whether administrators will be unreasonably distracted from the performance of their statutory duties: Mehan v Arrium at [12] and [14] and Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) (2016) 116 ACSR 353; [2016] FCA 1246 at [83] ff. I consider that the same consideration should inform my discretion in an application under section 247A, since it is clear that an administrator with limited funds and time to spend on this particular company will be impeded in their work if faced with an onerous order for inspection of documents.

The categories of documents originally sought by Mr Palasovski, as canvassed on the last occasion, were voluminous, comprising some eight pages of single line spaced categories which, when added up, were over 100 categories of documents. Perhaps unsurprisingly, the deed administrators were concerned, in their letter of 8 November 2019, as to the burden which this placed upon them and the distraction which it posed from attending to their tasks as deed administrators, in particular, their efforts to recapitalise the company. Concern was also expressed about the confidentiality of the documents and whether, if those confidentiality obligations were breached, the recapitalisation may be imperilled or the administrators may be considered to have breached confidentiality obligations to third parties. The administrators, having very little funding to attend to their task as deed administrators, also expressed concerns about their ability to spend time and money meeting the plaintiff’s request. The matter was stood over to today to give the plaintiff the opportunity to discuss the practicalities of his request with the administrators, including providing confidentiality undertakings, reducing the scope of his request and making suitable arrangements to ensure that the administrators’ costs of attending to the request were paid.

A much refined list of documents has been presented to the Court today together with a proposed confidentiality undertaking, an estimate of the administrators’ likely fees and a further letter from the administrators. The administrators again, whilst not objecting to leave being granted to the plaintiff to bring this application, object to being distracted from their tasks as the administrators to undertake the burden of meeting this request together with concerns already expressed about confidentiality obligations and the potential ramifications which disclosure of any confidential material may have on their efforts to recapitalise the company.

Although it is said that there are only 12 boxes of documents and some Dropbox links, experience suggests that Dropbox links can generally be linked to potentially vast quantities of material and I am not persuaded that the task which has been presented to the administrators is of small scope. It will take them a lot of time and money to deal with it. The plaintiff’s counsel was not able to point to any particular urgency in accessing the documents before the sunset date under the DOCA, being 22 February 2020, save for a wish to “get out of the starting blocks”. I assume that means — in respect of the proposed class action — reviewing the material to see whether such an action ought to be pursued.

I am concerned, having regard to the authorities which govern requests such as these, that the deed administrators not be distracted from their tasks. Having regard to the evidence before the Court, and in the absence of any assistance from the deed administrators as to whether the plaintiff’s request is in good faith and for a proper purpose, with some hesitation I am prepared to order that the plaintiff have access to the books and records but only once the sunset date has passed and then only on terms of provision of confidentiality undertakings and pre-payment of the administrators’ estimated of costs of attending to this request, together with an ability to seek orders for further payment of the administrators’ costs if the estimate is exceeded.

In these circumstances, I make the following orders: