In the recent decision, In the matter of Mirabela Nickel Ltd (subject to deed of company arrangement)  NSWSC 836, the NSW Supreme Court has granted leave to the deed administrators under section 444GA of the Corporations Act 2001 (Cth) (Act) to transfer 98.2% of the existing shares of Mirabela Nickel Ltd (Mirabela) to unsecured creditors without the consent of its shareholders.
Mirabela is listed on the Australian Stock Exchange. Mirabela’s main asset is a nickel mine in Brazil. The Mirabela group had been in financial difficulty since mid-2013 as a result of declining nickel prices and loss of one of its major customers. The group had several debt facilities, including US$395 million senior unsecured notes.
On 25 February 2014, the directors placed Mirabela into voluntary administration. The majority of creditors resolved at the second creditors’ meetings that Mirabela execute a deed of company arrangement (DOCA) to implement a recapitalisation plan proposed by a group of the noteholders.
The terms of the DOCA included:
- leave of the Court be obtained for transfer of the shares;
- 98.2% of the shares in Mirabela be transferred to noteholders in proportion to their claims (or sold on behalf of noteholders) and shareholders be left with 1.8% shares in Mirabela; and
- all claims of the unsecured noteholders and all claims of shareholders be extinguished.
Section 444GA of the Act allows a deed administrator to transfer the shares of a company where he/she has obtained the written consent of shareholders or leave of the Court. A shareholder, creditor, interested person or ASIC may oppose this application for leave. The Court will only give leave if it is satisfied that the transfer would not unfairly prejudice the interests of the shareholders of the company.
In determining this unfair prejudice, the position of the shareholders if leave was granted is compared to their position if it was not and Mirabela was wound up. The evidence submitted for this comparison included:
- The administrators’ section 439A report: it was estimated that unsecured creditors and shareholders would receive no return if Mirabela was placed into liquidation.
- Independent expert’s report: negative cashflows were in excess of US$100m for the 2013 financial year and Mirabela had negative net assets of US$375.8m. Net interest bearing liabilities of US$526.8 million exceeded the enterprise value of Mirabela’s assets. The shares had no value and would yield no return in a liquidation scenario.
Justice Black adopted Chief Justice Martin’s approach in Weaver v Noble Resources Ltd  WASC 182. In particular, that “unfairness only arises if prejudice is established”. Where the company has no residual value to members and they are unlikely to receive anything in a liquidation, which is the only alternative, “then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair.”
A comparison is undertaken of the shareholders’ position if leave was granted to their position if leave was not granted. Here, if leave was not granted, the plan would not proceed leading to the liquidation of Mirabela. The evidence shows that Mirabela’s liabilities exceed its assets and in a liquidation unsecured creditors and shareholders would receive no return. The plan contemplates that shareholders would retain minimal equity with potential economic value (albeit marginal), which is more favourable than nothing in a winding up.
Justice Black held that there was no unfair prejudice to shareholders and granted leave for the transfer of shares.
This is the first time that leave has been granted to deed administrators of a listed company to use this power. This decision provides helpful guidance for deed administrators in proposing a DOCA leaving shareholders with little value in the company without their approval in the situation where shareholders have no economic value.
The relevant analysis for the deed administrators is a comparison of the returns to various stakeholders in a liquidation scenario to the scenario contemplated by the DOCA and plan, rather than a going concern basis.