NZHC 1817 BETWEEN CARGILL INTERNATIONAL SA Applica
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2015-404-2355 [2016] NZHC 1817 BETWEEN CARGILL INTERNATIONAL S.A. Applicant AND SOLID ENERGY NEW ZEALAND LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) First Respondent SPRING CREEK MINING COMPANY (SUBJECT TO DEED OF COMPANY ARRANGEMENT) Second Respondent Hearing: 9, 10, 11, 12, 13 May 2016 Counsel D J Chisholm QC and J P Nolen for applicant T C Weston QC, A E Ferguson and K E Morrison for first and second respondents R B Stewart QC, L A OʼGorman and A L Harlowe for third respondents D R Kalderimis and K Yesberg for fourth respondents Judgment: 5 August 2016 JUDGMENT OF KATZ J This judgment was delivered by me on 5 August 2016 at 4:30pm pursuant to Rule 11.5 High Court Rules Registrar/Deputy Registrar Solicitors: Lowndes, Auckland Wilson Harle, Auckland Buddle Findlay, Auckland Chapman Tripp, Wellington Counsel: D J Chisholm QC, Auckland T C Weston QC, Auckland R B Stewart QC, Auckland CARGILL INTERNATIONAL S.A. v SOLID ENERGY NEW ZEALAND LIMITED & ANOR [2016] NZHC 1817 [5 August 2016] BRENDON JAMES GIBSON, and GRANT ROBERT GRAHAM Third Respondents ANZ BANK NEW ZEALAND LIMITED, BANK OF NEW ZEALAND, COMMONWEALTH BANK OF AUSTRALIA, WESTPAC NEW ZEALAND LIMITED, and DEUTSCHE BANK AG Fourth Respondents Table of Contents Introduction ............................................................................................................... [1] Background to the DOCA ......................................................................................... [6] Part 15A of the Companies Act 1993 ..................................................................... [13] Cargill’s section 239ACX challenges - Does the DOCA contravene Part 15A?..................................................................................................................[27] Section 239 ACX - The legal principles……………………………….………...[27] Does the role of the Participants Committee contravene Part 15A?.................... [29] Does the DOCA contravene Part 15A by unlawfully restricting creditors’ statutory entitlement to vary the DOCA?.............................................................. [53] Do the clauses in the DOCA compromising Solid Energy’s or creditors’ claims against third parties (or releasing the liability of third parties) contravene Part 15A? .......................................................................................... [60] Do the “non-challenge” clauses in the DOCA contravene Part 15A?..................[84] Does the “no set off” clause contravene Part 15A?.............................................. [89] Cargill’s s 239ADD challenges – Is a provision in the DOCA oppressive, unfairly prejudicial to, or unfairly discriminatory against Cargill? .................. [92] Section 239ADD – The legal principles……………………………………….....[92] Has Cargill been prejudiced due to a lack of independence on the part of the deed administrators?....................................................................................[99] Was Cargill unfairly classified as a Participant Creditor rather than as a Trade Creditor?................................................................................................. [110] Does the DOCA treat the Lenders preferentially, in a way that unfairly prejudices Cargill?...............................................................................................[122] Has Cargill been unfairly prejudiced by the limitation of liability clauses in the DOCA?....................................................................................................... [127] Cargill’s solvent liquidation complaint………………………………………… [133] Summary and conclusion ...................................................................................... [137] Result ...................................................................................................................... [140] Introduction [1] Solid Energy New Zealand Limited (“SENZ”) is the largest coal mining company in New Zealand. It was formed in 1987 as a state owned enterprise. The second respondent, Spring Creek Mining Company, is a subsidiary of SENZ. I will refer to SENZ and Spring Creek Mining Company, collectively, as “Solid Energy”. [2] On 13 August 2015 the Solid Energy Group was placed into voluntary administration.1 Brendon Gibson and Grant Graham of KordaMentha were appointed administrators and a draft deed of company arrangement (“DOCA”) under Part 15A of the Companies Act 1993 (“Act”) was circulated to creditors. The applicant, Cargill International SA (“Cargill”), held approximately six per cent of the Solid Energy Group’s total outstanding debt. Despite Cargill’s opposition to the DOCA, it was approved at the watershed meeting2 called by the administrators on 17 September 2015 by 94 per cent of creditors in value and 99 per cent in number. The DOCA was then executed by the various companies in the Solid Energy Group. Messrs Gibson and Graham were appointed deed administrators. [3] Cargill was aggrieved at being classified as a Participant Creditor in the DOCA, rather than as a Trading Creditor. If it had been classified as a Trading Creditor it would have received full payment of its debt, rather than the 35 to 40 cents in the dollar that non-Trading Creditors (known as “Participant Creditors”) will receive. This remains a ground of complaint, although a relatively minor one. Cargill’s challenges to the DOCA are now significantly more wide ranging, as reflected in its 155 page written submissions. 1 Pursuant to s 239I of the Companies Act 1993. 2 The meeting of creditors called by the administrator to decide the future of the company and, in particular, whether the company and the deed administrator should execute a deed of company arrangement. [4] Under Part 15A the Court has power to intervene where:3 (a) a deed of company arrangement is invalid for contravention of Part 15A (s 239ACX); or (b) a deed of company arrangement is oppressive, unfairly prejudicial to, or unfairly discriminatory towards one or more creditors (s 239ADD).4 [5] Cargill challenges the DOCA on both of these grounds and seeks orders that the DOCA be declared void and unenforceable. Alternatively, it seeks orders that the DOCA be terminated or varied. I will consider Cargill’s various grounds of challenge in turn, after first summarising the relevant factual background and key elements of the statutory regime under Part 15A. Background to the DOCA [6] Cargill’s debt relates to its involvement in an unsuccessful joint venture with Solid Energy relating to the Spring Creek mine, which has now ceased operating. The parties entered into a settlement deed on 1 February 2012 that compromised various claims that Cargill had against Solid Energy in relation to the joint venture. The settlement deed modified certain obligations in respect of offtake agreements and other arrangements between the parties in respect of the mine. Pursuant to the settlement deed Spring Creek Mining Company agreed to pay Cargill USD 18 million on 1 December 2017. Payment could be accelerated by Cargill if an event occurred which affected SENZ’s creditworthiness. [7] In early 2013 Solid Energy’s financial position started to deteriorate. This appears to have been largely driven by a decline in the forecast price of coal, coupled with a high New Zealand dollar, significant levels of borrowing to fund diversification activities, and an increase in the underlying fixed cost structure 3 I note that there have been only a relatively small number of cases decided under Part 15A in New Zealand, and only one significant challenge to a DOCA, which was ultimately decided on a procedural point relating to the use of a deed administrator’s casting vote. See Grant v Commissioner of Inland Revenue [2011] NZCA 330, [2012] 1 NZLR 235. 4 Section 239ADO also provides a general power to make appropriate orders about how Part 15A is to operate in relation to a particular company. of the business. In February 2013 Solid Energy announced that it was in discussions with the Banks and Treasury on the debt and equity support it required for future operations. Various reports and reviews were prepared, including by PwC, KordaMentha (for the fourth respondent banks (“Lenders”)) and Deloitte (for Treasury). In October 2013, following a report by KordaMentha to the Crown and Lenders on various insolvency options, a creditors’ compromise was undertaken, pursuant to Part 14 of the Act, to enable Solid Energy to keep trading. Unfortunately, despite that creditors’ compromise, Solid Energy’s financial position continued to deteriorate during 2014. [8] Following a fairly lengthy period of review and dialogue with its major creditors, the Solid Energy Group was placed into voluntary administration in August 2015. As I have noted above, the DOCA was approved by an overwhelming majority of creditors at the watershed meeting on 17 September 2015. The DOCA is highly complex. Total creditor debt of approximately $600 million is involved. The DOCA and the annexed Restructured Debt Deed (“RDD”) establish a framework for an orderly sale and realisation of Solid Energy’s assets. [9] The Participant Creditors (who include both Cargill and the Lenders) had to compromise their debts in order for Solid Energy to be able to keep trading during the managed sell down period. The Solid Energy Group will continue in operation for up to two and a half years, under its own management, to enable an orderly sell down of assets, including the Group’s coal mines. Participant Creditors are anticipated