In the matter of Paladin Energy Limited (subject to Deed of Company Arrangement) [2018] NSWSC 11 (18 January 2018)

Last Updated: 19 January 2018

Supreme Court New South Wales

Case Name:	In the matter of Paladin Energy Limited (subject to Deed of Company Arrangement)
Medium Neutral Citation:	[2018] NSWSC 11
Hearing Date(s):	16 January 2018
Decision Date:	18 January 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court grants leave pursuant to s 444GA of the Corporations Act 2001 (Cth) to transfer the shares in Paladin Energy Limited pursuant to the deed of company arrangement
Catchwords:	CORPORATIONS — Voluntary administration — Deed of company arrangement – Application under s 444GA of the Corporations Act 2001 (Cth) for leave to transfer shares pursuant to deed – whether residual equity in company – whether shareholders unfairly prejudiced.
Legislation Cited:	- Corporations Act 2001 (Cth), Ch 6, Pt 5.3A, ss 444GA, 606 - Corporations Amendment (Insolvency) Act 2007 (Cth) - Supreme Court (Corporations) Rules 1995 (NSW), r 2.13
Cases Cited:	- Re BCD (Operations) NL (subject to deed of company arrangement) [2014] VSC 259; (2014) 100 ACSR 45 - Re Kupang Resources Limited (subject to deed of company arrangement) (recs and mgrs apptd) [2016] NSWSC 1895 - Re Lewis, Diverse Barrel Solutions Pty Ltd (subject to deed of company arrangement) [2014] FCA 53 - Re Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836 - Re Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1910; (2015) 105 ACSR 246 - Re Ten Network Holdings Limited (subject to a deed of company arrangement) (recs and mgrs apptd) [2017] NSWSC 1529 - Re 3GS Holdings Pty Ltd (subject to deed of company arrangement) [2015] VSC 145 - Weaver v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301; 79 ACSR 237
Category:	Principal judgment
Parties:	Matthew David Woods, Hayden Leigh White and Gayle Dickerson in their capacities as joint and several deed administrators of Paladin Energy Ltd (subject to deed of company arrangement) (Plaintiffs) Ad hoc Committee of Bondholders, D Burrell, R Kalfon (Interested Persons)
Representation:	Counsel: I R Pike SC/M.L. Rose (Plaintiffs) A Whitby (Solicitor – Ad hoc Committee of Bondholders) D Burrell (Interested Person) R Kalfon (Interested Person) Solicitors: King & Wood Mallesons (Plaintiffs) Gilbert & Tobin (Ad hoc Committee of Bondholders) D Burrell (self-represented) R Kalfon (self-represented)
File Number(s):	2017/375147

JUDGMENT

1. By Originating Process filed on 12 December 2017, the Plaintiffs, Messrs Woods, White and Dickerson as joint and several deed administrators (“Deed Administrators”) of Paladin Energy Ltd (subject to Deed of Company Arrangement) (“PEL”) seek an order under s 444GA(1)(b) of the Corporations Act 2001 (Cth) that they jointly and severally have leave to transfer 98% of the fully paid ordinary shares in the capital of PEL from the members of PEL to trustees in accordance with the terms of a deed of company arrangement dated 8 December 2017 executed by PEL and others (“DOCA”). The Plaintiffs also seek ancillary orders under s 447A of the Corporations Act and s 90-15(1) of the Insolvency Practice Schedule (Corporations) in respect of the execution of share transfer forms and other documents ancillary to the relevant share transfer and the entry of the name of the trustees in PEL’s share register.
2. A major creditor of PEL, Electricité de France SA (“EDF”) originally indicated it would oppose this application but subsequently withdrew from the proceedings in circumstances to which I refer below. Three shareholders in PEL initially indicated that they would appear and oppose the application and two of those shareholders, Mr Burrell and Mr Kalfon, were heard in opposition to the application under r 2.13 of the Supreme Court (Corporations) Rules. Bondholders of PEL being members of the Ad hoc Committee of Bondholders also appeared and were heard under r 2.13 of the Supreme Court (Corporations) Rules and supported the application.

Affidavit evidence and factual background

3. I will initially refer to the affidavit evidence before outlining the background to this application, drawing on that evidence. The Plaintiffs rely on the affidavit dated 11 December 2017 of one of the Deed Administrators, Mr Woods, which sets out the nature of PEL’s activities, the background to the appointment of voluntary administrators to PEL and two associated companies (“Companies”) and the background to this application. Mr Woods there outlines the steps that had been taken by PEL and its management to explore recapitalisation options and the potential sale of assets in the period prior to the voluntary administrators’ appointment, which included dealings with several investment banks and approaches to the bondholders and numerous uranium industry participants, to which I will refer further below. Mr Woods’ affidavit also refers, inter alia, to a proposal for the DOCA put by PEL’s bondholders, to the steps taken by the voluntary administrators to seek a competing proposal from EDF and to EDF’s opposition to the bondholders’ proposal. Mr Woods refers to matters relevant to the value of shares in PEL and also refers to matters which require that this application be determined on an urgent basis.
4. The Plaintiffs also relied on an affidavit dated 21 December 2017 of Mr Alexander Molyneux, formerly the chief executive officer of PEL, which also referred to the efforts made by PEL and its advisers to identify an interested party to acquire PEL or its major shareholders before the Companies were placed in administration. That affidavit also referred to efforts made by PEL to develop a debt restructuring proposal, and to a proposal for a solvent balance sheet restructuring of PEL that had secured the support of the majority of its bondholders in early 2017, but did not proceed when EDF did not consent to the proposal. Mr Molyneux also outlined his assessment of the reasons for the failure of that restructuring proposal, including the limited number of parties globally that could complete a sale or recapitalisation transaction in respect of the uranium mines and exploration tenements held by PEL, the decline in the uranium spot price from 2015 to 2017 which reduced interest in the acquisition of uranium assets during that period and EDF’s not supporting that restructuring.
5. The Plaintiffs also relied on several other affidavits. An affidavit dated 11 December 2017 of Mr Rodney Somes, a Relationship Manager with Computer Investor Services Pty Ltd, addressed the manner in which notice of this application had initially been given to shareholders in PEL. An affidavit dated 20 December 2017 of Mr David Jewkes, a solicitor acting for the Plaintiffs, set out the then position as to an application made by PEL to the Australian Securities and Investments Commission (“ASIC”) for relief under s 655A of the Corporations Act in respect of the proposed transaction and the then position of EDF in respect of the transaction.
6. An affidavit dated 23 December 2017 of Mr Campbell Jaski of PPB Corporate Finance confirmed that he held the views set out in an independent expert’s report that had been made available to PEL’s shareholders and also to ASIC. Mr Jaski is a partner in PPB Advisory and a director of PPB Corporate Finance Pty Ltd and has over 20 years' experience in mining and corporate finance, including over 10 years' experience with a large international mining company, and has extensive experience in valuing assets and providing independent expert reports, including in the mining industry. Mr Jaski’s report addressed the extent of the assets and debts of PEL and the estimated dividend to unsecured creditors and shareholders of PEL if PEL was placed into liquidation. Mr Jaski relied, for some aspects of his report, on a report of CSA Global Pty Ltd (“CSA”) dealing, inter alia, with the valuation of mineral resources, exploration projects and a database maintained by PEL (“Mineral Assets”).
7. Mr Jaski assessed the value of the shares in PEL on two alternative bases. The first was a “going concern” basis, as required by ASIC Regulatory Guide 111, and on the assumption that PEL would continue to operate for the foreseeable future and would be able to realise its assets and discharge its post administration liabilities in the normal course of business. That assumption is not supported by the evidence and that valuation was of little relevance, as is typically the case in applications of this character. Mr Jaski’s going concern basis valuation adopts a "sum of parts" methodology, applying a discounted cash flow analysis in respect of the Langer Heinrich and Kayelekera mines, adopting CSA’s valuation of the Mineral Assets and valuing other assets using a net asset valuation. Mr Jaski then deducts secured borrowings, net of cash, and the Administrators' estimate of claims of bondholders and EDF and administration and associated costs. On that basis, Mr Jaski assessed the 100% equity value (controlling interest basis) for PEL on a “high” range valuation as having negative equity of US$99,224,000 and on a “low” range valuation as having negative equity of US$279,232,000. As I noted above, while that valuation adopts the going concern methodology required by Regulatory Guide 111, its utility in this case is undermined by the fact that PEL is not a going concern, at least in the sense of having capacity to fund its normal day to day operations into the foreseeable future.
8. Alternatively, and more relevantly, Mr Jaski assessed the value of shares in PEL on a “distressed” basis, adopting a going concern valuation as a starting point, but discounting that valuation by reference to PEL’s current circumstances, including the fact that it does not have sufficient funds available to pursue normal operations into the foreseeable future. Mr Jaski expresses the view that a valuation on that basis is a more realistic scenario for the valuation of PEL’s assets. In undertaking that valuation, Mr Jaski applied discounts of 20% in respect of the Langer Heinrich and Kayelekera mines, on the basis of his view that a potential purchaser would seek a higher rate of return to reflect increased risks associated with a liquidator not providing commercial representations or warranties upon which that purchaser could rely, and because a liquidator would be unlikely to be able to offer any earn-out adjustments to the purchaser, based on the performance of the business post sale; a discount of 10% in respect of the valuation of the Mineral Assets, to reflect the limited options available to a liquidator to maintain the tenements should a sale not complete in a limited time frame; and a discount of 20% in respect of the shares held in another entity to reflect the relative illiquidity of those shares and the associated likelihood of needing to sell shares over an extended period.
9. On that basis, Mr Jaski valued a 100% equity value (controlling interest basis) for PEL on a distressed basis on a "high" range valuation as having negative equity of US$222,852,000 and on a "low" range valuation having negative equity of US$376,352,000. Even if the particular “distressed” sale methodology or discounts adopted by Mr Jaski were not adopted, that valuation emphasises that any discount to the valuation of PEL’s assets to reflect its present financial position would, obviously, increase the deficiency between the value of PEL’s assets and its debts and erode any prospect that its equity has value.
10. Mr Jaski also identifies a third basis for valuation, having regard to the prospect that a lender to PEL, Deutsche Bank AG London Branch (“Deutsche Bank”) could rely on an event of default under a US$60m facility taken out in July 2017 if the Companies were placed into liquidation. Mr Jaski applies a discount between 30% and 50% to asset values in that situation and expresses the view that additional legal and accounting costs in the order of US$10 million to US$14 million may also be incurred in that situation. Mr Jaski also identifies other matters relevant to these valuations, including an oversupply in uranium markets, so that uranium spot prices are expected to remain low although limited price recovery is forecast in 2018 and 2019; and other matters including the level of inventories, secondary supplies and regulatory risks that are likely to limit increases in the uranium price.
11. An affidavit dated 29 December 2017 of Mr Alexei Gorovtsov, also a solicitor acting for the Plaintiffs, referred to the issue on 22 December 2017 of an explanatory memorandum and the independent expert’s report concerning the transaction and updated the position in respect of the Plaintiffs’ dealings with ASIC. A second affidavit dated 31 December 2017 of Mr Gorovtsov referred to notification to shareholders of a further directions hearing in this application on 2 January 2018. By his second affidavit dated 15 January 2018, Mr Woods summarised the process which had been adopted by the voluntary administrators to deal with shareholder communications and to give notice of the final hearing of this application to shareholders.
12. By letter dated 15 January 2018, (Ex P1) ASIC advised the solicitors for the Deed Administrators of its “in principle” decision that it would grant relief sought by the Deed Administrators under s 655A of the Corporations Act. However, in accordance with its usual practice in applications of this kind, ASIC advised that it would only execute the relevant instrument of relief if the Court granted leave to the Deed Administrators as sought in this application. ASIC also rightly recognised that its decision was directed to the matters set out in s 606 of the Corporations Act and noted that:

“The Court’s decision in relation to the application pursuant to s 444GA is by reference to a different, and potentially wider, criteria including whether any PEL shareholders would be unfairly prejudiced by the proposed transfer.”

13. I now turn to the factual background to this application which was largely uncontentious. I have drawn on the helpful outline of that background in the submissions made by Mr Pike and Mr Rose on behalf of the Deed Administrators and the affidavit evidence to which I referred above in setting out that background.
14. PEL was incorporated on 24 September 1993 under the name Paladin Resources NL, made an initial public offering in early 1994 and commenced trading on Australian Securities Exchange Limited (“ASX”) on 29 March 1994. PEL has interests in uranium mining and exploration related assets located in Namibia, Malawi, Canada and Australia which are held through various subsidiaries incorporated in Australia or overseas (Woods 11.12.17 [25]). At the time of this application, PEL was listed on ASX and the Namibian Stock Exchange and had ceased to be listed on the Toronto Stock Exchange (Woods 11.12.17 [26]).
15. PEL holds an interest, through subsidiaries, in an operating uranium mine, the Langer Heinrich mine in Namibia. PFPL has a 75% interest in Langer Heinrich Mauritius Holdings Limited (“LHM”), which in turn holds the shares in Langer Heinrich Uranium (Pty) Ltd (“LHU”), incorporated in Namibia, which operates the Langer Heinrich mine. The other 25% of the shares in LHM are held by CNNC Overseas Uranium Holding Limited (“COUH”), which is a subsidiary of China National Nuclear Corporation (“CNNC”), a government owned corporation in the People's Republic of China (Woods 11.12.17, [29]–[30]). PFPL and COUH are party to a Shareholders' Agreement dated 23 July 2014 (“Shareholders' Agreement”).
16. PEL's other assets include the Kayelekera uranium mine in Malawi, which is a joint venture between two entities associated with PEL and the Government of Malawi. Uranium production at the Kayelekera mine ceased in May 2014 and the mine was placed on care and maintenance. PEL also has interests in undeveloped uranium deposits in Canada, Queensland and Western Australia, and I will refer further to an issue as to the value of one of those assets raised by Mr Kalfon below.
17. Since 2011, global uranium prices have been depressed, reaching a 13 year low in 2016, and it appears that that low uranium price has, unsurprisingly, had an adverse effect on PEL's cash flows. During 2015 and 2016, PEL took steps to seek to address the fact that one of the bond series it had issued fell due for repayment in 2017, including investigating the potential sale of assets including the Langer Heinrich mine or undertaking an equity raising. An interim chief executive officer, Mr Molyneux, was appointed in August 2015 with a mandate to address those issues (Woods 11.12.17, [56(a)]) and, PEL also engaged investment banks, including JP Morgan, UBS and Cantor Fitzgerald as advisors in respect of those issues. PEL also approached participants in the uranium industry to investigate their possible acquisition of PEL or its assets, including the Langer Heinrich mine, or their participating in a recapitalisation, and sought to sell non-core assets, but such sales did not bring about a material reduction in PEL’s debt.
18. Form late 2016, PEL took further steps to seek to restructure and, in November 2016, PEL engaged an additional adviser to seek to achieve a restructuring of its obligations to bondholders and EDF and subsequently obtained support from bondholders for a proposed recapitalisation involving an exchange of its two series of bonds for new instruments secured over certain assets, equity in PEL and cash. After PEL announced a proposal to exchange bonds issued by it to ASX in January 2017, COUH sought to exercise rights under the Shareholders' Agreement to acquire PFPL's interest in LHM. After a dispute arose between PFPL and COUH as to whether the announcement gave rise to those rights, they agreed on a without prejudice basis to obtain a valuation under the Shareholders' Agreement (Woods 11.12.17, [32]). After that valuation was obtained, COUH indicated that it would not exercise the call option (Woods 11.12.17, [33]). The attempts to restructure PEL were not successful when, inter alia, PEL was unable to obtain EDF’s consent to the proposed restructuring (Molyneux [72]ff, [81]).
19. A dispute also arose between PEL and EDF over the value of additional security that PEL was required to provide in accordance with a Uranium Concentrate Long Term Supply Contract dated 8 August 2012 (“LTSC”) (Woods 11.12.17, [50]–[54]) and on 8 February 2017, PEL and EDF appointed an independent expert to determine the value of the additional security proposed by PEL. That expert’s report dated 9 June 2017 determined that the security offered by PEL was insufficient under the terms of the LTSC. EDF then became entitled on 9 July 2017 to repayment in the order of US$277m and PEL's was unable to reach agreement as to a standstill arrangement with EDF.
20. On 3 July 2017, the present Deed Administrators were appointed as voluntary administrators of the Companies under s 436A of the Corporations Act. As at that date, the major creditors of PEL were N.B.S.A Limited (“Nedbank”), pursuant to a facility agreement with LHU guaranteed by PEL, with a claim in the order of US$20 million; EDF, with a claim in the order of US$277m by reason of a pre-payment made by EDF to PEL pursuant to the LTSC; and bondholders with claims in aggregate of approximately US$362m (excluding interest of approximately US$16.4m) pursuant to two series of bonds (Woods, 11.12.17, [38] - [45]). PEL was then also indebted to other creditors owed lesser amounts including trade creditors, advisers and employees, as set out in the voluntary administrators' section 439A report (Ex P2, tab 14).
21. On 20 July 2017 the voluntary administrators and others entered into a 12 month facility in the amount of US$60m with Deutsche Bank, which permitted LHU to draw up to US$45m (including US$20m to repay the existing facility with Nedbank) and two associated companies of PEL to draw up to US$15m to fund working capital (Woods 11.12.17, [38] - [43]).
22. The convening period for the second meeting of creditors of the Companies was twice extended by the Federal Court of Australia, initially from 31 July 2017 to 29 December 2017 and then to 31 January 2018. Mr Woods’ evidence (Woods 11.12.17, [57]) is that, during that period, the voluntary administrators considered the steps previously taken by the Companies to realise their assets and secure a recapitalisation; consulted with the Companies' management and executive in relation to the earlier sale or recapitalisation proposals and the identity of other parties which may have an interest in acquiring some or all of the Companies' assets or recapitalising the Companies and may have the financial capacity to complete the transaction; identified a number of parties which they considered may have an interest in acquiring the Langer Heinrich mine or an interest in it; sought expressions of interest in submitting a proposal to restructure or recapitalise PEL or purchase some or all of its assets, without success, and ultimately concluded that it would not be in the interests of creditors to conduct a fuller market testing process, involving the appointment of an investment bank, which they considered was unlikely to result in a transaction that would result in a better return to creditors of each Company than the DOC proposal put by the bondholders comprising the Ad hoc Committee of Bondholders (Woods, 11.12.17 [59]). Mr Woods outlines the reasons for that view including the Companies’ unsuccessful pursuit of the sale and recapitalisation process prior to the voluntary administrators' appointment, the nature of the Companies' assets and the limited number of parties which could complete a sale or recapitalisation transaction of such assets and the absence of a material improvement in the uranium market to support any renewed interest in asset acquisitions (Woods, 11.12.17, [59]). Mr Woods also expresses the view that a fuller market testing process would have required 3 to 6 months to complete and, if an investment bank was appointed, there would be substantial costs associated with the market testing process, and there would be difficulties in implementing that process if it was not supported by bondholders. It seems to me that that view was reasonably held.
23. In October 2017, the Ad hoc Committee of Bondholders indicated that it would submit a proposal for a deed of company arrangement (Woods 11.12.17, [59](e)). The DOCA in respect of PEL then proposed by the Ad hoc Committee of Bondholders provides (Ex P2, tab 16) for a compromise of the debts of the bondholders and EDF under the two series of bonds and the agreements with EDF, in consideration for a pro rata share of 70% of the issued shares in PEL; that PEL would issue US$115m in new secured bonds (“New Notes”) and "Participating Creditors" (being the Bondholders and EDF or its assignee) would have the right to subscribe for a pro rata share of the New Notes; funds raised by the New Notes would be used, in part, to acquire the original US$60m Deutsche Bank July 2017 facility so that PEL was then subrogated to Deutsche Bank’s in relation to that security and, by virtue of their security over PEL, the beneficial owners of the New Notes would have the benefit of PEL's security interest; parties which subscribed for the New Notes would receive a pro rata share of 25% of the shares in PEL; 3% of PEL's shares would be issued to underwriters of the New Notes; 2% of PEL’s shares would be retained by the existing shareholders of PEL; and all other creditor claims would not be compromised by that DOCA and would remain liabilities of PEL and payable in the ordinary course (Woods, 11.12.17, [67], Schedule 1). The order under s 444GA of the Corporations Act sought in this application is a condition precedent to the implementation of that DOCA.
24. In their section 439A report, issued on 30 November 2017, the voluntary administrators recommended that the Companies' creditors vote in favour of executing the DOCA relating to PEL and another DOCA relating to two associated companies of PEL proposed by the Ad hoc Committee of Bondholders, for the reason set out in that report (Ex P2, tab 14). That report also noted that PEL may have insufficient cash to allow an operating sale of its assets over a 3–6 month period, and that an orderly realisation of those assets on a breakup basis or an immediate close down of those assets were each likely to lead to a nil return to creditors, and an operating sale over a 3–6 month period would potentially realise between 21.9 and 27.5 cents in the dollar for unsecured creditors. Mr Woods’ evidence, in his first affidavit, is that he does not anticipate that there would be any surplus available for distribution to PEL’s shareholders in a liquidation.
25. The second meeting of creditors of the Companies was held on 7 December 2017 and, on that date, the Companies’ creditors resolved to execute a DOCA proposed by the Ad hoc Committee of Bondholders in respect of PEL and also to execute a second deed of company arrangement in respect of PEL’s two associated companies.
26. On 21 December 2017, EDF notified the Deed Administrators that it had assigned all of its rights under several documents, including the LTSC, to Deutsche Bank and Deutsche Bank subsequently gave notice to the Deed Administrators that it had assigned its rights under those agreements to several other parties. There is no evidence as to the commercial purpose of those transactions, although the commercial probability is that they have some connection with this application. Ultimately, nothing turns upon that for present purposes, where there is no suggestion that the assignment of EDF’s interest in the relevant debts to those parties had the effect of extinguishing those debts or otherwise improved PEL’s financial position. Those transactions did, however, have the practical consequence that EDF withdrew its foreshadowed opposition to this application.

The applicable legal principles

27. Section 444GA(1) of the Corporations Act permits a deed administrator to transfer shares in a company in deed administration with either the consent of the shareholders or with leave of the Court. Section 444GA(3) provides that the Court may only grant such leave if it is satisfied that the sale would not unfairly prejudice the interests of the company's shareholders. I summarised the relevant principles in Re Kupang Resources Limited (subject to deed of company arrangement) (recs and mgrs apptd) [2016] NSWSC 1895 at [11] ff and again in Re Ten Network Holdings Limited (subject to a deed of company arrangement) (recs and mgrs apptd) [ 2017] NSWSC 1529 and I have drawn on that summary for the following account of them.
28. As Martin CJ noted in Weaver v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301; 79 ACSR 237, s 444GA of the Corporations Act was introduced into the Corporations Act by the Corporations Amendment (Insolvency) Act 2007 (Cth) with effect from 31 December 2007 and adopted a recommendation made in a report of the Legal Committee of the Companies and Securities Advisory Committee (“CAMAC”) on Corporate Voluntary Administration (June 1998) that the law should grant deed administrators the ability to compulsorily sell company shares where necessary for the purposes of implementing a deed of company arrangement under which payment of creditors’ debts was dependent upon such a transfer occurring (Recommendation 42, para [6.73], noted in Weaver v Noble Resources Ltd above at [65]–[71]). The Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 in turn noted (at [7.54]) that the purpose of the section was to enable a deed administrator to transfer shares in the company without the consent of shareholders where such a transfer was necessary for the success of the deed. The Explanatory Memorandum also noted (at [7.58]) that:

“The Court may only grant leave if it is satisfied that the sale would not unfairly prejudice the interests of shareholders. This is intended to direct the Court to consider the impact of a compulsory sale of shareholders [sic] where there may be some residual value in the company.”

29. In Weaver v Noble Resources Ltd above, Martin CJ also noted (at [69]–[71]) that the limitation in s 444GA(3) of the Corporations Act that the Court may only grant leave for a transfer of shares under s 444GA(1) if it is satisfied that the transfer would not unfairly prejudice the interests of members reflects the view expressed in the CAMAC report that the possibility of prejudice to a shareholder would arise if there were some residual equity in the company. His Honour also noted (at [79]) that:

“... [t]he notion of unfairness only arises if prejudice is established. If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair.”

His Honour also noted (at [80]) that something more than a mere transfer of shares without compensation would be necessary to establish unfair prejudice.

30. In Re Lewis, Diverse Barrel Solutions Pty Ltd (subject to deed of company arrangement) [2014] FCA 53, White J noted (at [19]) that the terms of s 444GA(3), in focusing on the concept of “unfair prejudice” to shareholders, contemplated that a transfer of shares may result in some prejudice to the interests of shareholders and that:

“Whether or not ‘unfair prejudice’ will result from a transfer of the shares is to be determined having regard to all the circumstances of the case and to the policy of the legislation. Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted.”

His Honour there held that a transfer of shares involved no unfair prejudice where those shares had no residual value and the shareholders would not receive any return on a winding up.

31. In Re Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836 at [42], in a case involving a listed company, I similarly noted that the question whether shareholders have any residual equity in a relevant sense “has to be determined by comparison with their position on a winding up, at least where that is the likely or necessary consequence of the transfer of shares not being approved”.
32. In Re BCD (Operations) NL (subject to deed of company arrangement) [2014] VSC 259; (2014) 100 ACSR 450 at [55]–[57], Digby J observed that:

“The words ‘unfairly prejudice’ clearly requires more that the identification of prejudice consequential upon the proposed transfer, or likely to result from the proposed transfer. The addition of the qualifying adjective “unfairly” in s 444GA(3), makes it clear that prejudice alone will not trigger the prohibition in s 444GA(3). This is consonant with the purpose of the section because it accommodates the practical need for the section to be able to operate notwithstanding a situation where the grant of leave can be said to give [...] to some degree of prejudice to members of the company.
The confinement of the required level of satisfaction under s 444GA(3), means that the prejudice which a member would suffer also needs to be in the nature of an unfair prejudice. If there is no prejudice the court will not be constrained by s 444GA(3). If there is prejudice the court will only be constrained if it is satisfied as to the unfairness of that prejudice to a member or members, in the circumstances.
The sort of circumstances which may potentially inform the courts as to whether there would be relevant unfair prejudice to the interests of the members of the Company cannot be exhaustively catalogued. However, such circumstances would logically include a comparison of the members’ position in the event that the enforced transfer of shares occurred with the members’ position in the event the transfer did not occur. Therefore, it will be material to consider the value of the relevant shares and what, if any, loss will result if leave is granted; whether the shares are likely to increase in value, and the factors which are likely to bring about that result including the likely timing of such factors.”

33. In Re Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1910; (2015) 105 ACSR 246 at [22], I followed the observation of Martin CJ in Weaver v Noble Resources Ltd above that the possibility of prejudice to a shareholder “would arise if there was some residual equity in the company.” Mr Pike relied on my summary of the relevant principles in that decision (at [16] - [30]) and accepted that s 444GA requires not only (in s 444GA(1)) that the Deed Administrators satisfy the Court that the discretion to grant leave should be exercised in their favour, but also that they satisfy the Court of the matter specified in s 444GA(3), namely that "the transfer would not unfairly prejudice the interests of members of the company". Mr Pike drew attention to my observation that shareholders bear an evidentiary onus to establish the facts relevant to any prejudice on which they rely in such an application. He also referred to my observations that one of the purposes of s 444GA is to address the risk that an "opportunistic creditor" might acquire shares in a distressed company which retained residual equity, although that company was insolvent on a cashflow basis and that something more than a mere transfer of shares without compensation would be necessary to establish unfair prejudice and (following Re Lewis, Diverse Barrel Solutions Pty Ltd (subject to deed of company arrangement) above) that a transfer of shares would generally involve no unfair prejudice where those shares had no residual value and the shareholders would not receive any return on a winding up. Mr Pike also referred to my observation in Re Nexus Energy Ltd (subject to deed of company arrangement) above that the question whether shareholders have any residual value in a relevant sense:

"has to be determined by comparison with their position on a winding up, at least where that is the likely or necessary consequence of the transfer of shares not being approved".

34. Mr Pike also referred to my observation that the satisfaction of s 444GA(3) of the Corporations Act is a prerequisite to the exercise of the Court's discretion in favour of approval of a transfer, and does not require the Court to approve such a transfer, but the structure of Pt 5.3A of the Corporations Act and the creditors' interests at stake may mean that, in the usual case, leave would be granted in favour of a transfer of shares which would realise value for creditors, if the fact that members were not unfairly prejudiced by that transfer was established.
35. In Re 3GS Holdings Pty Ltd (subject to deed of company arrangement) [2015] VSC 145, Sifris J referred to Re Nexus Energy Ltd (subject to deed of company arrangement) above and noted (at [14]) that the relevant question was whether the shares to be transferred had a residual value if the transfer was not approved and (at [22]) that no unfair prejudice to shareholders arose from a transfer of shares to a third party if it was unlikely that those shares would support a dividend to shareholders or contributories in any scenario. I took a similar view in Re Kupang Resources Ltd (subject to deed of company arrangement) (recs and mgrs apptd) above and also in Re Ten Network Holdings Limited (subject to a deed of company arrangement) (recs and mgrs apptd) above, on which Mr Pike also relied.

The Deed Administrators’ and interested parties’ submissions

36. The Deed Administrators rightly accepted that they bear the legal onus of establishing that the Court's discretion to allow the share transfer should be exercised in their favour in this application: Re Nexus Energy Ltd (subject to deed of company arrangement) above at [27]. They relied on Mr Jaski’s and Mr Woods’ evidence to establish that the equity in PEL has no value. I have referred to Mr Jaski’s report and Mr Wood’s evidence that PEL has been unable to realise its assets to repay its debt or achieve a solvent restructuring of that debt and as to the likely outcome of a liquidation above. Subject to the matters raised in shareholders’ submissions, which I address below, it seems to me that that evidence establishes that the deficiency in PEL’s assets against its debt are such that its equity has no value, on a going concern basis, on a “distressed” going concern basis, or in a liquidation and a liquidation is the likely outcome of the failure of this application.
37. Mr Pike submits (and I also accept, subject to the particular issues addressed below) that the Deed Administrators' evidence establishes that, on either a going concern or distressed basis, the shares in PEL have nil value, where the deficiency in assets against debt of PEL as valued by Mr Jaski is, at least, US $99 million and exceeds US $350 million on a distressed basis. Mr Pike also submits, and I accept, that there appears to be no present prospect of a capital raising or other injection of funds which might enable PEL to continue to trade or avoid liquidation, if this application is not approved and the DOCA cannot be effected. Mr Pike submits (and I also accept, subject to the particular issues addressed below) that the DOCA represents the best outcome for creditors of PEL in the circumstances, where there would be no return to shareholders on a liquidation. It follows, as Mr Pike submits, that there is no economic prejudice or unfair prejudice to shareholders in the transfer of shares contemplated by the DOCA. A position by which existing shareholders retain 2% of the equity in PEL is, albeit marginally, more advantageous to them than a liquidation and there is no evidence to suggest that any other alternative is presently available.
38. The Deed Administrators tendered a bundle of correspondence from shareholders (Ex P7) and provided a helpful aide memoire (MFI 2) which summarised the essential features of that correspondence. A single shareholder wrote to the administrators indicating his support for the transaction. A significant number of shareholders, not surprisingly, objected to the transaction, and many of those shareholders perceived the transaction as involving a confiscation or appropriation of their assets “without compensation” or expressed disappointment in the management of PEL. Several shareholders advanced criticisms of the independent expert report or the adequacy of marketing activities undertaken by the administrators in respect of PEL’s assets.
39. Mr Kalfon, a shareholder in PEL, was heard in opposition to the application and tendered a bundle of documents relating to the uranium price and the price of shares in companies associated with the uranium industry and, in particular, to increases in that price which occurred when a Canadian producer indicated that it would suspend production from a mining and milling operation by the end of January 2018 by reason of:

“the continued state of over-supply in the uranium market and no expectation of change on the immediate horizon”.

That evidence is not wholly favourable to Mr Kalfon’s submissions, so far as that announcement indicated a pessimistic view as to the uranium market. Mr Kalfon also referred to a further increase in the uranium price which occurred when a major producer was understood to have announced that it would cut planned output by 20% over the next three years, although it appears that producer was merely not increasing production and that price increase was not sustained in the longer term. Mr Kalfon also tendered two documents which related to the valuation of PEL’s Michelin project in Canada, a matter to which I refer below. Mr Kalfon also briefly cross-examined Mr Jaski as to that matter.

40. Mr Kalfon submits that Mr Jaski’s report, and the CSA report on which it relies, do not establish that PEL’s equity has no value by reason of the two matters to which I referred in paragraph 39 above, which, he submits, impacted spot uranium prices after the valuation date of 30 September 2017 adopted for that report. Specifically, Mr Kalfon submitted that Mr Jaski’s expert report:

“is no longer relevant in that all its conclusions were completed, and the report finished, in June of 2017 just prior to two significant material events that have changed the value of both global spot uranium prices and the valuation of virtually all miners.”

41. Mr Kalfon also accepted in his submissions, consistent with the Deed Administrators’ position, that the spot price of uranium had been severely depressed over the last five years, but submitted that the announcements to which I referred above were reflected in a 20% increase in the spot uranium price and a 25% increase in the share price of uranium miners, which he submitted had the result that CSA’s report was no longer relevant and did not reflect fair value of the shares in PEL.
42. Mr Jaski responded to the matters raised by Mr Kalfon in a letter dated 15 January 2018, which was annexed to Mr Woods’ second affidavit dated 15 January 2018 (Woods 15.01.18, [12], pp 70–72), and Mr Jaski confirmed that he held the views set out in that letter in oral evidence (T39). Mr Jaski pointed out that, although the valuation date for both the independent expert’s report and CSA’s report was 30 September 2017 (and not, I interpolate, June 2017), the reports were not finalised until 22 December 2017, when they were released to ASX and to shareholders, and that the events on which Mr Kalfon relied were able to be considered prior to finalising the reports. Mr Jaski points out, and I accept, that his report had specifically noted the two announcements to which Mr Kalfon referred (section 8.3.1 p 53). Mr Jaski also expressed the view that, although those announcements led to an initial increase in the uranium price, that increase was within the range of the forecast uranium price adopted in his report. Mr Jaski’s position in that respect is consistent with his report, which assumes a significant increase in uranium prices in 2018, and to 2021, and Mr Jaski’s cross-examination by Mr Kalfon did not involve any substantial challenge to that proposition.
43. Mr Jaski also expresses the view, and I accept, that the increase in uranium spot prices or increase in uranium mining companies’ share prices to which Mr Kalfon refers would not have a significant impact on the valuation of PEL’s assets, particularly on a discounted cashflow basis, where the value attributed to PEL’s mining assets already incorporate uranium price forecasts that are substantially higher than the current uranium price, and an alteration in the uranium price would not significantly impact Paladin’s other assets. Although Mr Jaski accepted that the Mineral Assets valued by CSA, representing approximately 10% of Paladin’s total assets, may increase by up to approximately 20%, if revalued as at mid-January 2018, he also pointed out that that would represent only a minimal increase in the value of PEL’s total assets, which was not material either to its total asset value or the net debt owed by it. It does not seem to me that Mr Kalfon’s first criticism materially undermines Mr Jaski’s report.
44. Second, Mr Kalfon submitted that the CSA valuations contained a “systemic, extreme, negative bias”. Although that submission was directed to the report generally, Mr Kalfon provided only one “example” of the suggested bias, which was said to relate to the valuation of PEL’s Michelin uranium project in Canada. Mr Kalfon referred to two other Canadian uranium projects which he submitted provided the best comparison for the value of that project. He fairly accepted that there were differences in the three deposits but submitted that the value attributed to those two other projects showed a substantially greater valuation should be attributed to the Michelin uranium project than was adopted by CSA. Mr Kalfon also pointed to the fact that EDF had previously accepted a proportion of the interest in the Michelin uranium project to secure its prepayment to PEL, in the transaction which subsequently resulted in the dispute with PEL to which I have referred above.
45. Mr Jaski did not accept that there was negative bias in CSA’s report and responded to Mr Kalfon’s submissions as to the suggested undervalue of the Michelin Project, pointing to the different character of the uranium deposits held by the two entities to which Mr Kalfon referred; the greater risk and larger onsite and offsite infrastructure requirements of the Michelin project, by contrast with the other projects to Mr Kalfon referred, and also expressed the view that the enterprise value multiples to which Mr Kalfon referred were not directly comparable to transaction multiples. I am not persuaded that Mr Kalfon’s criticisms have substantially undermined the approach adopted by Mr Jaski and CSA to the Michelin project and, in any event, a criticism of the approach adopted in respect of that single asset does not substantially undermine the approach adopted by Mr Jaski and CSA generally. In cross-examination by Mr Kalfon, Mr Jaski also accepted that he was aware of a third party valuation undertaken by a valuer for EDF’s purposes in respect of the Michelin project, and that he had reviewed that valuation although he could not recall its content, and that he did not base his valuation on another expert’s valuation (T43). Mr Pike submitted, in oral submissions in reply (T60), and I accept, that it has not been established that Mr Jaski’s approach to that matter was inappropriate.
46. Mr Kalfon also submitted that the assets of PEL would be more attractive if sold individually rather than the whole of PEL, and that an orderly liquidation of assets would be better for shareholders than the present proposal. Mr Kalfon also addressed the likely return on a liquidation in oral submissions (T49), and fairly accepted in oral submissions that that reflected his assessment, without the benefit of an expensive expert report. While I treat Mr Kalfon’s view with respect, as that of an experienced investor, I am not persuaded that it is correct having regard to the comprehensive attempts made by PEL to interest third parties in acquiring its assets prior to the appointment of the voluntary administrators.
47. Mr Kalfon also submitted that a group of bondholders and Deutsche Bank are attempting to take over PEL “without due consideration to the shareholders”. It is plain enough that the bondholders comprising the Ad hoc Committee of Bondholders seek to obtain a controlling interest in PEL, in exchange for the surrender of their debt, since that is the substance of the DOCA which has been approved by PEL’s creditors. It may well be, in the circumstances, that Deutsche Bank is cooperating with or actively facilitating that proposal. However, the question posed by s 444GA of the Corporations Act is whether that proposal, if implemented, will unfairly prejudice the interests of shareholders in PEL, and that matter is not established by pointing to the fact that, as will commonly be the case, its proponents seek to implement it. It does not seem to me that Mr Kalfon has established the factual basis for a further finding of unfair prejudice to shareholders, in the transfer of 98% of their shares for no consideration, by comparison with the outcome of a liquidation which would be the likely result if the transaction does not proceed and the DOCA is not effected.
48. In oral submissions, Mr Kalfon also submitted that the “shortfall” in equity value was in the order of US $90 million (or, correctly, US $99 million) and that a modest change in valuation approach may erode that shortfall. However, as Mr Pike pointed out in oral submissions in reply, the figure of US $99 million is the higher (but still negative) value of Mr Jaski’s going concern valuation, and I have pointed above to the difficulties in adopting a going concern valuation in this context. In any event, where a shortfall of at least that amount exists and the basis for a change in valuation approach has not been established, the equity in PEL does not have residual value.
49. I note, for completeness, that Mr Kalfon lodged brief further submissions with the Court, without leave, after judgment was reserved. The Court would not ordinarily have regard to such submissions, by reason of the public interest in the finality of proceedings. Many of the matters addressed in those further submissions were in any event addressed in the course of the hearing. I do not accept Mr Kalfon’s further submission that the fact that existing shareholders would be permitted to retain 2% of their shares under the proposed transaction is an acknowledgment of value in the existing shares, where that facts is equally consistent with a practical recognition that an offer that allows existing shareholders to retain some equity may reduce the extent of opposition to the transaction, or the proponents’ wish to preserve a spread of shareholders in a listed company.
50. I also do not accept Mr Kalfon’s speculation that the Ad hoc Committee of Bondholders may, if this application is rejected, offer to permit existing shareholders to retain a higher percentage of shares. First, that proposition is not established by the evidence. Second, a proposition that value should be attributed to the shares because, absent a transfer of those shares by operation of s 444GA of the Corporations Act, the Ad hoc Committee of Bondholders might choose to make a more favourable offer to acquire them seems to me to be inconsistent with the statutory purpose of the provision, recognised in the Explanatory Memorandum and the case law to which I have referred above, and with the focus on the residual value of the shares in the case law to which I have referred above: Weaver v Noble Resources Ltd above at [83]; Re Nexus Energy Ltd (subject to deed of company arrangement) above at [102]. There would also be little scope for the application of s 444GA of the Corporations Act if, in any case where a shareholder objected to his or her shares being acquired, and even if they had no residual value, shareholders could resist the application on the basis that, if the application was refused, they may receive a more favourable offer.
51. Mr Burrell, also a shareholder in PEL who was heard in opposition to the application, briefly cross-examined each of Mr Woods and Mr Jaski and also advanced written and oral submissions in opposition to the application.
52. Mr Burrell submitted (Submissions [1]-[2]) that there was no evidence that the Deed Administrators had sought to develop alternate approaches to the DOCA proposal advanced by the Ad hoc Committee of Bondholders or had canvassed proposals from other stakeholders or interested parties. In oral submissions in reply, Mr Pike referred to the efforts that had been made by PEL to seek to sell assets or recapitalise prior to the appointment of the voluntary administrators. Mr Burrell fairly acknowledged in oral submissions that Mr Woods’ affidavit provided significant evidence as to the efforts that have been made by the Companies, prior to the voluntary administrators’ appointment, to identify a purchaser for the Companies or their assets and to develop a solvent recapitalisation proposal, and I have also referred above to Mr Molyneux’s evidence as to those matters. I accept Mr Woods’ evidence that there would have been little utility, and real delay and cost, in the voluntary administrators seeking to repeat that process, particularly where there is little evidence of any substantial change in the uranium market in the period since their appointment, and the evidence on which Mr Kalfon relied to support an increased valuation of uranium assets demonstrated that major uranium producers are looking to reduce, or not increase, production, by reason of adverse market conditions.
53. Mr Burrell also criticised the section 439A report prepared by the voluntary administrators on the basis that it had omitted reference to the proposition that:

“Although CNNC made a loan of $90m to [PEL], it has not paid its 25% share or all in cash costs of running Langer Heinrich Mine (LHM) since purchase of that proportion of the mine in 2014 ... That amount could be in excess of $100M and would offset that loan which has been included within total debt.” (Submissions [3(a)]).

54. The first part of that submission requires qualification, so far as it appears that CNNC acquired, rather than made, that loan, when it acquired an interest in LHM, and that amount is not owed to PEL. Mr Woods’ evidence in cross-examination by Mr Burrell was that he was aware from examining PEL’s books and records that the $90m loan was acquired by CNNC from Paladin when it bought its 25% interest in the Langer Heinrich mine and that CNNC did not lend that amount but acquired an interest in that loan and that loan is not owed to PEL but by one of the Langer Heinrich companies to CNNC (T34). Mr Woods gave further oral evidence, by leave, confirming that an amount of $90m is owed by a Langer Heinrich company to CNNC, so that CNNC is a creditor of that company in that amount, and CNNC acquired that loan when it acquired its interest in the joint venture by an assignment of PEL’s interest in that loan (T54).
55. The second part of that submission was undermined by the lack of evidence that CNNC owes any amount for the operating costs of the Langer Heinrich mine to PEL or the Langer Heinrich companies. Mr Burrell referred to an earlier market announcement by PEL but did not have a copy of that announcement and was unable to tender it or show it to Mr Woods in cross-examination, and it is not possible to assess whether Mr Burrell had accurately understood that announcement. Mr Woods’ evidence in cross-examination was that he was aware, from discussions with PEL management, of two cash calls made by LHM that were not met by both CNNC and PEL and that PEL then lent money by an inter-company loan to fund the Langer Heinrich mine, which had priority over CNNC’s and PEL’s equity through interposed entities in that mine; he had taken account of the value of that loan in setting out the returns to creditors in a liquidation scenario in his section 439A report; and, in his view, that matter did not give rise to any omission or change in that report (T37). I should note, for completeness, that Mr Jaski was unable to address a question asked by Mr Burrell on the premise that CNNC had not paid the cash running costs of the Langer Heinrich mine in cross-examination, without reviewing his detailed working papers (T40). Nothing turns on that matter where, on Mr Woods’ evidence, the relevant calls issued to PEL and CNNC had been cancelled, and replaced by loan funding by PEL. Mr Woods also gave further oral evidence, by leave, that CNNC is not a debtor to LHM in respect of the cash calls, because they were cancelled and neither CNNC nor PEL were required to meet them, and reconfirmed that PEL had lent money in place of those cash calls, which would rank in priority to any equity returns to CNNC in respect of the investment in LHM (T54).
56. It does not seem to me that these matters are capable of supporting Mr Burrell’s submission that there exists any amount presently due by CNNC to PEL which could reduce the debt addressed in the section 439A report and the independent expert’s report. In oral submissions, Mr Burrell submitted that the omission of reference to the non-payment of amounts due by CNNC in information provided to shareholders and in the independent expert’s report undermined the validity of that report (T44). Mr Burrell submitted that, once Mr Jaski could not address that matter, his report “may possibly be deficient in that regard and therefore incorrect”, and there was a question whether the Court “can accept it with that fragility” (T45). I do not accept that submission. It seems to me, first, that its factual basis is not established, where Mr Woods’ evidence is that the calls made to CNNC and PEL were cancelled, and replaced by loan funding, and that loan funding has in fact been addressed. Mr Jaski’s uncertainty in cross-examination does not establish the contrary, where he was not given the opportunity to review his working papers in order to address it, although I had raised the possibility that could occur in the course of his cross-examination for Mr Burrell’s consideration. The materiality of this matter has also not been established.
57. Mr Burrell also criticises (Submissions [3(b)]) the section 439A report on the basis that it does not address the new debt “incurred to [PEL] by Deutsche Bank after the recent settling of [EDF] claim on [PEL]”. Mr Burrell asks, rhetorically, what is that debt, what is the security for it, and how is it possible for any DOCA or restructure proposal “to be agreed to let alone approved [sic] by the Court without the detail of [Deutsche Bank’s] true claim over [PEL]”. Mr Pike responds that Mr Burrell had not sought to establish, in his cross-examination of Mr Woods, that amounts previously owing by PEL to EDF were no longer due (T56). The evidence indicates that the relevant debt was owed by PEL to EDF, then assigned by EDF to Deutsche Bank (with the effect that it was then owed to Deutsche Bank) and then assigned by Deutsche Bank to several other parties. There is no evidence that the debt was discharged, and no obvious commercial reason why Deutsche Bank in taking an assignment of the debt from EDF, or third parties in taking an assignment of the debt from Deutsche Bank, would then discharge that debt rather than take advantage of any value attributed to it in the relevant circumstances. It seems to me that the answer to Mr Burrell’s rhetorical question is that s 444GA requires the Court to determine whether the relevant transaction is unfairly prejudicial to shareholders in PEL, and there is no suggestion the assignment of EDF’s debt to other parties has reduced the debt owed by PEL, or increased the value of equity in PEL, in a manner that would affect that assessment.
58. Mr Burrell submits (Submissions [3(c)]) that audited quarterly financial reports for PEL have not been made available for September and December 2017. Mr Burrell asks, rhetorically, how are shareholders able properly to value PEL to determine whether the shares are truly worthless, and how the Court can be satisfied of that matter, if proper audited accounts have not been provided. Mr Pike responds that, in the ordinary course, such accounts would not be prepared in respect of a company in administration. Mr Pike also points out that the valuation of the shares in PEL, and the likely return to shareholders on a sale of PEL’s assets as a going concern (if, contrary to the fact, PEL was a going concern) or in a liquidation are addressed in Mr Woods’ evidence and the section 439A report. It seems to me that Mr Woods’ evidence and the independent expert’s report provide an adequate basis for the Court to determine the question of prejudice, or unfair prejudice, for shareholders in PEL, where there is no suggestion that quarterly audited financial reports for PEL were in fact prepared over the relevant period.
59. Mr Burrell submits (Submissions [3(d)]) that discounting the total debt to creditors, if CNNC is included as a creditor, may have facilitated a fair and genuine takeover offer to shareholders, at the share price when the Company was placed in administration, rather than the transfer of 98% of the shares in PEL for no consideration. I have addressed the factual matters relevant to this submission above. It does not seem to me that it is here possible to contemplate an alternative transaction, quite apart from the difficulties of Mr Burrell’s approach to the CNNC debt, where there is no suggestion that there is any existing alternative proposal to that put by bondholders, still less an alternative proposal at the price at which PEL’s shares were trading immediately before its directors placed it in administration on the basis that it was insolvent or likely to become insolvent.
60. Mr Burrell also submits (Submissions [3(e)]) that the independent expert’s conclusion that the shares in PEL have no value is based on the “specific financial case presented by [the Deed Administrators]” which depends on the “unauthenticated claim that there were no other options for restructuring [PEL].” Mr Burrell refers to approaches to the possibility of approaches, for example, to Indian entities which have (or may have) expressed interest in Namibian uranium. I do not accept that submission. First, the independent’s expert report does not seem to me to depend upon the Deed Administrators’ assessment of the financial position of PEL, so far as Mr Jaski has undertaken a separate valuation in respect of some assets and relied on CSA’s work in respect of the valuation of other assets. Second, I have referred above to the evidence that a comprehensive attempt to solicit alternative proposals was undertaken prior to PEL being placed in administration, and I am satisfied that the voluntary administrators could reasonably consider that there was little prospect that their repeating that process, when PEL was insolvent or likely to become insolvent, would have led to a better result in respect of potential Indian purchasers of Namibian uranium assets or otherwise.
61. Mr Burrell also refers (Submissions [3(f)]) to the initial solvent restructuring proposal, to which I have referred above, and its failure by reason of EDF’s position. Mr Burrell submits that it is clear that there was no communication with EDF by reason of EDF’s opposition to the DOCA after its announcement. That submission does not seem to me to be consistent with the evidence, including that the voluntary administrators sought to elicit an alternative proposal from EDF. Mr Burrell puts a further, associated, submission (Submissions [3(g)]) that EDF’s transaction with Deutsche Bank demonstrates the lack of effort by the Deed Administrators to negotiate a similar transaction. I am also unable to accept that submission, where there is no reason to think that the voluntary administrators or Deed Administrators or a company in administration or deed administration would or should have the financial capacity to negotiate the purchase of a substantial creditor’s debt that may be available to a major investment bank. In any event, it does not seem to me that that submission establishes that the proposed transfer of the PEL shares is prejudicial, or unfairly prejudicial, to holders of equity in PEL, or establishes any discretionary basis on which not to approve the proposed transaction.
62. Mr Burrell also refers (Submissions [3(g)]) to the issue of further notes contemplated by the DOCA, by which a further $115 million will be raised by PEL, by the issue of notes for which creditors associated with the Ad hoc Committee of Bondholders and/or Deutsche Bank would be eligible to subscribe. Mr Burrell asks, rhetorically, if the demand for that transaction was “so strong”, why another $80.5 million could not be raised and shareholders could not be paid out that amount (Submissions [3(h)]). However, as Mr Pike points out, that transaction is conditional upon the DOCA and the transfer of shares in PEL being effected. It therefore cannot establish the financial position of PEL if the relevant transaction is not effected, or as to the demand for notes issued by PEL if the existing debt owed to bondholders is not first extinguished by conversion of that debt to equity. Second, the question which the Court must determine is whether the proposed transfer of shares in PEL is unfairly prejudicial to shareholders, not whether it is possible to hypothesise some other transaction, which does not presently exist, which would have been more favourable to shareholders.
63. Mr Burrell also submits (Submissions [3(i)]) that the Deed Administrators had released “no details” of the arrangement between EDF and Deutsche Bank, and it seemed “incredible” that they would have little information as to that matter where Deutsche Bank had advanced funds to the Deed Administrators during the course of the administration. That proposition was not put to Mr Woods, and no finding could be made that his evidence as to the extent of his knowledge of that arrangement should not be accepted. Mr Burrell also criticises (Submissions [3(j)]) the Deed Administrators’ suggested lack of response to emails from himself and others relating to restructure options. It does not seem to me that that criticism is material, where there is no evidence to suggest that there are, or have been, any restructuring proposals other than that advanced by the bondholders comprising the Ad hoc Committee of Bondholders. Mr Burrell also submits (Submissions [3(k)]) that a present executive of Deutsche Bank was formerly an executive of UBS, which was formerly a substantial shareholder in PEL. It is not clear whether that submission was established by evidence; however, even if that is the case, it was not put to Mr Woods and there is no basis for finding that any such connection gives rise to any impropriety, prejudice or unfair prejudice in respect of the proposed transaction.
64. Mr Burrell submits (Submissions [3(l)]) that no reason is given, earlier or now, why the earlier solvent restructure which was under consideration by PEL could not be “reapplied”. Mr Burrell also made oral submissions which suggested, in effect, a return to the earlier solvent restructuring that PEL and its then advisers had sought to implement. I cannot find that the proposed transaction is prejudicial, or unfairly prejudicial to shareholders, because it does not take that form, where that earlier transaction could not then be implemented by reason of EDF’s position, and there is no suggestion that it is presently supported by bondholders. Mr Burrell’s further submission (Submissions [3(m)]) relating to the role of KordaMentha, which it is suggested initially advised PEL and subsequently advised bondholders, does not seem to me to take matters further.
65. Mr Burrell also refers (Submissions [3(n)]) to the fact of the successful issue of notes for $USD115m and submits that that matter suggests that the value of PEL is not zero. Mr Burrell also addressed the question of the further note issues in oral submissions (T45). There are two difficulties with that submission. The first, as I noted above, is that the issue of notes is conditional upon the DOCA and the execution of this transaction, and the position after bondholders have converted their debt to equity does not establish the value of PEL before that occurs. Second, there is no suggestion that the value of secured debt in PEL is zero, or that the value of unsecured debt in PEL is zero in some circumstances, but rather that the value of PEL’s assets is not sufficient to allow any value to its equity after taking into account the amount of its debt. The proposition that PEL is able to issue further notes, conditional on implementation of the restructuring proposed by this transaction, does not establish anything as to the value of PEL’s equity prior to the transaction.
66. Mr Burrell advances a further submission that, if the Court approves the relevant transaction, it is possible that the Langer Heinrich mine would be placed in care and maintenance, or alternatively that there may be dealings in shares of PEL such that its market capitalisation could increase by the sale of shares at “inflated” value. It does not seem to me that either scenario assists in determining the questions that I am required to address by s 444GA of the Corporations Act, namely whether the proposed transaction is unfairly prejudicial to shareholders or there is any discretionary reason not to approve the transaction. It does not seem to me that the former has been established; the possibility that a mine may be placed in care and maintenance is not a discretionary reason not to approve the proposed transaction; and the Corporations Act and corresponding legislation in other jurisdictions sufficiently address any suggestion of a future artificial market for the shares in PEL. Mr Burrell also submits that there should be further communication with the Namibian Government in respect of the proposed transaction, where the Langer Heinrich mine is located in Namibia. Mr Burrell also addressed the question of communications with the Namibian Government in oral submissions (T47). It seems to me that those matters are not within the scope of the interests protected by s 444GA of the Corporations Act.
67. Mr Burrell also submits that the process by which PEL has reached its present state involves “misfortune”, “incompetence” or deliberate strategies to obtain control of PEL and also hypothesises a more adverse explanation of events, involving several parties. As I have noted above, s 444GA of the Corporations Act draws attention to the prejudice, or unfair prejudice, to shareholders of a transfer of shares where a company is in deed administration, and that will commonly reflect, at least, a degree of previous misfortune, and often a proposal put by creditors to obtain a controlling equity interest in the company on surrender of their debt. It does not seem to me that any basis for any more adverse explanation of events has been established by the evidence, nor was such an explanation put to Mr Woods in cross examination.
68. Finally, Mr Burrell submits that the Court should consider a “modified version” of the DOCA involving different terms. That course is not open, in an application of this kind, where the Court may either grant leave for the relevant transaction, if it is not unfairly prejudicial to shareholders, or decline to do so either because it is unfairly prejudicial to shareholders or because there are discretionary reasons to decline such leave. I am not satisfied that the transaction is unfairly prejudicial to shareholders, or that any discretionary basis to decline such leave has been established, and it would not be a proper exercise of the Court’s statutory power under s 444GA of the Act not to approve the transaction, based upon any speculation that, if that course were taken, some other proposal which has not yet been articulated might emerge, rather than PEL being placed in liquidation.
69. Mr Burrell also referred, in oral submissions to the fact that he held a substantial number of shares, which would have been worth in the order of $47,000 when the voluntary administrators were appointed and his shares would be reduced to a value of $800 by the proposed transaction. I will assume, without deciding, the correctness of those figures. I recognise that that result must, at least, be a source of real discontent for Mr Burrell and other shareholders in PEL in a similar position and may give rise to financial hardship for some shareholders. Nonetheless, the question whether the proposed transaction is prejudicial, or unfairly prejudicial, to shareholders cannot be determined by comparison with the position where Mr Burrell was left to hold shares in a solvent company, since PEL is not a solvent company, or with another and more favourable offer made by bondholders or a third party which does not exist. Mr Burrell’s remaining holding of shares in PEL valued at $800, after the transaction is implemented, is more favourable to Mr Burrell than the likely result of a liquidation, when his shares in PEL would have no value.

Conclusion and orders

70. I am satisfied that the shares in PEL do not have residual value, on a going concern basis, or on a “distressed” going concern basis, or in a liquidation which would likely follow from the failure of this application and the consequential failure of the DOCA. I am satisfied that the proposed transfer of 98% of the PEL shares to trustees to implement the DOCA does not involve prejudice to shareholders in PEL in the relevant sense and if, contrary to that view, there is such prejudice, it does not seem to me to be unfair prejudice in all the circumstances. For these reasons, I make the orders sought in paragraphs 1, 2 and 6 of the Originating Process.

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