How do you like your eggs? What happens when you successfully appeal a section 444GA (leave to transfer shares) order

It is commonplace in corporate restructures for deed administrators to seek the leave of the Court pursuant to section 444GA of the Corporations Act to transfer shares in an insolvent company to the successful restructure proponent. To do so, the deed administrators need to satisfy the Court that the existing shareholders are not unfairly prejudiced, primarily because the shares have no residual value, often because the value of the shares breaks in the secured debt. Once leave is granted, the shares are then transferred from the existing shareholders to the successful restructure proponent, who is then free to use them as their own.

There is however, very little authority on what then happens when there is a successful appeal of the decision to grant the leave to transfer the shares. The key issue being whether the successful appeal of the leave to grant the transfer of the shares, can have the practical effect of unwinding all steps that were then taken following the grant of the leave, such as the transfer itself and any steps taken by the new holder of those shares in exercise of the rights and interests attaching to the shares.

The WA Court of Appeal has found that, if an order granting leave for the transfer of shares under section 444GA of the Corporations Act is set aside on appeal, there is scope to restore affected shareholders to the position they were in but for the grant of leave, either by ordering the return of the shares or compensation for the loss of the value of the shares (Kipoi Holdings Mauritius Limited v Kirman and Brauer as joint and several administrators of Tiger Resources Limited (subject to deed of company arrangement) (No 4) [2024] WASCA 145; Clayton Utz represented Kipoi at first instance and in the successful appeal.).

The section 444GA Order

Tiger Resources Limited (Tiger) was the ultimate holding company of the Tiger Group of companies, the principal asset of which was a copper mine in the Democratic Republic of the Congo. The appellant, Kipoi, was a secured creditor with a beneficial interest in approximately 24% of the shares in Tiger.

Tiger was placed into voluntary administration and subsequently executed a deed of company arrangement (Tiger DOCA). One of the conditions precedent to the Tiger DOCA was for the Deed Administrators to obtain orders pursuant to section 444GA of the Act for the transfer of all the shares in Tiger to YYT, the proponent of the Tiger DOCA, for nil consideration ( section 444GA Order).

At first instance, the key issue was whether the shares in Tiger had any residual value and, if so, the amount of that value. The Deed Administrators, YYT and Jinji (another secured creditor of Tiger and related entity of YYT) argued that the shares in Tiger had no value and consequently the section 444GA Order would not unfairly prejudice the interests of members of Tiger. Kipoi argued that the shares in Tiger did have value and the transfer of the shares to YYT for nil consideration would therefore unfairly prejudice the interests of Tiger’s members.

The trial judge heard expert evidence from five expert witnesses in relation to the residual value of the Tiger shares. The trial judge found that the shares had no value and made the section 444GA Order.

Kipoi successfully appealed the decision to grant the section 444GA Order. 

The valuation evidence

The expert evidence at trial was given by two types of experts, valuation experts providing expert opinions on the value of Tiger’s assets, and insolvency practitioners experienced in selling assets in insolvency scenarios and who could comment on the usual discounts that would apply on such a sale. At first instance, the trial judge accepted the insolvency discount evidence given by one of the insolvency practitioner experts, without making findings on the underlying expert valuation evidence. The Court of Appeal found this to be in error.

However, the Court of Appeal was not in a position to resolve the factual question of the value of Tiger’s shares and, therefore, to determine whether the section 444GA Order should have been made. The opinions of the administrator’s and YYT’s expert valuers was that the residual value of Tiger’s shares on winding up was nil, whereas Kipoi’s valuer opined that the value of the shares was in the order of $65 million. However, the Court was not satisfied that it was in a position to make a finding on the value of the shares based on the competing expert opinions. In particular, there remained unresolved issues as to the appropriate distressed sale discount to be applied, and the appropriate copper price input. The Court of Appeal was not satisfied that the evidence given at trial, or the additional evidence given on appeal, provided a sufficient basis to determine those issues. Instead, the Court directed a new trial on the question of the residual value of the shares in Tiger based on a valuation of Tiger in a liquidation scenario.

Is restitution available on a reversal of the section 444GA Order?

Importantly, the Court of Appeal considered whether restitution would be a remedy available upon the reversal of the section 444GA Order. This is because the share transfers were made, pursuant to the section 444GA Order, after the appeal was commenced but before it was heard (as a stay of the section 444GA Order lapsed when Kipoi did not meet the conditions for the continuation of the stay).

By a 2-1 majority, the Court held that judgment restitution is an available remedy where a section 444GA order is overturned on appeal. In this case, the transfer of the shares in Tiger to YYT was a direct consequence of the section 444GA Order. It followed that, if the section 444GA Order was wrongly made, and resulted in a transfer of shares that should not have occurred, then the Court could order that YYT restore Tiger’s members to the shares taken from them pursuant to the section 444GA Order. The Court also contemplated the possibility of an order requiring YYT to pay an amount equal to the residual value to any shareholder who requests such a payment. However, the Court will only make any order for restitution – including the form of the restitutionary relief as either restoring the shares or ordering a cash payment – following the outcome of the new trial to determine the value of the shares in Tiger.