Scandal Rocks Leigh Creek Energy UCG Proposal

After last month’s headline news that China New Energy was a fresh $20M buy into the Leigh Creek Energy Project in the Northern Flinders Ranges, new drama flares as previous Managing Director David Shearwood and other renegade shareholders want Justyn Peters off the board, writes Michael Henry.

Their proper channels of doing this via the rules were legally challenged and the explanation is provided by the Chairman:

Dear Shareholders,

Many of you will be aware that a group of shareholders (which included the previous Managing Director David Shearwood) (the “Group”) lodged a 249D notice with the Board proposing the removal of myself from the Board. The Board’s legal advisors considered the notice and provided advice that the notice was invalid and based on that advice the Board did not call a meeting. As your Chairman I feel compelled to communicate with all shareholders why the Board and I believe these current developments are not in the best interests of shareholders and are highly disruptive to your Company. Your Board will continue to act in your best interests applying sound corporate governance practice. Consideration of alternate board teams lacks planning and is premature in the extreme. If the Group want to propose a change to the Board and to propose alternate directors they have the Annual General Meeting (“AGM”) to do so. The AGM is the appropriate meeting at which the shareholders may vote on the composition of the Board in an orderly and cost-effective manner. It is interesting that this disruption is taking place immediately after a successful capital raise where the Company worked diligently to raise funds to build the Pre-Commercial Demonstration (“PCD”) facility and commence demonstration of gas by the end of the year (subject to receipt of Government approvals). The demonstration of gas will be a major milestone for the Company and should result in a significant re-rating of the Company. The Board is committed to achieving this goal as quickly and as safely as possible. The Group is proposing to disrupt this process and that disruption will delay the demonstration of gas. The agitation by these shareholders and the issuing of the (invalid) notice have already diverted time and resources of the Company in dealing with this Group. I am not the only shareholder who questions why the Group would alter the composition of the Board that has raised the funds required (subject to shareholder approval of Tranche 3) to deliver the PCD facility. At all times your Board has acted in the best interests of all shareholders and not just the perceived self-interest of a particular group of shareholders. The work that the Board and management have previously undertaken, as set out in previous ASX announcements, has enabled the Company to become fully funded (subject to shareholder approval of Tranche 3) and as announced this week the contracting for long lead items for the PCD facility has already commenced . It is beyond me why any group of shareholders would want to change the composition of the Board and jeopardise the demonstration of gas as soon as possible. The Board appreciates the support of the vast majority of shareholders and we look forward to updating you over the next few months on our progress with the PCD facility.

This raises the pertinent question:  for what reason the revolt which is briefly alluded to in today’s news from the Advertiser:

LCK MAY 22jpg

While the ABC coverage of the largest environmental disaster in Queensland’s history has disappeared from their radar, other sources confirm the Queensland EPA v Linc Energy Liquidators remains strong. The ABC while breaking for public benefit the largest alleged case of willful negligence by corporate executives , has now gone silent on the story. The  same question can be asked of the SA media considering the “technical capacity” of the Leigh Creek Energy Project is recycled from Linc and Carbon Energy?

The Advertiser misquotes Mr Justyn Peters previous role at Linc Energy as Investment Relations when he was in fact Environmental Management, no doubt borrowing from his experience within the Queensland EPA prior to his joining Linc Energy. Is this why the ABC remains silent on the case and is this why Peters was not listed as one of the executives called to face charges?

The public deserves further and more in-depth coverage of this story by the ABC. which has sadly impacted the lives of hundreds of people at Chinchilla in the now expanded 300 KM square ‘no go zone’ as the outfall from the underground coal (UCG) gas experiment expands and the South Australian Government also remains silent on the situation.

Addition to the story: (June 13)

The reason for dissension of Shearwater remains a mystery, the company has thrown a second notice in the trash bin, meaning the resolution or outcome must be left until the next AGM. As the previous story ( Marathon – Arkaroola ) is also an intriguing story of ALP participation, the meeting of the Treasurer, China New Energy and Leigh Creek Energy recently is suggestive of something but what exactly is not clear…the next company announcement illustrates the relationship and if the words are read correctly implies an imminent decision to meet the schedule of LCK prior to the submission of an application to extract gas for the purpose of flaring – if this is the case SA enters the Queensland danger zone of the Chinchilla pilot plant UCG disaster so all eyes will be on the Greens next response to this development.

Pre-Commercial Demonstration Stage on target for 2017 operation
• Completion of financing has allowed acceleration of Pre-Commercial Demonstration Stage
Approvals and engineering works progressing to meet schedule ( is this really how approvals work!?) 
• Results of Pre-Commercial Demonstration to determine optimum commercialisation pathways

LCK Tom K CNE June 8 2017Photo: Hon. Tom Koutsantonis MP, Treasurer and Minister for Mineral Resources and Energy and Minister for State Development (centre), Mr Yao, Vice President, Meijin Energy

Invalid Section 249D Notice
Leigh Creek Energy Ltd (ASX: LCK) (“the Company”) advises that following a careful review and consideration of the documents delivered to the company to requisition a meeting of shareholders under Section 249D of the Corporations Act (see ASX announcement dated the 6th June 2017) (“Notice”) the Directors have determined that due to the irregularities in the respect of the Notice, the Notice is invalid and does not comply with Section 249D of the Corporations Act.
As a result of this, the Directors have determined not to convene a general meeting of the shareholders based on the invalid Notice.
Jordan Mehrtens, Company Secretary|

As they say the devil is in the detail and a brilliant law site highly recommended picked up the story that the media left behind. This case of willful negligence is so far showing the Australian courts are remaining robust in the face of the ‘cut and run’ approach adopted by Linc Energy liquidators:

Liquidators’ disclaimer power not fail-safe

This week’s TGIF considers Linc Energy Ltd (in Liq) v Chief Executive Dept of Environment & Heritage Protection [2017] QSC 53, in which the Queensland Supreme Court directed that the liquidators of Linc Energy were not justified in causing it to fail to comply with an environmental protection order

BACKGROUND

On 13 May 2016, the Department of Environment & Heritage Protection (respondent) issued an environmental protection order (EPO) under the Environmental Protection Act 1994 (Qld) (EPA) to Linc Energy Ltd (Linc) whilst it was in administration. The EPO prohibited Linc from disposing of, and obliged Linc to maintain, the infrastructure on the site necessary to ensure compliance with the EPO. Liquidators were subsequently appointed to Linc.

On 30 June 2016, the liquidators gave notice under section 568(1) of the Corporations Act 2001 (Cth) (Act) disclaiming property which was subject to the EPO. The liquidators argued that the effect of the disclaimer was to terminate Linc’s interest in, and liabilities in respect of, the disclaimed property and thereby discharged Linc’s future compliance with the EPO.

ISSUES FOR CONSIDERATION

The liquidators applied for directions under section 511 of the Act that they were justified in not causing Linc to comply with the EPO. Central to their argument was that any liabilities arising under the EPA to comply with the EPO are inconsistent with the termination of that liability arising from the disclaimer scheme under the Act.

COURT’S DISCUSSION ON INCONSISTENCY BETWEEN ACTS

The liquidators argued that the Act prevailed over the EPA to the extent of any inconsistency.

Section 5G(3) of the Act provides that where a direct inconsistency exists between a provision of a State law and the Corporations legislation, the State law will apply only where the State provision operated, immediately before the Act commenced, despite the operation of the Corporations Law of the State (in force at that time).

The relevant law of the State is sections 358 and 361 of the EPA and the Corporations Law of the State is sections 568 and 568D of the Corporations Law of Queensland (as it then was prior to the enactment of the Act).

The respondent relied on section 9 of the Corporations (Ancillary Provisions) Act 2001 (Qld) (CAPA) under which any relevant law of the State that is inconsistent with a provision of a national scheme law has effect despite the provision of the national scheme law (i.e. the Act).

The relevant test to determine whether provisions are inconsistent is a question of whether the State law would “alter, impair or detract from the operation of the law of the Commonwealth Parliament”, under section 109 of The Constitution.

The relevant provisions of the EPA oblige Linc to comply with the EPO (and create liability in the event of non-compliance) in respect of the disclaimed property in a way which would be directly inconsistent with the liquidators’ power to terminate Linc’s interest in and liabilities in respect of the disclaimed property under sections 568 and 568D. Accordingly, section 9(1) of the CAPA declares the provisions of the EPA to operate despite the provisions of the Act.

LIQUIDATORS AS EXECUTIVE OFFICERS UNDER EPA

The Court also noted that the liquidators were personally liable to see that Linc complies with the EPO, given they would be considered an “executive officer” of Linc under the EPA.

WERE THE LIQUIDATORS JUSTIFIED IN NOT CAUSING LINC TO COMPLY WITH OBLIGATIONS UNDER THE EPO?

The Court directed the liquidators were not justified in causing Linc not to comply with the EPO.

The relevant provisions of the EPA under which the EPO was issued had the effect of impairing the liquidators right to disclaim property under the Act.

The effect of this decision will see the costs of complying with an EPO ranking ahead of the typical priority claims under section 556 of the Act.

This case identifies a specific scenario in which the liquidators’ power of disclaimer could not be used to avoid an environmental protection order. The Court has noted that the effect of this direction is confined to the specific set of facts and may not be helpful for other facts or provisions. However, liquidators will need to be mindful of any similar environmental protection orders or powers in the future to ensure that there is sufficient funding available to comply with these types of environmental obligations rather than rely upon their power to disclaim the relevant property.

A notice of appeal was filed on 10 May 2017, so watch this space.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

Yes, indeed! Watch this space!

Photo Source: Adelaide Advertiser

Advertiser Image: facebook – poster please contact editor if you object to its use. 

Money to fix worst pollution event in state’s history – June 17, 2017

Linc Energy and the Singapore stock exchange article of interest,

LIQUIDATORS of Linc Energy said on Friday they have applied to Singapore Exchange (SGX) for a one-year extension for the submission of a proposal to resume trading in the company’s shares.

The submission deadline was initially March 29 this year, and the liquidators have now asked for it to be deferred until March 29, 2018.

The move to submit the proposal came after Linc Energy’s shares were suspended on March 30, 2016.

The liquidators also sought waivers for requirements to prepare financial statements and an annual report, as well as to hold an annual general meeting.

The company said the liquidators have been monitoring the criminal proceedings presented against Linc Energy in Australia.

Separately, Linc Energy also gave other updates.

It said the sale of mining development licence 361 – the Pentland coal tenement in the Galilee Basin – is expected to be completed by Sept 30 this year.

In terms of sale of land, the liquidators have realised two of Linc Energy’s five real property assets in Chinchilla, Queensland. The remaining three properties are subject to an ongoing sales process.

On May 5, 2017, the liquidators entered into a deal for the sale of the debt owed by United Queensland Resources to Linc Energy. The sale is due to be completed at the end of June 2017.

The liquidators said they continue to progress recoveries from the company’s remaining assets, including the SGX-listed shell as well as loans owed by US subsidiaries that are currently subject to a Chapter 11 process.

Following orders made by the Supreme Court of Queensland that the liquidators are not justified in causing Linc Energy to not comply with the Environmental Protection Order issued by the Queensland Department of Environment and Heritage Protection, the liquidators have filed an appeal.

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