ARRIUM FINANCE PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN (AND EACH OF THE COMPANIES LISTED IN SCHEDULE ONE)

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1 Federal Court of Australia District Registry: Victoria Division: Corporations List No. VID 608 of 2017 IN THE MATTER OF ARRIUM FINANCE PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN (AND EACH OF THE COMPANIES LISTED IN SCHEDULE ONE) MARK FRANCIS XAVIER MENTHA, CASSANDRA ELYSIUM MATHEWS, MARTIN MADDEN AND BRYAN WEBSTER IN THEIR CAPACITIES AS DEED ADMINISTRATORS OF ARRIUM FINANCE PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN (AND EACH OF THE COMPANIES LISTED IN SCHEDULE ONE) First Plaintiffs ARRIUM FINANCE PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN (AND EACH OF THE COMPANIES LISTED IN SCHEDULE ONE) Second Plaintiffs NATIONAL AUSTRALIA BANK LIMITED ABN Defendant PLAINTIFFS OUTLINE OF SUBMISSIONS A BACKGROUND 1 The First Plaintiffs (Deed Administrators) are the deed administrators of Arrium Ltd (subject to deed of company arrangement) and 93 of its subsidiaries (Arrium Administration Group), including the Second Plaintiffs (Arrium Grantor Companies). They were appointed as voluntary administrators on 12 April 2016, 1 and then as deed administrators on 9 November By Originating Process, the Plaintiffs seek orders pursuant to section 588FM of the Corporations Act 2001 (Cth) (Corporations Act), that 24 May 2017 be fixed as the later time for the purposes of section 588FL(2)(b)(iv) of the Corporations Act in respect of security interests granted by the Arrium Grantor Companies in favour of the Defendant (NAB) in connection with the: 1 Affidavit of Martin Madden sworn 5 June 2017 (First Madden Affidavit) at [7]. 2 First Madden Affidavit at [1] and [9]. Filed on behalf of: the Plaintiffs Prepared by: Justin Vaatstra Ref: JTV Law firm: ARNOLD BLOCH LEIBLER Tel: Fax: DX Melbourne jvaatstra@abl.com.au Address for service: Level 21, 333 Collins Street, Melbourne, VIC 3000

2 2 (a) Syndicated Facility Agreement dated 22 May 2017; (b) Vesper Standby Facility Security Trust Deed dated 22 May 2017; and (c) Vesper (Standby Facility) General Security Agreement dated 22 May 2017, as limited and amended by the: (d) (e) Deed of Partial Release of Security executed by the NAB on 26 May 2017 in respect of released property the subject of security interests in favour of Alleasing Pty Ltd (Alleasing); and Deed of Partial Release of Security dated 21 June 2017 executed by the NAB in respect of released property the subject of security interests in favour of Export Finance and Insurance Corporation (EFIC), such security interests corresponding to the registration numbers listed in Schedule Two to the Originating Process in the register established under the Personal Properties Securities Act 2009 (Cth) (PPSA). 3 The Plaintiffs rely on the Affidavit of Martin Madden sworn 5 June 2017 (First Madden Affidavit) and a supplementary affidavit of Martin Madden sworn 5 July 2017 (Second Madden Affidavit). STANDBY FACILITY ARRANGEMENT 4 On 4 November 2016, 92 of the Arrium Administration Group entities executed deeds of company arrangement (known as transaction support DOCAs) to facilitate the sale of the Arrium business, or its assets, and to maximise the return to creditors (DOCAs). 3 Arrium Creditor Distribution Company Pty Ltd (subject to Deed of Company Arrangement) (formerly SSX Pty Ltd) executed the Arrium Distribution Deed of Company Arrangement through which realisations from the sales process will be distributed to creditors. 5 The Deed Administrators were engaged in a sale campaign of the Arrium business and/or assets from November Final bids were received on 31 May 2017 and a binding sale agreement entered into on 5 July 2017 (Arrium Sale). 5 The Arrium Sale is expected to complete in late August First Madden Affidavit at [9]. 4 First Madden Affidavit at [21]. 5 First Madden Affidavit at [22] and Second Madden Affidavit at [11]. 6 Second Madden Affidavit at [11].

3 3 6 The Deed Administrators are required to continue to operate and trade the Arrium business until completion of the Arrium Sale. 7 The business is a substantial operation. In the week prior to 5 June 2017, the date the First Madden Affidavit was sworn, the Arrium Administration Group made payments of $156.5 million and received $137 million. 8 7 In order to ensure that the Deed Administrators have sufficient cash-flow to continue to operate and trade the Arrium business until completion of the Arrium Sale, the Deed Administrators entered into a standby facility with NAB (as security trustee) and a syndicate of other lenders (Standby Lenders) on 22 May 2017 whereby the Standby Lenders will make available to Arrium Finance a loan facility of up to $50 million (Standby Facility). 9 8 It is a condition of the Standby Facility that it be secured by all present and after-acquired property of the Arrium Grantor Companies registered by NAB on the Personal Properties Securities Register (PPSR) NAB lodged registrations on the PPSR with respect to the security interests granted under the Standby Facility on 24 May In order to fulfil the requirement that the Arrium Grantor Companies provide valid security to the NAB (as security trustee for the Standby Lenders), the Deed Administrators and the Arrium Grantor Companies have made this application for relief under section 588FM of the Corporations Act to avoid the vesting of the security under the Standby Facility by operation of section 588FL of the Corporations Act. SECTION 588FM 11 Section 588FL of the Corporations Act applies where, relevantly, an administrator has been appointed to a company or the company has executed a deed of company arrangement and a security interest granted by the company in collateral is covered by sub-section (2) of s 588FL A security interest will be covered by sub-section (2) if each of the following conditions is met: 7 Second Madden Affidavit at [12]. 8 First Madden Affidavit at [23]. 9 First Madden Affidavit at [25] and [26]. 10 First Madden Affidavit at [26] and [27]; Second Madden Affidavit, Exhibit MM-2 at Tab First Madden Affidavit at [28] exhibit MM-1 at Tab Section 588FL(1) of the Act.

4 4 (a) at the critical time (in this case, 7 April 2016) 13, or if the security interest arises after the critical time, when the security interest arises (in this case, 22 May 2017), the security interest is: (i) (ii) enforceable against third parties under the law of Australia; and perfected by registration, and by no other means; and (b) the registration time for the collateral is after the latest of the following times: (i) six months before the critical time (in this case, 7 October 2015); (ii) (iii) the time that is 20 business days after the security agreement which gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier (in this case, the critical time is earlier so the relevant date is 7 April 2016); a later time ordered by the Court under section s 588FM of the Corporations Act. 13 Section 588FL(4)(b) provides that the Personal Properties Security Act 2009 (Cth) security interest which, as in this case, first becomes enforceable against third parties after the critical time, vests in the company at the time it becomes so enforceable. 14 This Court has recently confirmed that s 588FL(b)(ii) of the Corporations Act applies to security interests granted after the commencement of voluntary administration or execution of a deed of company arrangement by the grantor company unless the time for registration is extended pursuant to s 588FM of the Corporations Act. 14 RELIEF UNDER S 588FM: APPLICABLE PRINCIPLES 15 The Plaintiffs seek relief under s 588FM to extend the date for registration to ensure that the security interests granted under the Standby Facility arrangement do not automatically vest in the Arrrium Grantor Companies because the critical time, being the commencement of the voluntary administration, has already passed. 16 Section 588FM(2) of the Corporations Act provides that the Court may make an order under s 588FM(1) if it is satisfied that: 13 being the date of the appointment of Messrs Paul Billingaham, Said Jahani, Matthew Byrnes and Michael McCann of Grant Thornton as set out in the company searches at Information/ASIC-Searches.com, First Madden Affidavit at [8]. 14 See Re K.J. Renfrey Nominees Pty Ltd [2017] FCA 325 (Re Renfrey).

5 5 (a) the failure to register the collateral earlier: (i) (ii) was accidental or due to inadvertence or some other sufficient cause; or is not of such a nature as to prejudice the position of creditors or shareholders; or (b) on other grounds, it is just and equitable to grant relief. 17 As has been the case in previous applications in the Arrium administrations, the Plaintiffs rely on sub-paragraph (b), namely that it is just and equitable to grant relief to the Plaintiffs. The just and equitable ground 18 The purpose and effect of an order under s 588FM is to avoid the vesting of a security interest in the company and preserve the secured creditor s security In considering whether it is just and equitable to make an order under s 588FM of the Corporations Act, the authorities provide guidance as to the matters that the Court will take into account including the following: (a) (b) (c) (d) whether such an order is made will depend upon the circumstances of each particular case; 16 as the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company and preserve the secured creditor s security, it is relevant in determining whether it is just and equitable to fix a later time to consider the interests of the creditors; 17 mere evidence that the dividend to unsecured creditors may be less may not be enough to establish prejudice; 18 the type of prejudice that is of particular relevance is prejudice attributable to the failure to effect registration earlier where the delay in the registration of the security interest causes prejudice to creditors who have transacted with the company to their detriment, being unaware of the creation of a security interest; Re Appleyard Capital Pty Ltd (2014) 101 ACSR 629 (Re Appleyard) at [13]; Re Renfrey at [28]. 16 Re Renfrey at [28]. 17 Re Alleasing Pty Ltd v OneSteel [2017] FCA 656 (Re Alleasing) at [17] citing Re Appleyard at [29] [30]; Re Renfrey at [28]. 18 Re Renfrey at [28]. 19 Re Alleasing at [17].

6 6 (e) it is relevant to consider whether the security interest is being entered into by Administrators (or Deed Administrators) who have considered whether the proposed arrangement is in the best interests of creditors having regard to the objects of Part 5.3A of the Corporations Act as set out in section 435A of the Corporations Act The Court has previously made similar orders under s 588FM on three separate occasions in relation to security interests granted by the Administrators over assets of entities within the Arrium Administration Group in the following cases: (a) (b) (c) Re Mentha, in the matter of Arrium Limited (administrators appointed) [2016] FCA 972 (Re Mentha); Re K.J. Renfrey Nominees Pty Ltd (Trustee), in the matter of OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325 (Re Renfrey); Alleasing Pty Ltd, Re Onesteel Manufacturing Pty Ltd v Onesteel Manufacturing Pty Ltd [2017] FCA 656 (Re Alleasing). 21 Re Mentha concerned the registration of a security interest granted by certain Arrium Administration Group entities to the Export Finance and Insurance Corporation (EFIC) in consideration of a limited recourse financing from the Commonwealth Government for the purchase and construction of specific equipment to enhance the viability of Arrium s iron ore mining operations in Whyalla and the Middleback Ranges South Australia. The Federal Court held that it was appropriate to make an order under s 588FM extending the registration time to put beyond doubt that s 588FL will not, in this case, operate to vest the security interest in the OneWhyalla Mining Entities automatically because the critical time, being the commencement of a voluntary administration, has already passed. 21 The circumstances of Re Mentha are similar to the present case in that it also involved the grant of a security interest by the Administrators after the commencement of the administrations in furtherance of the objects of Part 5.3A of the Corporations Act. This is to be distinguished from the other type of case where a pre-voluntary administration security interest is belatedly sought to be registered after the times stipulated in s 588FL(2) of the Corporations Act. 22 The second case is Re Renfrey which involved the registration of a new security interest (again after the commencement of administration) pursuant to the terms of the commercial settlement of a dispute between the Deed Administrators of OneSteel (an 20 Re Alleasing at [18]; Re Renfrey at [29]. 21 Re Mentha, [21].

7 7 Arrium Administration Group entity) and KJ Renfrey Nominees in relation to the defective registration of an earlier granted security. In granting the relief sought under s 588FM, the Federal Court held: 22 To make an order under s 588FM(2)(b), the Court must be satisfied that it is just and equitable to grant relief. The circumstances that would justify an order extending the time for registration on the just and equitable ground to avoid the operation of s 588FL(4) will depend upon the circumstances of each particular case. Some general observations can be made though. As the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company and preserve the secured creditor s security, it is relevant in determining whether it is just and equitable to fix a later time to consider the interests of the creditors: Re Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629 at [29]-[30]. As Brereton J observed in Re Appleyard Capital Pty Ltd at [30] whilst the presence or absence of prejudice to unsecured creditors is a relevant discretionary consideration, relevant prejudice is not necessarily established merely by showing that the dividend to unsecured creditors will be less if the security interest does not vest in the company; the unsecured creditors may well have been in no different a position if the security interest been timely registered. His Honour stated that the type of prejudice that is of particular relevance is prejudice attributable to the failure to effect registration earlier where the delay in the registration of the security interest causes prejudice to creditors who have transacted with the company to their detriment, being unaware of the creation of a security interest. In the present case, there was no delay in registration. I am satisfied that it is just and equitable to fix a later time for the purposes of s 588FL(2)(b)(iv) of the Corporations Act. The security interests were created as part of a commercial settlement of a dispute between the administrators and Renfrey relating to security interests arising under an earlier hire services agreement that OneSteel and Renfrey entered into in 2013 in respect of certain plant and equipment that OneSteel uses at its site at Ardrossan in South Australia. Since OneSteel went into administration it has continued to use that plant and equipment in OneSteel s mining operations. It is the administrators view that the continued hire of the plant and equipment is necessary for the continued operation of OneSteel s business and that the entry into the new agreement and OneSteel s agreement to do all things necessary for Renfrey to make a valid and effective PPSA registration is in furtherance of the objects of Part 5.3A of the Corporations Act. In those circumstances, it seems to me that it is just and equitable to fix a later time for the registration of the security interest. As registration was made promptly after entry into the new equipment hire services agreement, the prejudice to unsecured creditors to which Brereton J referred in Re Appleyard Capital Pty Ltd does not arise in this case. 23 The third decision, Re Alleasing, is not relevantly distinguishable from Re Renfrey. In Re Alleasing, the Deed Administrators of OneSteel commercially settled a dispute with Alleasing as to the validity of Alleasing s pre-appointment security interests that had been the subject of a first instance judgment 23 and was subject to a pending appeal. In granting relief under s 588FM of the Corporations Act, Justice Davies reasoned: 24 In the present case, registration was made promptly after the entering into the settlement agreement and the prejudice to creditors of the kind referred to in Re Appleyard Capital Pty Ltd does not arise. The deed administrators are empowered under clauses 7.6(b)(xv) and 7.6(b)(xliv) of the OneSteel deed of company arrangement to grant security interests and the new security interests have been 22 Re Renfrey at [28]-[29]. 23 In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21 (Re OneSteel). 24 Re Alleasing at [18].

8 8 created as part of a commercial settlement of the dispute between the deed administrators and Alleasing relating to the security interests arising under the earlier lease agreement in respect of the crusher and the parts that OneSteel uses in its mining operations. That equipment is crucial to those mining operations and the deed administrators have provided cogent reasons as to why they consider that entering into the settlement deed is likely to be in the best interests of the Arrium Group s creditors. In the circumstances, I was satisfied that it is just and equitable to fix 12 May 2017 as the later time for the registration of the new security interests. 24 Again, Re Alleasing was a case where the Deed Administrators had made a commercial decision to grant a security interest after the commencement of the voluntary administration pursuant to their powers under Part 5.3A of the Corporations Act and under the Arrium DOCAs and in the best interests of creditors. 25 A distinguishable case from the present application and the preceding decisions discussed above, is In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed) (Re OneSteel). 25 In Re OneSteel, the secured creditor (Alleasing) sought relief under s 588FM in respect of a security interest that was created prior to the commencement of voluntary administration and where the registration was defective. In Re OneSteel, Brereton J of the Supreme Court of New South Wales held that relief under s 588FM was not available because an order under s 588FM is concerned only to provide relief from the consequences of belated registration of perfected interests, and is not concerned with imperfected interests In Re Renfrey, Justice Davies also distinguished Re OneSteel on the following basis (which is equally applicable in the present case): 27 I turn now to s 588FM of the Corporations Act. I accept both parties submission that Re OneSteel Manufacturing is distinguishable as the point on which that case was decided does not arise in this case, namely whether s 588FM applied to a security interest that had already vested by operation of s 267 of the PPSA, where the finding was that s 588FL did not apply. In contrast to s 267 of the PPSA, the terms of s 588FL explicitly contemplate that an order may be made under s 588FM fixing a later time for registration to preclude the operation of s 588FL. Nothing in the terms of the section indicates that an order under s 588FM cannot be made after s 588FL(4) has been triggered. RELIEF UNDER SECTION 588FM SHOULD BE GRANTED 27 Relief under s 588FM is necessary to allow for registration of the security interest granted to the NAB pursuant to the Standby Facility. In view of the principles and authorities outlined above, the Plaintiffs submit that relief should be granted for the following reasons. 25 [2017] NSWSC Re OneSteel at [72]. 27 Re Renfrey at [27].

9 9 28 Firstly, the Deed Administrators have the power to enter into the Standby Facility and associated security pursuant to clause 7.6(b)(xliv) of the DOCAs in pursuance of their role and function. 28 Section 588FL of the Corporations Act should not operate so as to interfere with the proper exercise of the powers and discretions conferred on a Deed Administrator by both the DOCAs and Part 5.3A of the Corporations Act. The Court in Re Mentha, Re Renfrey and Re Alleasing has previously granted relief under s 588FM so as to avoid s 588FL operating to so impede or curtail the proper exercise of the Deed Administrators powers and functions. 29 Secondly, the relief sought under s 588FM is consistent with the objects of Part 5.3A of the Act. The Standby Facility has been put in place by the Deed Administrators to ensure the Arrium Administration Group has sufficient cash-flow so that it can continue trading until completion of the Arrium Sale. 29 Given the Deed Administrators are required to continue to operate and trade the Arrium business until completion of the Arrium Sale, the Standby Facility and the associated security has been entered into in furtherance of the objects of Part 5.3A of the Corporations Act. 30 In particular, continuing to trade the Arrium business has allowed the Deed Administrators to maximise returns to creditors and preserve employment of thousands of jobs, including at the mining, port and steel operations at Whyalla, South Australia. 30 Thirdly, this is not a case where there has been a delay in registration of the security interest, with the NAB promptly registering the interests on the PPSR within two days of the security being granted. 31 Accordingly, the present case is distinguishable from the very different cases of late or defective registration such as Re OneSteel and Re Appleyard. 31 Fourthly, in view of the above, the Plaintiffs submit that there is no relevant prejudice to creditors. The Deed Administrators have informed the Creditors Committee, being representative of the interests of the different creditor groups and interests who have claims against the various Arrium Administration Group entities, and other secured creditors of the Arrium Grantor Companies, including Alleasing, Renfrey and EFIC, of this application. None of those parties have opposed to the relief sought Further, to the extent that the security granted in respect of the Standby Facility may have affected the securities granted to Alleasing and EFIC, NAB has executed Deeds of 28 First Madden Affidavit at [19] and Exhibit MM-1 at Tab First Madden Affidavit at [25] and [26]; Second Madden Affidavit at [12]. 30 First Madden Affidavit at [20] and [30(b)]. 31 First Madden Affidavit at [28] and Exhibit MM-1 at Tab Second Madden Affidavit at [18], [20], [22] and [30].

10 10 Partial Release of Security so as to ensure that EFIC s security and Alleasing s security are not in any way prejudiced For these reasons, the Plaintiffs submit that it is just and equitable for the Court to order an extension of the time for registration under s 588FM of the Corporations Act in respect of the security interests granted in favour of NAB under the Standby Facility. 5 July 2017 Arnold Bloch Leibler Solicitors for the Plaintiffs 33 The Deeds of Partial Release of Security are at Tab 4 of Exhibit MM-1 to the First Madden Affidavit and Tab 10 to Exhibit MM-2 to the Second Madden Affidavit.