Federal Court Extends Creditor Meeting Adjournment Period

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[NAME] (Administrator), in the matter of [COMPANY] ([NAME]) [2020] FCA 181 File number: NSD 133 of 2020

Judge: YATES J

Date of judgment: 12 February 2020

Catchwords: [NAME] – external administration – application to extend period of adjournment of second meetings of [NAME] beyond period prescribed by the Insolvency Practice Rules ([NAME]) 2016 – consideration of potential benefit to [NAME]: [NAME] 2001 (Cth) Pt 5.3A, ss 438A, 439A, 439C, 447A(1) Insolvency Practice Rules ([NAME]) 2016 (Cth) r 75-140(3) Fair Entitlements Guarantee Act 2012 (Cth)

Cases cited: [NAME], in the matter of [COMPANY] ([NAME]) [2018] FCA 1974

Date of hearing: 12 February 2020

Registry: New South Wales

Division: General Division

National Practice Area: [NAME]-area: [NAME]: Catchwords

Number of paragraphs: 13

Counsel for the Plaintiff: [redacted]

Solicitor for the Plaintiff: [redacted] IN THE [COMPANY] 624 426 044 [NAME] AND [NAME] IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS [COMPANY] 624 426 044 ([NAME]) Plaintiffs

JUDGE: YATES J DATE OF ORDER: 12 FEBRUARY 2020

THE COURT ORDERS THAT:

1. Pursuant to s 447A(1) of the [NAME] 2001 (Cth) (the Act), Pt 5.3A of the Act is to operate in relation to the administration of [COMPANY] ([NAME]) [NAME] (the Company) as if r 75-140(3) of the Insolvency Practice Rules ([NAME]) 2016 (Cth) (the Rules) omitted all words after "must not be adjourned to a day…" (namely, the words "that is more than 45 business days after the first day on which the original meeting was held") and included instead of the omitted words the words "later than 24 April 2020", and as if that Part allowed adjournment of the meeting convened under s 439A of the Act in relation to the Company to a day not later than 24 April 2020, despite the operation of s 75-140(3) of the Rules.

2. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the requirement imposed on the plaintiffs to issue notices under rr 75-15 and 75-225 of the Rules is modified such that notices of the second meeting of [NAME] of the Company will be validly given to any [NAME] by, not less than five (5) business days prior to the date of the proposed meeting: (a) giving such notice electronically by email sent to the email address of any [NAME] (including persons claiming to be [NAME]) of the Company for whom the plaintiffs hold an email address; or (b) if the plaintiffs do not hold an email address or if notice is received by the plaintiffs that a notice sent in accordance with (a) has not been received, sending such notice by ordinary post to [NAME] of the Company for whom the plaintiffs have a postal address.

3. By 20 February 2020, the plaintiffs give notice of these orders to [NAME] (including persons claiming to be [NAME]) of the Company by means of a circular: (a) published on the [NAME]' portal section of the website maintained by the administrators' firm, [NAME], in respect of the administration of the Company; and (b) sent by email or by post to all known [NAME].

4. Leave is reserved to any person claiming to be interested, including any [NAME] of the Company, to make any application to vary or discharge any or all of these orders upon 48 hours' notice to the plaintiffs and to the Court.

5. The plaintiffs have leave to apply to the Court on 2 days' notice.

6. The costs and expenses of this application be costs and expenses of the administration of the Company.

7. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J: 1 The plaintiffs are the joint and several administrators of [COMPANY] ([NAME]) (the administrators). They were [NAME] on 18 November 2019. The company is the trustee of the [COMPANY]. The administrators are of the view that it remains in that capacity, notwithstanding their appointment. 2 The company is a manufacturer and supplier of confectionery products in Australia. It operates from leased premises at [NAME], New South Wales using specialised manufacturing plant and equipment, which it has installed. It supplies its products to various large retailers, including Woolworths, [NAME], [NAME], [NAME] and [NAME]. 3 The company has one director. He has attributed the company's present financial circumstances to difficulties with an overseas supplier and production issues. 4 On 8 January 2020, after the administration commenced, the company entered into an Asset Sale Deed under which imported stock and related intellectual property assets were sold to an unrelated party. The sale has now completed, with realised proceeds of $440,000 (inclusive of GST). 5 A second meeting of the company's [NAME] under s 439A(1) of the [NAME] 2001 (Cth) (the Act) was convened and held on 19 December 2019. The meeting was then adjourned until 26 February 2020, a period of 45 business days. This was the maximum period permitted by r 75-140(3) of the Insolvency Practice Rules ([NAME]) 2016 (Cth). 6 Section 438A of the Act provides that, as soon as practicable after the administration of a company begins, the administrator must investigate the company's business, property, affairs and financial circumstances and form an opinion about whether it would be in the interests of the company's [NAME] (a) for the company to execute a deed of company arrangement; (b) for the administration to end; or (c) for the company to be wound up. Correspondingly, s 439C of the Act provides that at a meeting convened under s 439A, the [NAME] may resolve (a) that the company execute a deed of company arrangement; (b) that the administration should end; or (c) that the company be wound up. 7 In the present case, the administrators seek orders that will have the effect of extending the period of adjournment of the second meeting beyond the period provided by r 75-140(3), namely until and including 24 April 2020 (a period less than 60 days). Their reason for seeking the extension is to give them the opportunity to sell the remaining business of the company as a going concern and to entertain an anticipated proposal by the company's director of a deed of company arrangement (DOCA) which, as foreshadowed by the directors, would provide for payment of all employee entitlements and also provide for at least a small contribution to unrelated unsecured [NAME]. 8 In an affidavit made in support of the application, one of the administrators, Mr [NAME], says that if a going concern sale can be effected, and if the foreshadowed DOCA can be entered into, then, based on the current state of negotiations, a return to unsecured [NAME] (including a return of 100 cents on the dollar to eligible employee [NAME]) is likely. 9 Mr [NAME] evidence is that the progression of the sale of the company's business would be assisted by the statutory moratorium arising from the continued administration of the company. He says that if the company were to be placed into liquidation now, it would likely adversely affect the sale of its business as a going concern, resulting in a likely lower realisation. He says that the company's present customers (for whom the administrators are currently executing orders) would be less likely to trade with it. He says that, based on a valuation he has received, it would be unlikely that, in a liquidation, the net proceeds from the sale of the company's plant and equipment would be sufficient to pay even its secured [NAME]. Also, employee [NAME] would be required to claim their entitlements through the Federal Government's Fair Entitlements Guarantee scheme established by the Fair Entitlements Guarantee Act 2012 (Cth). This would likely result in a shortfall for some employees. He says that, in a liquidation, it is unlikely that the unsecured [NAME] would receive any dividend. 10 Further, Mr [NAME] says that the liquidation of the company would trigger its removal as a trustee of the [COMPANY], necessitating the appointment of receivers to the trust assets, and thus incurring further cost and expense. 11 The administrators have endeavoured to obtain the views of the company's major [NAME] on extending the period of adjournment of the meeting. On 5 February 2020, a circular was sent to [NAME] foreshadowing an application to the Court which would have the effect of extending the time for re-convening the second meeting. With the exception of one [NAME] (an [NAME] who said that he intended to submit, but has not submitted, an objection to the application), the administrators have received no communication expressing opposition to the application. Importantly, the landlord of the premises from which the company's business is conducted has indicated its preparedness to accept an extension of up to 60 days to enable the company's business to be sold. The administrators have also engaged in direct telephone communications with representatives of the largest unsecured [NAME]. None have expressed any objection to the application. 12 On the basis of Mr [NAME] evidence, I am persuaded that it is in the interests of [NAME] generally that the period of the adjournment of the second meeting be extended to 24 April 2020, as the administrators seek. The power to do so resides in s 447A(1) of the Act, which provides that the Court may make such order as it thinks appropriate about how Pt 5.3A of the Act is to operate in relation to a particular company. A similar application was made in [NAME], in the matter of [COMPANY] ([NAME]) [2018] FCA 1974 where, at [25] – [28], I made the following observations that are pertinent to the present case: 25 Section 447A provides that the Court may make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. The extension that is sought is specifically with respect to the period referred to in r 75–140(3) of the Rules which, of course, is not found in Pt 5.3A of the Act. Nevertheless, I am satisfied that I have the power to make the orders that are sought. 26 A similar question arose in Re [NAME] as joint administrators of [COMPANY] (admin apptd) (2006) 57 ASCR 206; NSWSC 324. The question in that case was whether s 447A of the Act could be invoked to provide that Pt 5.3A of the Act was to operate in respect of a particular company on the basis that reg 5.6.18(2) of the [NAME] 2001 (Cth) did not apply. [NAME] J reasoned that such an order could be made in reliance on s 447A because, even though the time limit was one prescribed by the particular regulation, the orders sought were still about how Pt 5.3A of the Act was to operate in relation to the company concerned. See also [COMPANY] (Receivers & Managers [NAME]) ([NAME]) [2017] NSWSC 454, especially at [14]–[15]. 27 The same reasoning applies in the present case. Although r 75–140(3) mandates that the period of adjournment in respect of a meeting convened under s 439A of the Act must not be more than 45 business days after the first day on which the original meeting was held, an order invoking the facility provided by s 447A of the Act, and which has the effect of modifying the stipulated maximum period, is still an order about how Pt 5.3 is to operate, particularly in relation to a meeting that is required to be held under s 439A of the Act. 28 Further, making these orders that are now sought will be consistent with the object of Pt 5.3 of the Act, and Sch 2 to the Act (Insolvency Practice Schedule ([NAME])) to the extent that it relates to Pt 5.3A, which is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, results in a better return for the company's [NAME] and members than would result from an immediate winding up. 13 For these reasons, the orders sought by the administrators will be made. I will reserve liberty to any person claiming to be interested in the orders to apply to vary or discharge them on notice to the administrators and the Court. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

Associate: Dated: 26 February 2020