Federal Court Grants Extension for Second Creditor Meeting

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[NAME], in the matter of [COMPANY] (Administrators Appointed) [2012] FCA 132 Citation: [NAME], in the matter of [COMPANY] (Administrators Appointed) [2012] FCA 132

Parties: [NAME] AND [NAME] [NAME] IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165 and [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165

File number: NSD 263 of 2012

Judge: JACOBSON J

Date of judgment: 21 February 2012

Catchwords: CORPORATIONS – extension of time to convene a second meeting of [NAME] of company in voluntary administration

Legislation: Corporations Act 2001 (Cth), ss 439A , 447A

Cases cited: [NAME] v [COMPANY] (Administrators Appointed), in the matter of [COMPANY] (Administrators Appointed) [2012] FCA 49 [NAME], in the matter of [COMPANY] (administrators appointed)(ACN [PHONE]) [2010] FCA 30

Date of hearing: 21 February 2012

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 24

Counsel for the [NAME]: Mr [COUNSEL]

Solicitor for the [NAME]: [COUNSEL]

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 263 of 2012

IN THE MATTER OF [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165 [NAME] AND [NAME] IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165

First Plaintiff

[COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165

Second Plaintiff

JUDGE: JACOBSON J DATE OF ORDER: 21 FEBRUARY 2012 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. That this application be made returnable forthwith.

2. Pursuant to s 439A(6) of the Corporations Act 2011 (Cth) (the Act) the period within which the Administrators of [COMPANY] (the Company) must convene a meeting of the [NAME] of the Company pursuant to s 439A of the Act be extended up to and including 29 May 2012.

3. Pursuant to s 447A(1) of the Act the meeting of the [NAME] of the Company required by s 439A of the Act may be held at any time during the period comprising the convening period as extended and the period of 5 business days after the end of the convening period, notwithstanding the provisions of s 439A(2) of the Act.

4. Liberty to be granted to the [NAME] to apply to the Court for any further extensions of the convening period referred to in Order 1 at any time prior to 29 May 2012.

5. Liberty be granted to any person affected by these orders to apply, on not less than 48 hours notice, to the [NAME] in writing, to vary or discharge these orders.

6. The Administrators are entitled to be indemnified out of the assets of the Company for the costs of this application pursuant to s 443D of the Act and/or an order that the costs of this application be paid out of the assets of the Company.

7. The [NAME] give notice of these orders to the Company's [NAME] by means of a circular posted to the Company's [NAME] by ordinary post or email sent no later than 7 March 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165 [NAME] AND [NAME] [NAME] IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF [COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165

First Plaintiff

[COMPANY] (ADMINISTRATORS APPOINTED) ACN 141 912 165

Second Plaintiff

JUDGE: JACOBSON J DATE: 21 FEBRUARY 2012 PLACE: SYDNEY

REASONS FOR

JUDGMENT 1 This is an application under s 439A(6) and s 447A of the Corporations Act 2001 (Cth) (the "Act") to extend the convening period for the second meeting of [NAME] of the company, required to be held under s 439A(1) of the Act, and for associated orders. 2 The application is supported by an affidavit sworn by Mr [NAME], who is one of the administrators of the company [COMPANY] (the "Company"). Mr [NAME] was appointed as joint administrator of the company together with his partner, Mr [NAME], on 1 February 2012. 3 The Company is a food processing and packaging enterprise which has three major customers. I need not refer to them in detail, the nature of the business is described fully in Mr [NAME] affidavit. 4 The Company gave a floating charge over the whole of its assets to a secured creditor, [COMPANY] (Australia) [COMPANY] ("the secured creditor"). There are a number of other security interests registered as disclosed in a search of the personal property securities register, as stated in Mr [NAME] affidavit. 5 On 1 February 2012, when the Company entered administration, it employed 36 staff. However, since then a number of the employees have been made redundant and there are now 29 employees who are continuing to run the business operations of the Company. 6 The Company holds a lease of the premises from which it conducts its business at Chullora. Although the Company had not paid any rent on its three-year lease, which commenced on 5 September 2011, the [NAME] holds bank guarantees for an amount equivalent to 9 months rent plus outgoings. 7 Since the date of administration the administrators have written to the [NAME] with a proposal for continuing to lease the premises, and the administrators have indicated they will pay the rent for which the Company is liable. 8 There are a substantial number of [NAME] of the Company. Mr [NAME] has identified 192 [NAME]. However, based on the administrator's review of the Company's accounts, it appears unlikely that there will be sufficient realisations to achieve any return to [NAME] other than to the secured creditor. 9 The secured creditor does not object to the administrators making the application, and the [NAME] has also been notified of today's application and has not made any adverse comment in relation to the application for an extension of time to convene the meeting. 10 The administrators have resumed production on the production lines of the Company's business and have obtained commitments from the major customers of the business to continue to take supplies for at least two months. This enables the administrators to have the comfort of being able to have some time to determine whether the business can be sold as a going concern. 11 The administrators consider that the commitments that have been given are likely to continue and ensure the ability of the Company to trade until it is sold. Importantly, the likelihood of the existing 29 employees retaining a job appears to be maximised by the administrators securing a successful sale of the business. 12 The administrators conducted the first meeting of [NAME] on 13 February 2012, pursuant to s 436E of the Act. The [NAME] who attended the meeting indicated they did not wish to form a committee of [NAME]. However, Mr [NAME] informed them that he intended to apply to the court to extend the convening period for the second meeting. No creditor present at the first meeting sought to be heard in opposition to the application which Mr [NAME] foreshadowed for an extension of the convening period. 13 The last day for the convening period of the second meeting of [NAME], in accordance with s 439A(5) of the Act, is 29 February 2012, so that the present application is made during the period referred to in that subsection. 14 The basis upon which the administrators seek an extension of time is set out in [34]ff of Mr [NAME] affidavit. 15 The administrators seek an extension of time for a period of three months within which to convene the second meeting. The principle basis upon which the extension is sought is for a sale of the business on a going concern basis, which is thought to be likely to generate a better return than the sale of the Company's plant and equipment in isolation to the remainder of the business. There are a number of other reasons set forth, but I need not repeat them. 16 Significantly, on 11 February 2012 and 14 February 2012 the administrators placed advertisements in the Australian Financial Review advertising for expressions of interest for the sale of the business as a going concern. The administrators have now received 35 expressions of interest and they have prepared an extensive information memorandum which Mr [NAME] tendered in evidence this morning. The information memorandum is a detailed and comprehensive document. And it shows the nature and extent of the work which the administrators have undertaken to date. 17 The extension of time for a period of three months is for a period which is within that which has been recognised in the authorities that have dealt with applications such as this. 18 One of the matters which the administrators may need to investigate, and for which they ought to have sufficient time to do so, is the transfer of the business to the Company from the sole shareholder of the Company, which is [COMPANY] ("[COMPANY]"). It appears from Mr [NAME] affidavit that [COMPANY] "transferred" the business to the Company, including all debtors and [NAME], on 1 July 2010. This event occurred approximately four months after the incorporation of the Company. 19 The administrators also wish to investigate whether the transfer has had any effect on debtors and [NAME] and whether [COMPANY] remains the employer or joint employer of the employees. 20 In Mr [NAME] opinion, the extension of the convening period which is sought will not unduly prejudice any relevant stakeholders other than the redundant employees. He says it is in the best interests of the secured creditor that the Company continue to trade and that the ongoing arrangements with the company's customers mean that the Company is able to continue supply of processing and packaging, which will provide additional certainty, hopefully, to achieve the maximum value for the Company's business and assets as a going concern. 21 As I have said, the [NAME] will benefit by receiving rent at least for the time being. The existing 29 employees will also benefit from the receipt of wages and from the prospects of continued employment if the business can be sold as a going concern. The only adverse effect of the extension appears to be that there will be delay as to the ability of the redundant employees to lodge claims with the General Employee Entitlements and Redundancy Scheme (known by the acronym GEERS) should the [NAME] resolve that the company be wound up at the second meeting of [NAME]. 22 The principles which have been applied in relation to the exercise of power to extend the convening period were summarised in a decision of [NAME] J in [NAME], in the matter of The [COMPANY] (administrators appointed) (ACN [PHONE]) [2010] FCA 30 at [15]ff. I referred briefly to the authorities in a recent decision in [NAME] v [COMPANY] (Administrators Appointed), in the matter of [COMPANY] (Administrators Appointed) [2012] FCA 49 at [9]ff. I do not need to repeat what I said in that case or to seek to yet again synthesise the authorities which have already been comprehensively reviewed in the Supreme Court of New South Wales in the various decisions which are cited in these applications. 23 It is sufficient for me to say that I am satisfied that in the present case the administrators have proved that there is a substantial ground for the exercise of the court's jurisdiction to grant an extension. There is a sufficient degree of complexity to justify the extension for a period of three months sought by the administrators. I will therefore make orders in accordance with paragraphs 1 to 6 of the originating process that was filed today. 24 In addition to the orders set out in paragraphs 1 to 6 of the originating process, I will order that the [NAME] give notice of these orders to the company's [NAME] by means of a circular to be posted or emailed to the [NAME] by ordinary post or email, sent no later than 7 March 2012. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate: Dated: 21 February 2012