Crosbie (administrator), in the matter of Godfreys Group Pty Ltd (administrators appointed)
[2024] FCA 60
•5 February 2024
FEDERAL COURT OF AUSTRALIA
Crosbie (administrator), in the matter of Godfreys Group Pty Ltd (administrators appointed) [2024] FCA 60
File number: VID 80 of 2024 Judgment of: BEACH J Date of judgment: 5 February 2024 Date of publication of reasons: 7 February 2024 Catchwords:
CORPORATIONS — voluntary administration of companies in the Godfreys group — extension of convening period for second meeting of creditors under s 439A of the Corporations Act 2001 (Cth) — modification of Pt 5.3A under s 447A — directions and declarations under s 90-15 of the Insolvency Practice Schedule (Corporations) — directions concerning notice of first meeting of creditors and other notices — directions concerning single administration account — directions concerning committee of inspection — administrators’ personal liability — ss 443A, 443B and 447A — relief from personal liability concerning leases and employee benefits and remuneration — directions to enter into funding arrangements — relief from personal liability — directions regarding names of companies — directions and declarations concerning carrying on business and funding and supply to New Zealand entity — ancillary orders and directions
Legislation: Corporations Act 2001 (Cth) ss 436A, 439A, 443A, 443B, 447A
Insolvency Practice Schedule (Corporations) ss 65-5, 65-45, 70-40, 70-45, 90-15 (Sch 2 to Corporations Act 2001)
Insolvency Practice Rules (Corporations) 2016 (Cth) ss 70-1, 75-15, 75-225, 90-15
Cases cited: Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169
Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 234
In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2021] NSWSC 256
Re Ansett Australia Ltd; Re Hazelton Air Charter Pty Ltd (2001) 39 ACSR 355
Re Ansett Australia Ltd (No 1) (2002) 115 FCR 376
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (admins apptd) (2010) 82 ACSR 142
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 96 Date of hearing: 5 February 2024 Counsel for the Plaintiffs: Mr M Wyles KC and Mr L Currie Solicitor for the Plaintiffs: Hall & Wilcox ORDERS
VID 80 of 2024 IN THE MATTER OF GODFREYS GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 602 722 985) BETWEEN: CRAIG DAVID CROSBIE, ROBERT SCOTT DITRICH AND DANIEL AUSTIN WALLEY (IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF THE SECOND TO NINTH PLAINTIFFS)
First Plaintiffs
GODFREYS GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 602 722 985)
Second Plaintiff
AUSTRALIAN VACUUM CLEANER CO PTY LTD (ADMINISTRATORS APPOINTED) (ACN 004 568 441) (and others named in the schedule)
Third Plaintiff
ORDER MADE BY:
BEACH J
DATE OF ORDER:
5 FEBRUARY 2024
THE COURT ORDERS THAT:
Extension of convening period
Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period provided for in section 439A(5)(b) of the Act in respect to each of the second to ninth plaintiffs (the Companies) be extended to 28 May 2024.
Pursuant to section 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to each of the Companies as if the meeting of creditors of the Companies required by s 439A of the Act may be held at any time during the period comprising the convening period as extended by order 1 and the period of 5 business days thereafter, notwithstanding the provisions of s 439A(2) of the Act, and the convening of those meetings be in accordance with s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (the IPR).
Notice of first meeting
Pursuant to section 447A(1) of the Act and section 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Act) (the IPSC), Part 5.3A of the Act operate, nunc pro tunc, as if any notice (the Notice) required to be given pursuant to sections 75-15 and 75-225(1) of the IPR has been, and will be, validly given to creditors of the Companies by reason of the following steps having been taken prior to the date of the first meeting of creditors (the First Meeting):
(a)where the first plaintiffs:
(i)have an email address for the creditor, by sending the Notice by email sent to the email address for the creditor; or
(ii)do not have an email address for the creditor, but have a postal address for the creditor (or have received notification of non-delivery of a notice sent by email in accordance with sub-paragraph 3(a)(i)), by posting a copy of the Notice to the postal address for each such creditor;
(b)by causing the Notice to be published on the website maintained by the Australian Securities and Investments Commission (ASIC) at (ASIC Published Notices Website); and
(c)by publishing the Notice on the website maintained by the first plaintiffs at (PwC’s Website).
Other notices to creditors, owners and lessors to be provided electronically
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, if, pursuant to any provision in any of Part 5.3A of the Act, Part 5.3A of the Corporations Regulations 2001 (Cth), the IPSC or the IPR, the first plaintiffs were or are required to provide any other notification to creditors of the Companies, or owners or lessors of property occupied or in possession of the Companies, during the administration of the Companies, the applicable notice requirements will be or has been satisfied, nunc pro tunc, if the first plaintiffs give or gave such notice by taking the following steps:
(a)where the first plaintiffs:
(i)have an email address for a creditor, owner or lessor, by notifying each such creditor, owner or lessor of the relevant matter by an email sent to that email address;
(ii)do not have an email address for a creditor, owner or lessor, but have a postal address for that creditor, owner or lessor (or have received notification of non-delivery of a notice sent by email in accordance with sub-paragraph 4(a)(i)), by notifying each such creditor, owner or lessor in writing of the relevant matter via ordinary pre-paid post;
(b)by publishing notice of the relevant matter on PwC’s Website; and
(c)to the extent that the matter relates to a meeting that is the subject of section 75-40(4) of the IPR, by causing notice of the meeting to be published on the ASIC Published Notices Website.
Creditor contact information
Pursuant to section 90-15 of the IPSC, in complying with any requests for information pursuant to sections 70-40 or 70-45 of the IPSC and/or in discharging any other obligation to disclose names or contact information of any creditors or potential creditors of the Companies (including owners and lessors of property occupied by or in possession of the Companies), the first plaintiffs may:
(a)redact from any document the names or contact information of any creditors or potential creditors of the Companies; and
(b)withhold the names or contact information of any creditors or potential creditors of the Companies.
Information to creditors
Pursuant to section 447A(1) of the Act, and section 90-15 of the IPSC, section 70-1(2)(a) of the IPR is to operate in relation to each of the Companies as if:
(a)the words “5 business days after receiving the request” be read as “10 business days after receiving the request”; and
(b)the first plaintiffs may provide the information, report or document requested by a creditor by publishing that information, report or document on PwC’s Website and by referring the creditor to PwC’s Website.
Single administration account
Pursuant to sections 65-45 and 90-15 of the IPSC, the first plaintiffs may pay all money received by them on behalf of or in relation to the Companies into a single account, and otherwise be relieved from any requirement in s 65-5 of the IPSC to establish a separate account for each of the Companies and pay into that account moneys received by them on behalf of or in relation to that company.
Committee of inspection
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, Divisions 75 and 80 of the IPSC and Division 75 of the IPR are to operate so that:
(a)a single committee of inspection be formed in respect of the Companies; and
(b)the members of the committee be appointed from the creditors of any of the Companies by resolution of the creditors of the Companies at the first meeting of creditors scheduled for 9 February 2024.
Administrators’ relief from personal liability
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, Part 5.3A of the Act is to operate in relation to each of the Companies as if section 443A(1) of the Act provides that:
(a)any liabilities incurred by the first plaintiffs in conducting the business of the Companies in the period to 28 May 2024, and any liabilities arising out of or in connection with a Funding Deed (the Deed) between the Companies and 1918 Finance Pty Ltd (ACN 603 828 379) (1918 Finance) or any loan or moneys borrowed or raised by the Companies from 1918 Finance under the Deed, including moneys borrowed or raised, interest or discount charges incurred in respect of moneys borrowed or raised and borrowing or funding costs, are in the nature of debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the Companies; and
(b)notwithstanding that the liabilities in sub-paragraph 9(a) are debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the Companies, the first plaintiffs will not (except as expressly provided in the Deed) be personally liable to repay such debts or satisfy such liabilities.
Pursuant to sections 443B(8) and 447A(1) of the Act and section 90-15 of the IPSC, Part 5.3A of the Act is to operate in relation to each of the Companies as if:
(a)the first plaintiffs’ personal liability under sections 443A(1)(c) and 443B(2) of the Act begins on 29 May 2024, such that the first plaintiffs are not personally liable for any liability with respect to any property leased, used or occupied by any of the Companies (including the amounts payable pursuant to any leases entered into by any of the Companies), from any lessors or owners, in the period from 30 January 2024 to 28 May 2024 (inclusive); and
(b)the words “within five business days after the beginning of the administration” in section 443B(3) of the Act instead read “on or before 28 May 2024”.
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, Part 5.3A of the Act is to operate, nunc pro tunc, in relation to each of the Companies as if section 443A(1) of the Act provides that, with respect to the liabilities of the first plaintiffs incurred with respect to any obligations or liabilities arising out of, or in connection with, agreements entered into between the Companies and their employees prior to the appointment of the first plaintiffs (Pre-Appointment Employment Contracts), the first plaintiffs will not be personally liable to repay such debts or satisfy such liabilities to the extent that:
(a)any such obligations or liabilities have been incurred or have arisen, or are incurred or arise in the future, as a consequence of the first plaintiffs implementing the pre-appointment payroll practices of the Companies in accordance with the Pre-Appointment Employee Proposal set out in Annexure 1 to these orders; and
(b)the assets of the Companies are insufficient to satisfy any such obligations or liabilities.
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, Part 5.3A of the Act is to operate in relation to the fourth plaintiff (EHA) as if section 443A(1) of the Act provides that:
(a)any liabilities incurred by the first plaintiffs (in their capacity as administrators of EHA) incurred with respect to any obligations arising out of, or in connection with, arrangements entered into with the NZ Entity to fund or supply New Zealand Vacuum Cleaner Co Ltd (NZCN 1075877) (NZ Entity) with assets, are in the nature of debts incurred by the first plaintiffs in the performance and exercise of their functions and joint and several administrators of EHA; and
(b)notwithstanding that the liabilities set out in sub-paragraph 12(a) are debts incurred by the first plaintiffs in the performance and exercise of their functions as joint and several administrators of EHA, the first plaintiffs will not be personally liable to repay such debts or satisfy such liabilities to the extent that the assets of EHA are insufficient to satisfy that debt or liability.
Name of companies
Pursuant to section 447A(1) of the Act and section 90-15 of the IPSC, Part 5.3A of the Act is to operate, nunc pro tunc, in relation to each of the Companies as if section 450E(1) of the Act does not oblige the first plaintiffs and the Companies to set out the expression “(administrators appointed)” after any of the Companies’ names on:
(a)receipts issued to customers;
(b)tax invoices issued to customers;
(c)proofs of purchase;
(d)payslips;
(e)credit notes, statements, invoices and any other document created using the Pronto accounting software;
(f)quotes issued to customers;
(g)in store legal disclaimers; and
(h)delivery dockets.
AND THE COURT DECLARES THAT:
Carrying on business, sale and funding arrangement with 1918 Finance
Pursuant to section 90-15 of the IPSC, in relation to the administration of the Companies, the first plaintiffs are acting in the interests of the creditors of the Companies in:
(a)continuing to conduct the business of the Companies, namely, the sale and distribution of commercial and residential vacuum cleaners and associated goods, up until 28 May 2024 and simultaneously seeking to achieve a sale of the business on terms which maximise the value of that business;
(b)causing the Companies to enter into and perform the Deed and draw down funds pursuant to the Deed.
Pre-appointment employment contracts
Pursuant to section 90-15 of the IPSC, the first plaintiffs are justified in making payment to the employees of the Companies in accordance with the Pre-Appointment Employee Proposal set out in Annexure 1 to these orders.
Funding and supply to NZ Entity
Pursuant to section 90-15 of the IPSC that in relation to the administration of the Companies the first plaintiffs are acting in the interests of the creditors of the Companies in:
(a)causing EHA to enter into arrangements with the NZ Entity in order to fund or supply assets to the NZ Entity; and
(b)funding or supplying assets to the NZ Entity from the assets of EHA,
notwithstanding that the assets of EHA used to fund or supply the NZ Entity would be, in a winding up, subject to claims admitted to proof against EHA under Part 5.6, Division 6 of the Act.
AND THE COURT FURTHER ORDERS THAT:
Confidentiality
Pursuant to section 37AF(1) of the Federal Court of Australia Act 1976 (Cth) (FCAA), on the ground that it is necessary to prevent prejudice to the proper administration of justice for the purposes of section 37AG(1)(a) of the FCAA and until further order or the end of the administration (whichever is earlier), publication or disclosure of the following information is prohibited and documents containing that information filed in the Court be treated as confidential within the meaning of r 2.32(1)(b) and r 2.32(3)(a) of the Federal Court Rules 2011 (Cth):
(a)Confidential Exhibit CDC-2 to the affidavit of Craig David Crosbie dated 4 February 2024;
(b)Confidential Exhibit CDC-3 to the affidavit of Craig David Crosbie dated 5 February 2024;
(c)Paragraphs 59 to 67 of the affidavit of Craig David Crosbie dated 4 February 2024.
Ancillary Orders
Within 2 business days of the making of these orders, the first plaintiffs are to cause notice of this originating process and the orders made to be given to:
(a)creditors of the Companies, (including persons or entities claiming to be creditors);
(b)ASIC;
(c)the Deputy Commissioner of Taxation; and
(d)the Attorney-General’s Department administering the Fair Entitlements Guarantee Scheme,
in accordance with order 4, with a copy of these orders to also be placed on PwC’s Website.
Liberty is granted to any person who can demonstrate a sufficient interest to apply to modify or discharge these orders on not less than 48 hours’ notice being given to the first plaintiffs and to the Associate to the Honourable Justice Beach.
The first plaintiffs and the Companies have liberty to apply on one business day’s written notice to the Court in relation to any variation of these orders or any other matter generally arising in the administrations of any or all of the Companies.
The first plaintiffs’ and the Companies’ costs of and incidental to this application are costs in the administrations of the Companies, jointly and severally.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BEACH J:
The voluntary administrators of the Godfreys group of companies seek directions and declarations to facilitate the trading on for a limited period of the group’s retailing business owned and operated by the second to ninth plaintiffs (the companies) and its restructure and sale as a going concern.
Now both the subject matter and the desirability of such a strategy require commercial judgments to be made by the voluntary administrators that are matters primarily for them rather than the Court. But as Goldberg J explained in a trilogy of cases concerning the administration of the Ansett group of companies in 2001 and 2002 (Re Ansett Australia Ltd; Re Hazelton Air Charter Pty Ltd (2001) 39 ACSR 355 at [57] to [82], Re Ansett Australia Ltd (No 1) (2002) 115 FCR 376 at [42] to [54] and Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [42] to [67]), the Court is nevertheless not precluded from giving the necessary directions or making the appropriate declarations so as to protect administrators from claims that they have acted unreasonably in entering into particular transactions or, more generally, engaging in particular conduct or refraining to so act. I propose to adopt a similar proportionate and practical approach.
The administrators seek declarations that they are acting in the interests of the creditors in:
(a)continuing to conduct the business and in seeking to achieve a sale on terms which maximise its value;
(b)entering into and performing a funding deed with 1918 Finance Pty Ltd, the secured creditor which is owed approximately $65 million by the companies (the funding deed); and
(c)funding and supplying stock to a wholly owned New Zealand subsidiary.
They also seek orders limiting the administrators’ personal liability with respect to:
(a)the funding deed and liabilities incurred by the administrators in conducting the business;
(b)expenses and liabilities relating to properties leased, used or occupied by the companies during the administrations; and
(c)expenses and liabilities associated with the continuation of the companies’ pre-appointment employment contracts and payroll practices.
Further, the administrators seek orders extending the convening period for the second meeting of creditors for each of the companies under s 439A(6) of the Corporations Act 2001 (Cth) to 28 May 2024.
Further, they seek orders that a single committee of inspection be formed for all of the companies, that notices to creditors be provided electronically and that the administrators be permitted to operate a single administration bank account.
As evidence, the administrators have relied on the affidavits of Mr Craig Crosbie, who is a partner of PwC Australia and is one of the joint and several administrators of the companies, together with Mr Robert Ditrich and Mr Daniel Walley.
Relevant background
The Godfreys group is best known for selling vacuum cleaners and associated products in Australia and New Zealand. The retail business was established in 1931 and up until the appointment of the administrators was conducted through 167 retail stores owned and operated by the companies in Australia and New Zealand as well as through franchisee stores.
In August 2023, PwC were appointed as investigating accountants by the companies’ principal secured creditor, 1918 Finance, to review and consider the Godfreys group financial performance, group forecasts and possible restructure proposals.
On 30 January 2024, the administrators were appointed by resolution of the sole director of the companies pursuant to s 436A(1) of the Act.
Now the second plaintiff, Godfreys Group Pty Ltd (administrators appointed) is a holding company and non-trading entity. The other companies are its subsidiaries, directly or indirectly. Further, I note that there is a deed of cross-guarantee as between all of the companies.
The primary trading entity is the fourth plaintiff, Electrical Home-Aids Pty Ltd (administrators appointed), which is the tenant for almost every retail store, the employer of all Australian employees, and the franchisor and licensor to the Australian franchisees.
Shortly after being appointed, the administrators closed 49 group owned stores in Australia and terminated approximately 136 employees in Australia. The administrators do not currently plan to close any further stores.
Now in Mr Crosbie’s opinion, it is in the best interests of creditors to continue to trade the business whilst implementing a restructure, including continuing to investigate the operations of the companies and pursuing a sale of the business. He considers that a sale of the business as a going concern is most likely to result in the best return to creditors and otherwise fulfil the purpose of Part 5.3A of the Act. Clearly, his views carry significant weight and there is nothing in the material that suggests that I should second-guess them.
On 31 January 2024 an advertisement seeking expressions of interest for the purchase of the business and assets of the companies was published in major Australian print and online media. The deadline for receipt of expressions of interest is 7 February 2024, following which there will be a due diligence, shortlisting and negotiation process, with final offers due by 20 March 2024.
Now having regard to the timing of the sale process and the complexity and scope of the operations of the companies, the administrators will not be in a position to issue a report for the second meeting of creditors for each of the companies required under s 439A that satisfies the requirements of s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) until after the sale process has been completed and the investigations of the companies have progressed.
Mr Crosbie estimates that it will take a further 16 weeks to complete those steps and be in position to convene the second meeting of creditors for each of the companies. It is anticipated that within the seven weeks to 24 March 2024, the administrators will have a clear understanding of whether it is sufficiently likely that a sale of the business will be achieved.
Sale plan and extension of convening period
It seems clear then that until the sale process has completed, the administrators will not be in a position to give their opinion as to whether it would be in the creditors’ interests for each of the companies to execute a DOCA, for each administration to end or for the companies to be wound up.
And as I have indicated, Mr Crosbie has formed the opinion that it is in the best interests of the companies to undertake the sale process whilst undertaking further investigations.
Accordingly, an extension of the convening period to 28 May 2024 has been sought.
In Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 234 in relation to the extension of the convening period, I said (at [16] to [18]):
As I observed in Parbery, in the matter of NewSat Limited (Administrators Appointed) (Receivers and Managers Appointed) [2015] FCA 435 and in Secatore, in the matter of In-Fusion Management Pty Ltd (Administrators Appointed) [2016] FCA 1072, the Court has power to extend the convening period under ss 439A(6) and 447A, but in exercising this power the Court must have regard to the objects set out in s 435A, which seek to maximise the chance of the particular company under administration or as much as possible of its business continuing in existence, or if that is not possible, to achieve a better return for the company’s creditors than would result from an immediate liquidation. A central question is whether additional time is likely to enhance the return to creditors, particularly unsecured creditors. But the power to extend the time should not be exercised lightly, let alone as a matter of course. But Pt 5.3A should be given a commercial construction and application which reflects the reality of the setting in which both the relevant company under administration and the administrator find themselves. The Court must balance the expectation that administration will be a relatively speedy and summary matter against the consideration that undue speed should not be allowed to prejudice constructive commercial actions directed to maximising the return for creditors. The perspective from which Pt 5.3A should be applied should not be narrow, and its application should not be refracted through the pessimistic lens of an insolvency technician. And in that context, generally there is usually greater upside than downside in granting an extension for a reasonable period, where the reasonableness of the duration of the extension is contextualised by the particular circumstances.
Now as to the well accepted factors that may justify an extension, these were set out by Austin J in Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 at [13] and by Edelman J in Stimpson, in the matter of Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) [2016] FCA 935 at [8] to [10]. I do not need to repeat them.
In my view, applying such factors to the evidence before me, the extension sought is readily justified. Further, I will also make a Daisytek order under s 447A to deal with the operation of s 439A(2) (see Re Daisytek Australia Pty Ltd (Administrators Appointed) (2003) 45 ACSR 446 at [10] to [14] per Lindgren J). Such an order allows the administrators to hold the second meeting of creditors for each of the companies at any time during the extended convening period or within five days of its conclusion. This allows for the possibility that if the relevant steps can be completed earlier than anticipated in respect of one or more of the companies, then the administrators could hold the second meetings of creditors more promptly in a particular case.
Applying those principles, I have no difficulty in extending the convening period until 28 May 2024 for all of the companies for the reasons expressed by Mr Crosbie so as to enable his proposed strategy to be implemented.
Let me turn to the next topic concerning various personal liabilities that the administrators may have from which they seek to be excused or from which they seek to be immunised. It is also necessary to canvass some funding questions.
Personal liabilities of the administrators and funding questions
There are various categories to be considered. Let me first turn to the question of leases.
As at the date of the administrators’ appointment, there were about 150 leases of stores and other premises in Australia, which included 124 retail premises of Australian group stores, 15 premises of Australian franchisee stores, 3 service and repair centres, and 2 designated as head office spaces.
Pursuant to s 443B, the administrators will become personally liable for rent and other amounts payable under leases from 7 February 2024 onwards. Orders are sought extending the statutory standstill period in order to provide the administrators with sufficient time to investigate the leases and to confer with the relevant counterparties.
Electrical Home-Aids is the tenant under all or substantially all of the leases. The rent and outgoings payable under the leases are significant. With respect to the 15 premises of Australian franchisee stores, Electrical Home-Aids leases these premises from various landlords and is therefore liable for rent and other amounts under the leases. Electrical Home-Aids has then entered into a written licence agreement with each relevant Australian franchisee giving the franchisee a right to occupy the premises and conduct the franchise. The Australian franchisee is required to pay Electrical Home-Aids for rent and other amounts payable under the lease.
The practical effect of this is that by allowing the Australian franchisees to continue to operate from their premises, Electrical Home-Aids will continue to be liable for rent and the administrators will be personally liable after the expiry of the statutory standstill in circumstances where Electrical Home-Aids and the administrators are reliant on the Australian franchisees to pay the rent.
The administrators have closed 49 Australian group stores. They have issued 13 s 443B(3) notices to the landlords of the closed stores and they intend to issue s 443B(3) notices to the balance of landlords as soon as possible and by no later than 6 February 2024, because Electrical Home-Aids no longer intends to use or exercise rights in relation to those properties.
The balance of stores are continuing to trade whilst the administrators pursue a sale of the business. They will continue to investigate whether any other store closures should be made.
Now due to the significant number of leases, the number of counterparties to the leases, the significant liabilities associated with the leases and Electrical Home-Aids granting rights to occupy Australian franchisee stores to Australian franchisees pursuant to licences, the investigations as to whether any other store closures should be made will take some time.
At present, the administrators have been unable to form a view as to whether it is necessary or desirable, in the interests of preserving the value of the business for sale, to exercise rights over the remaining leases. They will not be able to form that view by 7 February 2024.
Given the scale of the administrations and the significant liabilities in respect of the leases, Mr Crosbie estimates that the administrators will require around 16 weeks to fully consider the leases in order to determine if the properties the subject of the leases are required to continue the operations of the business.
Accordingly, the administrators seek relief from liability so that they are not personally liable for any liability with respect to any property leased, used or occupied by any of the companies in the period 30 January 2024 to 28 May 2024.
Section 443B provides:
Scope
(1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods.
General rule
(2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period:
(a) that begins more than 5 business days after the administration began; and
(b) throughout which:
(i) the company continues to use or occupy, or to be in possession of, the property; and
(ii) the administration continues.
(3) Within 5 business days after the beginning of the administration, the administrator may give to the owner or lessor a notice that:
(a) specifies the property; and
(b) states that the company does not propose to exercise rights in relation to the property; and
(c) if the administrator:
(i) knows the location of the property; or
(ii) could, by the exercise of reasonable diligence, know the location of the property;
specifies the location of the property.
(4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company.
(5) A notice under subsection (3) ceases to have effect if:
(a) the administrator revokes it by writing given to the owner or lessor; or
(b) the company exercises, or purports to exercise, a right in relation to the property.
(6) For the purposes of subsection (5), the company does not exercise, or purport to exercise, a right in relation to the property merely because the company continues to occupy, or to be in possession of, the property, unless the company:
(a) also uses the property; or
(b)asserts a right, as against the owner or lessor, so to continue.
Restrictions on general rule
(7) Subsection (2) does not apply in relation to so much of a period as elapses after:
(a) a receiver of the property is appointed; or
(b) under an agreement or instrument under which a security interest in the property is created or arises:
(i) the secured party appoints an agent to enter into possession, or to assume control, of the property; or
(ii) the secured party takes possession, or assumes control, of the property;
but this subsection does not affect a liability of the company.
(8) Subsection (2) does not apply in so far as a court, by order, excuses the administrator from liability, but an order does not affect a liability of the company.
(9) The administrator is not taken because of subsection (2):
(a) to have adopted the agreement; or
(b) to be liable under the agreement otherwise than as mentioned in subsection (2).
In Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169, I said (at [15] to [19] and [25]) concerning s 443B:
The administrators have sought an order pursuant to s 447A(1) or s 443B(8), to modify the operation of ss 443A(1)(c) and 443B(2) to limit their personal liability under leases of real and personal property, such that they have no liability until 24 March 2022. I am prepared to grant such an order.
It is well established that s 447A confers power on the Court to make orders limiting the administrators’ liability. Section 447A has broad application where to make orders would serve the objects of Part 5.3A.
Further, in terms of the Court’s discretion under s 443B(8), that discretion is wide, but it must be exercised judicially and having regard to the impact on creditors (see Wells Fargo Trust Co, National Association (as trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269 at [169] per Middleton J).
The principles governing the Court’s power to extend the notice period under s 443B(3) were conveniently summarised by Markovic J in Re Strawbridge((in their capacity as joint and several administrators of CBCH Group Pty Ltd (administrators appointed)) (No 2) [2020] FCA 472, where her Honour observed at [39]:
Section 447A(1) of the Act also gives the Court ample power to alter the operation of s 443B(2) and (3) of the Act: see Re Mothercare Australia Ltd (admins apptd) [2013] NSWSC 263 at [6]. Alternatively, s 443B(8) gives the Court an additional power to alter the operation of s 443B(2) and (3): see Silvia v FEA Carbon Pty Ltd (admins apptd) (recs and mgrs apptd) (2010) 185 FCR 301; [2010] FCA 515 (Silvia v FEA) at [13]. The usual rationale behind the extension of the five business day period in s 443B(2) and (3) or the exercise of the power in s 443B(8) is because the administrator has had insufficient time to conduct the necessary investigations to decide whether he or she thinks it best to retain or give up possession of leased property…
It is quite clear that in the present case the administrators have not had sufficient time to conduct the necessary investigations required to form a decision as to whether it is best to retain or give up possession of leased property. Furthermore, it seems well apparent that the extension sought by the administrators is in the interests of the Probuild companies’ creditors and is consistent with the objectives of Part 5.3A.
…
It is also worth observing that courts have granted extensions of the time period under s 443B(3) which have been equal to or greater than the 21 day period sought by the administrators in the present case. In Re Carson [2012] FCA 626, the administrators of the Hastie group of companies, which operated a diverse engineering business across Australia, were granted an extension of 15 business days. In Strawbridge, in the matter of CBCH Group Pty Ltd (administrators appointed) (No 2) [2020] FCA 472 and Strawbridge, in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 3) [2020] FCA 555, the administrators of the fashion retailer Collette were granted an extension of two weeks and a further three weeks respectively. In Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (2020) 144 ACSR 310 and then in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) (2020) 144 ACSR 347, the administrators of the Virgin Airlines group were granted an extension of four weeks and a further three weeks in respect of aircraft and other aviation equipment.
Based upon the justifications put by Mr Crosbie and applying the principles that I have just set out, I see no reason not to grant the orders sought.
Let me turn to the question of pre-appointment employment contracts.
The administrators have terminated approximately 136 employee agreements in Australia in connection with store closures. Accordingly, there are now approximately 500 employees of Electrical Home-Aids in Australia, subject to further terminations from store closures and any other terminations during the administrations.
Those employees work across multiple Australian states and territories. Further, workers in stores are generally paid weekly and support/head office staff are generally paid monthly. Further, they are subject, or a portion of them are subject, to three different employment awards, namely, the General Retail Industry Award, Manufacturing and Associated Industries and Occupations Award, and Storage Services and Wholesale Award.
Given the limited time since their appointment, the administrators have not had an opportunity to independently review the work practices of each employee, the requirements of the relevant awards and the current payroll practices of Electrical Home-Aids so as to determine whether the employees have been receiving their correct wages and other entitlements.
This is not a process that can feasibly be completed by the administrators during the trade on period, particularly given the sale process contemplated.
This being the case, the administrators have sought a direction that the administrators are justified and acting reasonably in continuing to pay employees of the companies in accordance with the pre-appointment arrangement of the companies. But they seek an order limiting the administrators’ personal liability in respect of any additional liability that they may incur from the companies’ employees being paid in accordance with those pre-appointment arrangements.
Such directions and consequential orders will enable the employees to continue to be employed and carry out work, and so support the companies to continue to trade in the interests of creditors. Without these directions and orders it may be necessary for the administrators to cease trading the business.
I will return to this matter in a moment when I discuss the relevant principles.
Let me turn to the funding arrangement with 1918 Finance.
On 30 January 2024, the administrators provided under s 440B their irrevocable consent to 1918 Finance exercising or enforcing their rights against the companies’ property arising in respect of the perfected security interests registered on the Personal Property Securities Register against each of the companies and the general security deed previously granted by each of the companies to 1918 Finance, at any time during the administration of the companies, notwithstanding the expiration of the relevant decision period.
Now based on the financial information presently available to the administrators, the companies have:
(a)less than $A cash on hand;
(b)stock on hand valued at approximately $B million (subject to realisable value);
(c)trade receivables of approximately $C million, the collectability of which has not yet been assessed;
(d)property, plant and equipment with a book value as at 31 December 2023 of $D million; this figure likely includes the capitalised lease asset related to property leases, and the administrators have not yet assessed the current or realisable value of these assets;
(e)liabilities to its secured lender, 1918 Finance, totalling approximately $65 million;
(f)around 800 trade creditors totalling approximately $11.4 million;
(g)unpaid employee entitlements totalling approximately $5.1 million.
It is well apparent that the administrators are unable to continue to trade the companies without urgent additional funding. Following their appointment, the administrators negotiated a proposed funding deed with 1918 Finance. The funding deed provides for a facility of up to $4 million to cover the costs and expenses of the companies and administrators continuing to trade and also the remuneration of the administrators. Those funds will be advanced by way of an initial drawdown sum of $500,000, then as per notices received from time to time from the administrators. 1918 Finance will not seek recourse against the administrators in respect of the funds advanced and will not have recourse against the companies in respect of the funds advanced until the administrators have cash available after satisfying the costs, expenses and remuneration relating to the administrations.
Given the financial circumstances of the companies, the fact the companies are in administration, and 1918 Finance is the major secured creditor of the Godfreys group, it is unlikely that more attractive funding can be obtained in the circumstances and time required.
The administrators seek orders that they be relieved from personal liability under s 443A in relation to debts incurred by the administrators in conducting the business and arising from the funding agreement with 1918 Finance.
The administrators also seek a direction to the effect that the administrators are acting in the interests of the creditors of the companies in causing the companies to enter into the funding arrangement and in drawing down on the funds provided for in it.
In Mr Crosbie’s commercial opinion, which I accept, it is in the best interests of the companies’ creditors that the funding be obtained from 1918 Finance. First, it will enable the administrators to operate the business and permit them to make urgent payments, and receive receipts from trade, until a decision is made about the companies’ future. Second, continuing to operate the business will maximise the value of the business and the prospect that the companies, or part of their business, will continue after the administration. Third, continuing to operate the business will allow hundreds of employees to remain in employment and will avoid the crystallisation of employment termination entitlements. Fourth, if the companies cease to operate, the business’ value as a going concern would be lost and any remaining components of the business would be of lesser value, significantly reducing the return to creditors.
Moreover, on the current material, some of which is the subject of express confidentiality orders, I am satisfied that the rights of creditors, secured and unsecured, will not be adversely affected by the companies entering into and obtaining funding under the funding deed.
For completeness I should also note that 1918 Finance has agreed to execute the funding deed and also supports the orders extending the convening period and limiting the administrators’ personal liability as sought in the application heard by me.
Finally, and before discussing the relevant principles, let me turn to the question of the funding of New Zealand Vacuum Cleaner Co Ltd (the NZ entity), which is a member of the Godfreys group although incorporated in New Zealand.
In the ordinary course of business, the NZ entity was supplied with stock on credit by Electrical Home-Aids. The amount owing was recorded in the books and records of Electrical Home-Aids and the NZ entity as an amount owing to Electrical Home-Aids.
The NZ entity is likely to be able to meets its administration debts and liabilities in the ordinary course. However, it is possible that the NZ entity may require support from Electrical Home-Aids by being supplied goods on credit or by cash transfers from Electrical Home-Aids during the administrations.
Accordingly, the administrators seek orders permitting Electrical Home-Aid to supply and fund the NZ entity in order to enable the NZ entity to continue to trade. The orders also provide for related relief from personal liability.
Mr Crosbie believes that the continued trading of the NZ entity will give the best possible chance for the business as a whole to be sold as a going concern, thereby maximising the potential return to creditors.
No other funding has been offered to the NZ administrators in respect of the NZ entity, including from 1918 Finance.
If the NZ entity ceases to operate, the value of that business as a going concern would be lost and any remaining components of the business would be of lesser value, reducing significantly the return to creditors in New Zealand.
The NZ entity’s operations are an integral part of the Godfreys group and its business. Any diminution in the value of the NZ entity’s business will cause a consequent diminution in the value of the business as a whole. Now even though funding and supply of the NZ entity by Electrical Home-Aids may lead initially to fewer assets being available for distribution to creditors of Electrical Home-Aids, funding and supply of the NZ entity will assist to preserve the overall value of the business.
Accordingly, it is said that it is in the best interests of the creditors of Electrical Home-Aids that the administrators and Electrical Home-Aids be permitted to fund and supply the NZ entity. Further, a direction is sought that the administrators are justified and acting reasonably in entering such funding and supply arrangements.
Some relevant provisions and principles
I have no difficulty with the orders and declarations sought.
The object of Pt 5.3A of the Act and the Insolvency Practice Schedule (Corporations) (Sch 2 to the Act) (IPSC) insofar as it relates to Pt 5.3A is set out in s 435A of the Act, which provides:
435A Object of Part
The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
Section 443A provides that an administrator is liable for debts they incur in the performance, or purported performance or exercise, of any of their functions and powers as administrator, including for the repayment of money borrowed.
Section 443A provides:
443A General debts
(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:
(a) services rendered; or
(b) goods bought; or
(c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or
(d) the repayment of money borrowed; or
(e) interest in respect of money borrowed; or
(f) borrowing costs.
(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator’s rights against the company or anyone else.
Section 447A of the Act provides the Court with a broad power to make such orders as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. That power is to be exercised consistently with the purpose of Part 5.3A, namely 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 that is not possible, results in a better return for the company’s creditors than would result from an immediate winding up of the company.
The power under s 447A to make orders limiting the personal liability of administrators under s 443A is well-established.
In Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd) (admins apptd) (2010) 82 ACSR 142, Gilmour J explained (at [30]):
The principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows:
a)the proposed arrangements are in the interests of the company's creditors and
b)typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company’s creditors;
c)the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement;
d)notice has been given to those who may be affected by the order.
(citations omitted)
Now in order to avoid the consequence of s 443A, when a company in administration borrows funds from a third party financier to help fund the company’s ongoing trade during administration, administrators commonly seek orders limiting their personal liability.
Moreover, where the continued trade is for the benefit of creditors, personal liability of administrators can be and has been excluded, including pursuant to s 447A, prior to any such liability being incurred.
Further, the Court is empowered under s 90-15 of the IPSC to make such orders as it sees fit in respect of the administration of the group. The function of such orders, or judicial directions, is not to determine the rights and liabilities associated with a particular transaction, but rather to confer a level of protection on the administrator. But the fact that a s 90-15 direction may relate to a decision or action of a commercial character does not prevent such a direction being made.
In In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2021] NSWSC 256, Black J at [2] observed:
The Court’s power to give a direction under s 90–15 of the IPSC at least allows the Court to give a liquidator advice as to the proper course of action for him or her to take in a liquidation, and the Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. …
Now limiting the administrators’ personal liability in the manner proposed will enable the administrators to access the funding required to preserve and operate the business as a going concern, for the purposes of maximising the return to creditors. It is consistent with the objectives of Part 5.3A to preserve the companies’ assets and maximise the potential return to creditors. And if the liability limitation orders are not made, it is likely that no alternative funding will be obtained and the companies would cease trading, resulting in a less favourable outcome for creditors.
Further and more generally, there is unlikely to be any material prejudice or disadvantage to creditors by limiting the personal liability of the administrators. The orders simply relieve the administrators from the identified personal liabilities in circumstances where the continued trading of the companies is likely to be for the benefit of the creditors.
Further, although the attitude of all creditors to this application is not yet known, the creditor most affected by the orders, 1918 Finance, has agreed to the funding deed providing for limited liability. Moreover, the orders for prompt service and the reservation of liberty to apply preserve the rights of affected parties to be heard should they object to the orders made.
More generally, the orders relieving the administrators from personal liability will facilitate them making commercial decisions in the best interests of the companies and creditors uninfluenced by concerns of personal liability.
Moreover, the declarations, orders and directions sought concerning the other subject matter that I have discussed are appropriate, including the orders to vary the application of s 443A by the utilisation of s 447A.
Let me now turn to some other matters.
Single committee of inspection
The purpose of the first meeting of creditors for each of the companies is to provide creditors with an update on the progress of the administrations and to consider whether to adopt a committee of inspection (COI) and if so, who are to be the COI’s members. In addition, creditors may by resolution remove the administrators from office and appoint someone else as administrator(s) of the companies. But in the present case there has been no notification that a creditor will seek a resolution for the removal and replacement of the administrators at the first meeting.
Now an order has been sought that a single COI be formed in respect of the companies with the members of the COI to be selected by resolution at the first meeting of creditors for each of the companies. This order is sought given the number of companies, the number of creditors, the complexity and scale of the operations of the companies and the delay, duplication and cost which would be incurred in the administrations if eight separate COIs, including for some entities which are non-trading and may only have intra-company creditors, were required to be formed.
The administrators expect that, by adopting a single COI, the administrations of the companies will be more efficient and cost effective, with duplicative processes avoided. Accordingly, in Mr Crosbie’s opinion, it is in the best interests of creditors that a single COI be permitted to be formed. I am prepared to make such an order. It is appropriate that a COI be established and that there be only one COI for the group.
Single administration account
Division 65 of the IPSC deals with bank accounts required to be operated in an external administration.
Section 65-5(1) of the IPSC provides that an external administrator of a company must pay all moneys received by the external administrator on behalf of or in relation to the company into an administration account as defined by s 60-10 for the company within five business days after receipt. Section 65-15 requires an administrator not to pay other moneys into an administration account. Section 65-25 prohibits an administrator from paying money out of an administration account other than for purposes related to the administration of that company.
The administrators seek a direction that they are not required to open separate administration bank accounts for each of the companies. The process for opening, operating and maintaining eight different bank accounts for each of the companies will add additional difficulties, expense and unnecessary duplication to the administrations in circumstances where most of the trading of the companies is conducted by Electrical Home-Aids. Accordingly, operating a single bank account will streamline and make processes in the administrations more efficient.
Further, each of the companies forms part of the same group of companies. Further, any DOCA proposal or a winding up of the companies is likely to involve a pooling of the companies’ assets.
Now s 65-45 of the IPSC provides a plenary power to make orders modifying the arrangements with respect to the operation of administration accounts.
I will make orders under s 65-45 dispensing with the requirements for administration accounts to be opened and operated for all of the companies. There should be only one such account.
Receipts, tax invoices and similar public documents
Now as I have indicated, the administrators propose to continue trading the business of the companies. Indeed, from the moment of appointment, sales at group stores and franchisee stores, online and through the companies’ commercial wholesale business in Australia have continued. Accordingly, Electrical Home-Aids, in its capacity as the trading entity of the Godfreys group, has been issuing, and will continue to issue as part of the trade-on the types of documents listed in the material before me.
The administrators are not yet in a position to have completed their investigations as to whether the words “(Administrators Appointed)” can be inserted following Electrical Home-Aids’ name on the company documents, whether that alteration can be made or how long it would take to do across all Godfreys group stores in Australia. However, their investigations to date indicate that the cost to have IT consultants update software for electronic documents and to reprint physical documents would be significant.
But in an effort to inform customers of the administrations of the companies, the administrators have directed that notices be placed at all public entrances to and next to the cash registers in all group stores and franchisees’ stores. This is in addition to the website notice.
The administrators have sought an order relieving the administrators and Electrical Home-Aids, from the time of appointment, of the requirement to insert the words “(Administrators Appointed)” after the corporate name on the company documents. And it is said that the omission of the words “(Administrators Appointed)” will not pose any significant risk or prejudice to the public or customers of Godfreys group stores given the publication of the website notice and store notice which expressly notify the public and customers of the companies entering into administration on 30 January 2024 and provide information relating to purchases, consumer guarantees, warranties and related matters, and the publicity the administrations have received in Australian news media since the date of appointment.
After discussion with senior counsel for the administrators, Mr Michael Wyles KC, I granted the order sought in part only for the reasons I explained to him.
Conclusion
For the foregoing reasons and also on the basis of the matters discussed with senior counsel, I made the necessary orders.
I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach. Associate:
Dated: 7 February 2024
SCHEDULE OF PARTIES
VID 80 of 2024 Plaintiffs
Fourth Plaintiff
ELECTRICAL HOME-AIDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 007 539 577)
Fifth Plaintiff
GODFREYS FINANCE COMPANY PTY LTD (ADMINISTRATORS APPOINTED) (ACN 602 729 019)
Sixth Plaintiff
GODFREYS FRANCHISE SYSTEMS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 007 873 681)
Seventh Plaintiff
HOOVER FLOORCARE ASIA PACIFIC PTY LTD (ADMINISTRATORS APPOINTED) (ACN 086 345 575)
Eighth Plaintiff
INTERNATIONAL CLEANING SOLUTIONS GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 120 157 191)
Ninth Plaintiff
INTERNATIONAL CLEANING SOLUTIONS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 119 462 798)
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