Dimmeys Stores Pty Ltd
[2014] VSC 18
•10 February 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
S CI 2014 00434
| IN THE MATTER OF DIMMEYS STORES PTY LTD (AS TRUSTEE FOR DIMMEYS UNIT TRUST) (TRADING AS DIMMEYS) (ADMINISTRATORS APPOINTED) (ACN 073 979 781) | |
| MICHAEL CARRAFA, RICHARD JOHN CAUCHI AND PETER GOUNTZOS IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF DIMMEYS STORES PTY LTD (AS TRUSTEE FOR DIMMEYS UNIT TRUST) (TRADING AS DIMMEYS) (ADMINISTRATORS APPOINTED) (ACN 073 979 781) | Plaintiffs |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 6 February 2014 | |
DATE OF RULING: | 10 February 2014 | |
CASE MAY BE CITED AS: | Dimmeys Stores Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 18 | |
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CORPORATIONS — External administration — Administrators’ application for extension of period for convening second meeting of creditors required under s 439A of the Corporations Act 2001 (Cth) — Company carrying on business throughout Australia as retailer from 41 outlets and numerous employees. Administrators sought further time to enable exploration of possibility of sale of business as a going concern and for other reasons — Application granted.
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| APPEARANCES: | Counsel | Solicitors |
| Plaintiffs | Mr S Rubenstein | Logie-Smith Lanyon |
HIS HONOUR:
On 13 January 2014 the plaintiffs, Messrs Carrafa, Cauchi and Gountzos (“the administrators”) were appointed as joint and several administrators of Dimmeys Stores Pty Ltd (as Trustee for Dimmeys Unit Trust) (trading as Dimmeys) (Administrators Appointed) (“the Company”) pursuant to s 436A(1) of the Corporations Act 2001 (Cth) (“the Act”).
By originating process filed 4 February 2014, the administrators make application under ss 439A(6) and 447A of the Act for an extension of the convening period prescribed by s 439A(5) of the Act for 90 days. If such an extension is not granted, the convening period for the second meeting of creditors will expire on 11 February 2014.
In addition, the administrators seek an ancillary order under s 447A(1) of the Act that Part 5.3A of the Act operate in relation to the Company so that, notwithstanding s 439A(2) of the Act, the second meeting of creditors of the Company under s 439A of the Act may be held at any time during, or within five business days after the end of, the convening period as extended by the Court, provided that the administrators give notice of the meeting in accordance with s 439A(3) of the Act. This type of order is quite commonplace in these types of applications and is known as a “Daisytek” order.[1]
[1]See Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446 and Algeri; Re Colorado Group Limited [2011] VSC 260 at [29].
The application is supported by an affidavit of one of the administrators, Richard John Cauchi, sworn 4 February 2014. The Company carries on business as a retailer and operates a number of stores selling goods at discounted prices from 41 retail outlets located around Australia. Those premises are leased. Its head office is located in Braybrook, Victoria. Until recently its directors were Douglas, Luke and Nicole Zappelli. Douglas Zappelli resigned in January this year as a result of disqualification orders made by the Federal Court of Australia on 17 December 2013.
The Company operates the business in its capacity as trustee for the Dimmeys Unit Trust (“the Trust”), trading as Dimmeys. Under the terms of cl 17(11) of the Trust Deed for the Dimmeys Unit Trust, it is provided that the office of trustee shall be determined and vacated if the trustee makes any arrangement with creditors or enters into compulsory or voluntary liquidation. Since the Company is still in voluntary administration and has not yet entered into a Deed of Company Arrangement or gone into liquidation, Mr Cauchi considers that this clause does not operate to remove the Company as Trustee of the Trust.
The administrators have continued to trade the Dimmeys business on. They are presently examining the trading and financial position of the company and investigating its affairs generally. Mr Cauchi deposes that immediately after their appointment, the administrators wrote to the directors of the Company seeking information including the completion of a report as to affairs (“RATA”) by 20 January 2014. The directors have indicated to the administrators’ staff that they require assistance from the internal financial controller of the Company to complete the RATA but they have not yet had the opportunity to obtain that assistance. Mr Cauchi understands that it is likely that the directors will seek an extension of time to complete the RATA.
On 23 January 2014, the first meeting of creditors for the Company in administration was held, as required under s 436E of the Act. The appointment of the administrators as joint and several administrators was confirmed. No committee of creditors was formed.
Mr Cauchi deposes that the enquiries and investigations by the administrators are ongoing and have revealed many complex issues that are being considered by them. These matters are detailed in his affidavit. In summary they include:
(a)undertaking an analysis of the company’s books and records of account;
(b)interviewing the director and former director of the company;
(c)fielding calls and queries from unsecured creditors;
(d)obtaining information relating to a secured creditor’s charge so as to assess its validity;
(e)obtaining information relating to intercompany loans;
(f)protecting the position of employees;
(g)considering any potential proposals for a deed of company arrangement (DOCA).
As to the last of these matters, while the administrators do not presently have the information necessary to make a recommendation to the creditors as the Act requires, there have been discussions regarding a proposal for a DOCA by, among others, a related entity. In order to properly inform the creditors so that they can assess the benefits or otherwise of a proposed DOCA, it will be necessary to conduct a detailed analysis of the financial position of the Company.
Mr Cauchi considers that in order for the administrators to produce a report that complies with their obligations under s 439A(4) of the Act, including the forming of the requisite opinion about whether it is in the interests of creditors to accept or reject any proposed DOCA, the administrators will require additional time to analyse prospective proposals and make any necessary comparisons. He considers that there is a complexity of issues that require further investigation and consideration prior to the holding of the second meeting of creditors. In addition, there have been expressions of interest in respect of the business assets of the Company. The convening period for the second meeting of creditors presently ends on 11 February 2014 and the meeting must therefore be held by 18 February 2014.
In Mr Cauchi’s affidavit and in the submissions of Mr Rubenstein, counsel for the administrators, a number of reasons have been given as to why it is necessary to obtain an extension of the convening period.
First, the administrators have assessed the viability of the Dimmeys business and, based on the preliminary enquiries carried out so far, they have determined that it is appropriate to sell the company’s business assets comprising the Dimmeys business. To this end, expressions of interest have been sought in widely circulating newspapers. The expressions of interest were required to be submitted by 5.00pm on Monday 3 February 2014. In response, ten registered expressions of interest had been received and they are presently being considered and assessed.
Mr Cauchi states that the administrators require time to issue an information memorandum to interested parties, to enter into negotiations and subsequently a sale agreement, if appropriate. Once a sale has been agreed to, it will be possible to ascertain the amount of funds available to creditors for the purposes of considering a proposal for a deed of company arrangement if one is forthcoming.
Mr Cauchi states that this is the primary reason for the administrators’ request for an order extending the convening period. He considers that, based on the various steps that will be required to be carried out and the size of the Dimmeys business in terms of the number of stores and its employees, three months is the minimum period of time in which such time tasks could be completed. The value of the Company’s assets, including plant, equipment, motor vehicles, intellectual property and stock on hand is still to be assessed. In addition, it is said that some stock on hand may be subject to retention of title and/or consignment of stock claims, meaning that the final stock position is not yet able to be determined. A valuer, Grays Assets Services, has been engaged to conduct a valuation of the Company’s assets on a fair market value and auction realisation basis.
On the instructions of the administrators, Grays Asset Services has also conducted the required occupational health and safety assessment of the Company’s assets and operations. This report has been obtained and is presently being reviewed by the administrators.
Secondly, the Company has approximately 490 employees working in its retail outlets and its head office. They have all been presently retained by the administrators to assist and maintain the Company’s existing operations. On an analysis of the Company’s books and records and discussions with the Company’s director, the employees are apparently owed approximately $2,150,146.08 in entitlements falling into the categories of annual leave, long service leave, notice and redundancy. This amount is an estimate and likely to change. It does not include one week of unpaid superannuation entitlements relating to the first week of January 2014.
In addition, the amount estimated for redundancy, $818,374.04 is an estimate only and contingent upon the outcome of the sale of the Company’s business assets. This figure will only become liable by the Company if the employment contracts of current employees are terminated by the prospective buyer. In addition, Mr Cauchi observes that investigations have revealed that approximately 50 employees may have been incorrectly paid under the relevant award.
The position as to finalisation of the amounts owing in respect of the employee entitlements will, according to Mr Cauchi, take at least one month as a full reconciliation will be required.
Thirdly, based on the Company’s records and advice received from the Company’s creditors to this point, it appears that unsecured creditors’ claims total approximately $12,596,000.00. That amount includes estimated related party claims of approximately $8,510,808.00, Consumer Affairs Victoria’s claim for a pecuniary penalty of $3,000,000.00 plus legal costs for the proceeding in which it was imposed, which are yet to be assessed, and an ACCC claim for a pecuniary penalty of $400,000.00 plus legal costs of $60,000.00.
In addition, the administrators are still receiving invoices and creditor claims relating to the period between December 2013 and January 2014. The amount for unsecured claims which is cited does not include estimates for residual liabilities of the Company in connection with its tenancy of various leased retail outlets around the country.
Enquiries have been made with landlords as to whether the company has any outstanding liability under the lease agreements. As previously mentioned, the Company leases 41 retail outlets and the responses from landlords are currently awaited. Given the number of different landlords, time will be required to obtain and consider their responses. One landlord has served a notice of rescission to terminate a lease.
The administrators have conducted a search of the Personal Property Securities Register, which discloses 23 parties who purport to have registered security interests over the Company’s property. Three of those creditors have stated to the administrators that they have a potential claim against the Company. The major secured creditor is Starite Distributors Pty Ltd, a related entity. Starite has lodged a proof of debt for the purposes of voting at the first meeting of creditors for $10,691,986.92. The administrators note that the charge securing the Starite debt, whilst being executed on 1 March 2011, was not lodged until 8 April 2011.
Mr Cauchi states that the creditors of the Company were informed at the first meeting of creditors that the administrators would consider the need to make a separate application to the Court for orders extending the convening period in order to facilitate the sale of the business. No creditors present at the meeting dissented.
Mr Cauchi states that the administrators require further time to consider and prepare a report about the Company’s business property affairs and financial circumstances and to consider expressions of interest for the sale of the business and to negotiate with prospective purchasers.
Ahead of the second meeting of creditors required to be held in accordance with s 439A(4) of the Act, the administrators are required to make a recommendation and provide reasons for such recommendation to the creditors of the Company as to whether it will be appropriate for it to execute a DOCA, for the administration to end or for the Company to be wound up. Mr Cauchi considers that if this second meeting of creditors is not adjourned, the administrators will not be in a position to make any recommendations to creditors other than a recommendation to wind up the Company. He believes that an extension of the convening period provides an opportunity to explore options that may result in a better return to the creditors of the Company than would be achieved by an immediate winding up and that it would therefore be in the best interest of the creditors.
A number of authorities have collected and summarised the principles to be applied in these types of applications. In Algeri; Re Colorado Group Limited,[2] Judd J observed:
[2][2011] VSC 260.
[24]When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension. In Re FEA Plantations Ltd [2010] FCA 468, at para 19, Dodd-Streeton J said:
Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company.
[25]In Re Riviera Group,[3] Austin J noted that extensions had been granted in cases falling within the following broad categories:
[3]Re Riviera GroupPty Ltd [2009] 72 ACSR 352 at [13].
The reasons given for an extension in subsequent cases can be grouped into the following broad categories:
• the size and scope of the business: Re Lombe; Babcock & Brown Ltd(admins apptd) [2009] FCA 349 (Re Lombe); Re Worrell; Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584 ; [2009] FCA 70 (Re Worrell); Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947;
• substantial offshore activities: Re Lehman Bros Australia Ltd [2008] NSWSC 1132;
• large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari [2005] VSC 496; Re Ansett Australia Ltd and Korda; sub nom Ansett Australia Ltd (No 3) (FCR) (2002) 115 FCR 409 ; 40 ACSR 433 ; [2002] FCA 90;
• complex corporate group structure and intercompany loans: Re Lombe; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd) (ACN 107 863 436) [2008] QSC 272; Re LED Builders Pty Ltd (admin apptd) [2008] NSWSC 633; Hall; Re Australian Capital Reserve Ltd (admins apptd) [2007] FCA 1328;
• complex transactions entered into by the company (for example securities lending or derivatives transactions): In Re Lift CapitalPartners Pty Ltd (admin apptd) [2008] NSWSC 446 (Re Lift Capital);
• complex prospects of recovery proceedings: Re Worrell; Coal Developments (German Creek) Pty Ltd v Cmr of Taxation (2007) 241 ALR 667 ; [2007] FCA 1324;
• lack of access to corporate financial records: Re Sims; Destra Corp Ltd [2008] FCA 2002; Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363;
• the time needed to execute an orderly process of disposal of assets: Re Carter, SFM Australasia Pty Ltd (admin apptd) (ACN 105 317 333)(No 2) [2009] FCA 419; Re ABC Learning Centres Ltd; Application byWalker (No 7) (2009) 71 ACSR 560 ; [2009] FCA 454;
• the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admin apptd) [2009] FCA 636;
• where the extension will allow sale of the business as a going concern: Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admin apptd) [2008] FCA 721; Re Uni-AireSecurity Pty Ltd (admin apptd) [2006] FCA 1423;
• more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v ScottsdaleHomes No Pty Ltd (No 2) [2009] FCA 190; Re Fitzgerald; PrimebrokerSecurities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; ReVouris; Marrickville Bowling and Recreation Club Ltd [2008] FCA 622.
I consider that there are substantial reasons to support an extension of time for the period sought by the administrators. If one considers the various categories collected by Austin J in Re Riviera Group where extensions were granted, a number have application in this instance. First, there is the size and the scope of the business being conducted by the Company and the number of locations and employees involved. Secondly, there is presently a degree of difficulty in arriving at a conclusion as to the Company’s actual financial position. Thirdly, Mr Cauchi has deposed as to the time which is required to carry out an orderly process of disposal of the assets of the Company and for a thorough assessment of a proposal for a Deed of Company Arrangement following on from that.
In my view, an extension of the convening period is justified solely on the basis that it would allow a sale of the business as a going concern rather than a quick fire sale resulting in a lower return to the creditors. In this regard, I consider that it is appropriate to take into account the opinion expressed by Mr Cauchi in his affidavit. He and his co-administrators are experienced insolvency practitioners and it is clear that they have applied themselves to the task in hand to this point. To require the administrators to convene the meeting required under the statute at this point would be, in my view, contrary to the interest of creditors. Even if the meeting were adjourned, s 439B(2) of the Act constrains the period of such adjournment to 45 business days. Further, the costs of convening such a meeting would be a waste of the creditors’ funds.
One concern I do have is the attitude of the numerous lessors of premises who, during the period of any such extension of the convening period are constrained pursuant to s 440B of the Act from retaking possession of the premises by reason of the imposition of the so-called moratorium period.
There is presently no evidence as to the attitude of those lessors. I will provide a protection for the lessors’ interests by ordering that they, together with other parties interested be served with a copy of the orders that I have made in the administrators’ application within 10 days and give them liberty to apply on appropriate notice to set aside the orders if they see fit. I will also make a Daisytek order so that the required meeting can be convened at an earlier date if the administrators wish to take this course.
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