Eagle, in the matter of Sphere Healthcare Pty Ltd (Administrators Appointed)
[2019] FCA 1492
•10 September 2019
FEDERAL COURT OF AUSTRALIA
Eagle, in the matter of Sphere Healthcare Pty Ltd (Administrators Appointed) [2019] FCA 1492
File number: NSD 1449 of 2019 Judge: YATES J Date of judgment: 10 September 2019 Catchwords: CORPORATIONS – application for extension of convening period for second meeting of creditors – application granted Legislation: Corporations Act 2001 (Cth), ss 436C, 436E, 439A(1), 439A(2), 439A(6), 447A(1), sch 2, s 90‑15
Insolvency Practice Rules (Corporations) 2016 (Cth), ss 75-15, 75-105(1), 75-225
Date of hearing: 10 September 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 27 Counsel for the Plaintiffs: Mr D Sulan Solicitor for the Plaintiffs: Clayton Utz ORDERS
NSD 1449 of 2019 IN THE MATTER OF SPHERE HEALTHCARE PTY LTD (ADMINISTRATORS APPOINTED)
BETWEEN: RYAN REGINALD EAGLE AND PHILIP ALEXANDER QUINLAN, IN THEIR CAPACITIES AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATORS OF SPHERE HEALTHCARE PTY LTD (ADMINISTRATORS APPOINTED) AND TABCO PTY LTD (ADMINISTRATORS APPOINTED)
First Plaintiff
SPHERE HEALTHCARE PTY LTD (ADMINISTRATORS APPOINTED) ACN 054 309 705
Second PlaintiffTABCO PTY LTD (ADMINISTRATORS APPOINTED) ACN 000 902 483
Third Plaintiff
JUDGE:
YATES J
DATE OF ORDER:
10 SEPTEMBER 2019
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (CorporationsAct):
(a)the convening period within which the first plaintiffs must convene the meeting of the creditors of the second plaintiff required by s 439A(1) of the Corporations Act, be extended up to and including 12 December 2019; and
(b)the convening period within which the first plaintiffs must convene the meeting of the creditors of the third plaintiff required by s 439A(1) of the Corporations Act, be extended up to and including 12 December 2019.
2.Pursuant to s 447A(1) of the Corporations Act, and further or alternatively s 90‑15 of Schedule 2 of the Corporations Act – the Insolvency Practice Schedule (Corporations) (IPSC):
(a)the meeting of creditors of the second plaintiff required by s 439A(1) of the Corporations Act may be held at any time during, or within five business days after the end of, the convening period as extended by Order 1(a) above, notwithstanding the provisions of s 439A(2) of the Corporations Act; and
(b)the meeting of creditors of the second plaintiff required by s 439A(1) of the Corporations Act may be held at any time during, or within five business days after the end of, the convening period as extended by Order 1(b) above, notwithstanding the provisions of s 439A(2) of the Corporations Act.
3.The first plaintiffs must take all reasonable steps to cause notice of these orders to be given to the creditors of each of the second plaintiff and third plaintiff within two business days of the making of these orders by:
(a)where the first plaintiffs have an email address for a creditor, notifying each such creditor via email of the making of the orders and providing a link to a website where the creditor may download the orders;
(b)where the first plaintiffs do not have an email address for a creditor but have a postal address for that creditor, notifying each such creditor in writing of the making of the orders and providing a link to a website where the creditor may download the orders; and
(c)placing scanned, sealed copies of the Originating Process and the orders on the website maintained by the first plaintiffs at to s 447A(1) of the Corporations Act, and further or alternatively s 90‑15 of the IPSC, Pt 5.3A of the Corporations Act is to operate in relation to the second plaintiff and third plaintiff as if notice of the second meetings of creditors required to be given pursuant to ss 75-225(1) and 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR) (Notice) will be validly given to creditors of the second plaintiff and third plaintiff by, not less than five business days prior to the date of the proposed meeting:
(a)where the first plaintiffs have an email address for a creditor, sending the Notice by email to each such creditor;
(b)where the first plaintiffs do not have an email address for a creditor but have a postal address for the creditor, sending the Notice by posting a copy of it to the postal address for each such creditor;
(c)causing the Notice to be published on the ASIC published notices website at and
(d)publishing the Notice on the website maintained by the first plaintiffs at to s 447A(1) of the Corporations Act, and further or alternatively s 90-15 of the IPSC, if pursuant to Pt 5.3A of the Corporations Act, Pt 5.3A of the Corporations Regulations 2001 (Cth), the IPSC, or the IPR, the first plaintiffs are required to provide any other notification to creditors during the administration of the second plaintiff or third plaintiff, the applicable notice requirements will be satisfied if the first plaintiffs give such notice by:
(a)where the first plaintiffs have an email address for a creditor, notifying each such creditor of the relevant matter via email;
(b)where the first plaintiffs do not have an email address for a creditor but have a postal address for that creditor, notifying each such creditor in writing of the relevant matter via post;
(c)publishing notice of the relevant matter on the website maintained by the first plaintiffs at and
(d)to the extent the matter relates to a meeting covered by s 75-40(4) of the IPR, publishing notice of the meeting on the on the ASIC published notices website at person who can demonstrate a sufficient interest be granted liberty to apply to modify or discharge any of Orders 1 to 5 above on three business days’ written notice to the first plaintiffs and to the Court.
7.The first plaintiffs be granted liberty to apply on three business days’ written notice to the Court in relation to any further extension of the convening period or any other matter arising in the administrations generally.
8.The plaintiffs' costs of this application be treated as costs in the voluntary administrations of the second plaintiff and the third plaintiff, jointly and severally.
9.These orders be entered forthwith.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
YATES J:
The first plaintiffs, Ryan Reginald Eagle and Philip Alexander Quinlan, are the joint and several voluntary administrators (the administrators) of the second plaintiff, Sphere Healthcare Pty Ltd (Administrators Appointed) (Sphere Healthcare) and the third plaintiff, Tabco Pty Ltd (Administrators Appointed) (Tabco) (together, the companies). The administrators were appointed to the companies on 16 August 2019 pursuant to s 436C of the Corporations Act 2001 (Cth) (the Act). The administrators apply under ss 439A(6) and 447A(1) of the Act to extend the convening period for the second meeting of creditors of each company for 90 days. In the absence of an extension, the convening period in respect of each company will expire on 13 September 2019, requiring the second meetings to be held by 20 September 2019.
The application is supported by an affidavit made by Mr Quinlan on 9 September 2019. Each of the companies is a proprietary company incorporated and operating in Australia. They are part of a corporate group comprised of other companies incorporated and operating in Australia. The companies are the only entities in the group to enter external administration. As far as the administrators are aware, the entities in the corporate group other than the companies do not conduct any business or, apart from certain intellectual property licences, hold any significant assets.
Tabco is a wholly-owned subsidiary of Sphere Healthcare and does not, as far as the administrators are aware, conduct any business. Sphere Healthcare is the primary operating entity in the group and holds the vast majority of the group’s assets. Sphere Healthcare is itself a wholly-owned subsidiary of Weibao Pte Ltd, a company which, according to Mr Quinlan’s knowledge, is incorporated in Singapore.
The business conducted by the companies originated in 1972 as a family-owned contract manufacturer of complementary medicines. Since that time, it has evolved into one of Australia’s largest contract manufacturers of complementary healthcare products and infant formula. The business includes an existing library of over 8,000 formulations and 700 standard operating procedures. According to Mr Quinlan, the intellectual property in respect of these products, processes and procedures provides the companies with a strong competitive advantage within the complementary healthcare and infant formula sectors.
Since their appointment, the administrators have continued to trade the business on a “business-as-usual” basis, while seeking potential purchasers of the business and suitable Deed of Company Arrangement (DOCA) proposals.
At the date of the administrators’ appointment, Sphere Healthcare employed 173 employees on either a full-time, part-time or casual basis. Tabco has no employees. The administrators have terminated the employment of only five employees of Sphere Healthcare. As to these employees, only a minimal amount is payable in respect of their respective entitlements.
At the date of the administrators’ appointment, the companies were financed pursuant to a Facility Agreement with Fulcrum Capital Partners Fund No. 1B Pty Limited, as trustee of the Fulcrum Capital Partners Fund No. 1 Sidecar Trust No. 2 (Fulcrum SC2), and a Debtor Finance Facility given by Scottish Pacific Business Finance Pty. Limited (ScotPac). The administrators have entered into an Administrators’ Funding Deed with Gordon Brothers Pty Ltd (Gordon Brothers). To the best of Mr Quinlan’s knowledge, Gordon Brothers is not related to or affiliated with Fulcrum SC2 or ScotPac.
Since the date of their appointment, the administrators have generated sufficient cash flows to ensure that all amounts under the facility with Gordon Brothers can be repaid when due. In addition to that facility, the administrators have also negotiated a variation to the Debtor Finance Facility with ScotPac to ensure that arrangements under that facility will continue during the administrations.
In his affidavit, Mr Quinlan has given an account of the work conducted to date by the administrators. It is not necessary for me to recite that account, save to note the following.
First, at the time of making his affidavit, the administrators have only been able to undertake preliminary investigations into the business and the companies’ financial positions, operations and general circumstances. The administrators have not yet been able to interrogate the companies’ books and records in detail.
Secondly, the administrators have issued two demands on the directors of the companies in respect of the provision of a Report on Company Activities and Property. At the date of Mr Quinlan’s affidavit, the administrators had not received a response to those demands. Mr Quinlan has expressed the belief that it would be in the interests of the companies’ creditors for the administrators to have additional time to obtain further documentation and information in respect of the companies and the business. This would allow the administrators sufficient time to develop a greater understanding of the companies’ financial position, operations and general circumstances, and, according to Mr Quinlan, ultimately produce the best possible return for the companies’ creditors.
The first meetings of the creditors of the companies convened pursuant to s 436E of the Act were held concurrently on 28 August 2019.
The first meeting of Tabco’s creditors was opened, but a quorum was not present. For that reason, no business could be transacted at the meeting other than for the limited purposes set out in s 75-105(1) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR). No request from any person to adjourn the meeting was made, and there was otherwise no reason to adjourn the meeting. Thus, apart from opening the meeting, the meeting was then closed.
At the first meeting of Sphere Healthcare’s creditors, 182 creditors were present either in person or by proxy, and 28 observers attended. A committee of inspection was appointed comprising eight members. At the meeting, the creditors were informed of the possibility that the administrators would make an application to extend the convening period of the second meeting. Mr Quinlan has deposed that no creditors at that meeting raised any objection in relation to an extension proposal.
Further, on 6 September 2019 the administrators gave notice to the members of the committee of inspection that they intended to make the present application. It seems that no objection to the administrators taking this course was raised at that time, and I have been informed by counsel this morning that no objection has since been raised by seven of the members of the committee. The remaining member of the committee has been informed of the application, but has not made any response.
In his affidavit, Mr Quinlan has also given an account of each company’s financial position. Once again, it is not necessary for me to recite that account.
The administrators have commenced an expression of interest campaign in respect of the business and assets of the companies. They seek proposals taking the form of a business and asset sale, a DOCA, or any other proposed structure that might be agreed by them. To facilitate the process, the administrators have set up a data room which contains information regarding the business, assets and financial performance of the companies.
As at 5.00 pm on 5 September 2019, the administrators had received seven indicative non-binding offers in relation to the business and/or assets of the companies. The administrators are currently considering these offers to determine a shortlist of parties to be given access to the data room. Further, two separate DOCA proposals have been foreshadowed. One proposal has been submitted in draft by Weibao, but this proposal is continuing to be developed and refined.
In his affidavit, Mr Quinlan has given detailed reasons as to why it would be appropriate for the Court to grant the extensions that are sought.
First, the administrations are complex, and, for the reasons I have already indicated in relation to a lack of information, the administrators are not able to make an informed recommendation to creditors in accordance with their obligations under s 439A of the Act and s 75-225 of the IPR.
Secondly, Mr Quinlan has expressed the opinion that it is in the best interests of the creditors that the companies continue to trade as a going concern, with a view to realising maximum value through a sale of the business as a going concern, which would have a greater potential for employment to be preserved and the companies’ commercial relationships to continue.
Thirdly, an extension of the convening period for each company will enable the completion of the competitive expression of interest process in relation to the business and assets of the companies, and provide the time needed for the administrators to properly consider and work with bidders to ensure that any binding bids or DOCA proposals that are received are properly investigated and executable.
Fourthly, an extension of the convening periods will enable the administrators adequate time to consider the Weibao DOCA proposal and to work with that company on refining that proposal such that it can properly be considered.
Fifthly, Mr Quinlan has expressed the view that if the administrations of the companies were to end on 13 September 2019, the administrators would have no option but to place the companies into liquidation, as they are yet to receive a complete proposal from any interested parties which would ensure the continuation of the business or, alternatively, provide a better outcome for creditors than a liquidation.
I am satisfied that it is appropriate to grant the extensions that are sought. The relevant principles on which the Court proceeds in such applications are not in doubt and do not require recitation. A helpful and adequate summary of them is contained in written submissions which have been filed on behalf of the administrators.
As a final matter, the administrators seek orders providing for the electronic notification of the orders to be made extending the convening periods, and for the notice in respect of the second meetings, as well as for any other notice required to be given to creditors during the administrations. I am satisfied that it is appropriate for such orders to be made. The administrators currently have email addresses for 96% (340 out of 356) of the known creditors of the second plaintiff. They have postal addresses for 14 of the remaining 16 known creditors, but no postal, facsimile or email address for two creditors. The administrators have email addresses for all known creditors of Tabco. In my view, the giving of notice electronically is both efficient and likely to lead to reduced costs in the administrations.
For these reasons, the orders sought by the first plaintiffs will be made.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 16 September 2019
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