G Retail Ltd (Administrator Appointed) ACN 098 238 585, in the matter of G Retail Ltd (Administrator Appointed) ACN 098 238 585

[2005] FCA 1870

FEDERAL COURT OF AUSTRALIA

G Retail Ltd (Administrator Appointed) ACN 098 238 585, in the matter of G Retail Ltd (Administrator Appointed) ACN 098 238 585 [2005] FCA 1870

G RETAIL LTD (ADMINISTRATOR APPOINTED) ACN 098 238 585 & ORS v YATES & ANOR, in the matter of G RETAIL LTD (ADMINISTRATOR APPOINTED) ACN 098 238 585 & ORS

NSD2330 OF 2005

EMMETT J
25 NOVEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2330 OF 2005

IN THE MATTER OF:

G RETAIL LTD (ADMINISTRATOR APPOINTED)
ACN 098 238 585

GOWINGS PTY LTD (ADMINISTRATOR APPOINTED)
ACN 059 863 937

GOWINGS WHOLESALE PTY LTD (ADMINISTRATORS APPOINTED) ACN 049 863 937

GOWINGS HARDWARE PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 758 604

MR PETER GEORGE YATES AND DAVID JOHN FRANK LOMBE
PLAINTIFFS

JUDGE:

EMMETT J

DATE OF ORDER:

25 NOVEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.Leave be granted to the Plaintiffs to file in Court before the Corporations Duty Judge sitting on 25 November 2005 the originating process dated 25 November 2005 (the Originating Process) and affidavit of Peter George Yates sworn on 25 November 2005.

2.        The Originating Process be returnable instanter.

3.Pursuant to 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in section 439A(5) of the Act be extended by 90 days (or the next business day) for each of the following companies:

(a)       G Retail Limited (Administrators Appointed) ACN 098 238 585 (G Retail);
(b)       Gowings Pty Ltd (Administrators Appointed) ACN 091 595 612;

(b)Gowings Wholesale Pty Limited (Administrators Appointed) ACN 059 863 937; and

(c)Gowings Hardware Pty Limited (Administrators Appointed) ACN 092 758 604.

4.Pursuant to section 447A(1) of the Act that Pt 5.3A of the Act is to operate in relation to each of the G Retail Companies as if:

(a)Section 449E(1)(a) of the Act also provided that the Plaintiffs in their capacity as administrators of the G Retail Companies, are entitled to such remuneration for work performed in relation to all the G Retail Companies as is fixed by a resolution of the committee of creditors appointed to G Retail passed after the members of that committee have received no less than 7 days written notice of the amount of remuneration claimed by the Plaintiffs, together with details of the manner in which the amount claimed is comprised and calculated; and

(b)Section 436F(1) of the Act also provided that one of the functions of the committee of creditors of G Retail is to fix, by resolution of that committee, the remuneration of the Plaintiffs in their capacity as administrators of all the G Retail Companies, after the members of that committee have received no less than 7 days prior written notice of the amount of remuneration claimed by the Plaintiffs, together with details of the manner in which the amount claimed is comprised and calculated.

5.Pursuant to section 447A(1) of the Act that Pt 5.3A of the Act is to operate in relation to each of the G Retail Companies such that liberty to apply be granted to any person who can demonstrate a sufficient interest to modify or discharge these orders upon appropriate notice being given to the Plaintiffs.

6.Pursuant to section 447A(1) of the Act that Pt 5.3A of the Act is to operate in relation to each of the G Retail Companies such that the meeting of creditors of each of the G Retail Companies may be held at any time during, or within five business days after the end of, the convening period, as extended by order 2 above, notwithstanding the provisions of section 439A(2) of the Act.

7.        The costs of this application be paid out of the assets of the G Retail Companies.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD2330 OF 2005

IN THE MATTER OF:

G RETAIL LTD (ADMINISTRATOR APPOINTED)
ACN 098 238 585

GOWINGS PTY LTD (ADMINISTRATOR APPOINTED)
ACN 059 863 937

GOWINGS WHOLESALE PTY LTD (ADMINISTRATORS APPOINTED) ACN 049 863 937

GOWINGS HARDWARE PTY LTD (ADMINISTRATORS APPOINTED) ACN 092 758 604

MR PETER GEORGE YATES AND DAVID JOHN FRANK LOMBE
PLAINTIFFS

JUDGE:

EMMETT J

DATE:

25 NOVEMBER 2005

PLACE:

SYDNEY

REASONS FOR JUDGMENT

1. I have before me an application by the administrators of four companies for orders under s 439A(6) and 447A(1) of the Corporations Act 2001 (Cth). Section 439A(6) provides that the Court may extend the time within which an administrator must convene a meeting of creditors. Section 447A(1) provides that the Court may make such order as it thinks appropriate about how Part 5.3(A) of the Corporations Act is to operate in relation to a particular company.

2. On 8 November 2005, Messrs Peter George Yates and David John Frank Lombe (‘the Administrators’), were appointed as joint and several voluntary administrators of four companies (collectively ‘the G. Retail Companies’).  The G. Retail Companies are G. Retail Limited (‘G. Retail’), Gowings Pty Limited (‘Gowings’), Gowings Wholesale Pty Limited (‘Gowings Wholesale’) and Gowings Hardware Pty Limited (‘Gowings Hardware’). 

3. The Administrators were appointed pursuant to s 436A(1) of the Corporations Act, which provides that a company may, by writing, appoint an administrator to the company if the directors of the company have resolved to the effect that, in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time, and an administrator of the company should be appointed. Under s 439A(1) of the Corporations Act, the administrator of a company under administration must convene a second meeting of the company's creditors within the convening period, as fixed by section 439A(5), or extended under section 439A(6). The convening period under s 439A(5)(b) is, relevantly, the period of 21 days, beginning on the day when the administration begins. Under s 439A(6) the Court may extend the convening period on an application made within the period referred to in s 439A(5).

4. In short, the Administrators seek an extension of 90 days, within which to hold the meeting of creditors.  Ordinarily, the Administrators’ remuneration would be fixed at that meeting.  They also seek an order that will facilitate the payment of their remuneration without having to wait for the expiration of the period. 

5. Section 439A(3) deals with the way in which an administrator must convene the meeting.  Under s 439A(4), the notice convening the meeting must be accompanied by a statement setting out the administrator’s opinion about certain matters, namely:

   (1)whether it would be in the creditors’ interests for the company to execute a Deed of Company Arrangement;

   (2)       whether it would be in the creditors’ interests for the administration to end;

   (3)whether it would be in the creditors’ interests for the company to be wound up.

   An administrator is required to give reasons for those opinions. If a deed of company arrangement is proposed, a statement setting out details of the proposed deed must also be given to the creditors with the notice of meeting. An application by an administrator for an extension of time under s 439A(6) is to be assessed by reference to whether an extension is necessary to enable the administrator to provide the report and statement and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to chose one of the three courses identified in s 439C.

6. Under s 439C, at the meeting convened under s 439A, the creditors may resolve that the company execute a deed of company arrangement, that the administration should end or that the company be wound up. The function of the Court on an application under s 439A(6) is to strike an appropriate balance between, on the one hand, the expectations that an administration will be relatively speedy and summary and, on the other hand, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.

7. Ultimately, the question of an extension is to be decided by the Court on the basis of the material before it.  The Administrators, in that regard, rely on the affidavit sworn today of one of them, Mr Peter George Yates.  It is relevant that Mr Yates has practised in insolvency for 17 years and is currently an Official Liquidator of the Supreme Court of New South Wales.  Mr Lombe has also practised in insolvency for 25 years and is also an Official Liquidator for the Supreme Court of New South Wales.  Both have been involved in a number of voluntary administrations of some significance and importance.

8. As at the date of the appointment of the Administrators, the G. Retail Companies operated four retail stores situated in Market Street, Sydney, George Street, Sydney, Oxford Street, Darlinghurst and Westfield Shopping Town, Hornsby.  In addition, the G. Retail Companies operated a warehouse at Alexandria and a support office in Castlereagh Street, Sydney.

9. Until September 2001, the four stores, the warehouse and the support office were owned by Gowings Bros Limited (‘Gowings Bros.’).  Following a corporate reorganisation in September 2001, the ownership and operation of the Gowings Bros business became as follows:

   (a)The real property and intellectual property of the operations continued to be owned by Gowings Bros. 

   (b)G. Retail became the main trading entity, employing employees and contracting with suppliers for the supply of stock for sale.  G. Retail was also responsible for the running of the stores.

   (c)Intellectual property of the business was licensed by Gowings Bros to G. Retail under an agreement dated 5 November 2001 (‘the IPL Agreement’). 

   (d)The real property in George Street was leased by Gowings Bros to G. Retail. 

10. Gowings Wholesale is a wholly owned subsidiary of G. Retail.  Until 2003, Gowings Wholesale imported goods from overseas at cost price and sold those goods to G. Retail.  Gowings Wholesale has not traded since 2003.  Gowings is a non-trading company and is a wholly owned subsidiary of G. Retail.  Gowings Hardware is also a wholly owned subsidiary of G. Retail.  It operated the hardware section of Gowings which was located on level 2 of the store in George Street, Sydney.  Gowings Hardware employed four employees and had a number of trade creditors and suppliers.

11. The corporate restructure of Gowings Bros was achieved, in part, by a float of G. Retail in November 2001. At that stage, G. Retail was known as Gowings Retail Limited.  G. Retail is a listed public company having been admitted to the official list of Australian Stock Exchange Limited on 14 December 2001.  The official quotation of the company’s shares commenced on 18 December 2001.  Under the IPL Agreement, Gowings Bros licensed the right to use the Gowings business and trademark to G. Retail and G. Retail has exclusive rights to use that intellectual property in relation to advertising.  The term of the IPL Agreement was 25 years to 2026, with an option to extend for a further 25 years.

12. There appears to be no specific royalty obligation under the IPL Agreement.  Under clause 6.1, Gowings Bros is responsible for the trademarks and any new trademarks and must take all reasonable steps to obtain all necessary rights to such trademarks in jurisdictions where Gowings Bros believes such rights will yield a commercial value.  Gowings Bros must maintain those rights at the expense of G. Retail.  G. Retail is to provide Gowings Bros with sufficient funds, in a timely manner, in order to be able to pay all costs and expenses associated with the obtaining and maintaining of those rights.

13. Under clause 7 of the IPL Agreement, G. Retail must spend at least 2 per cent of its total revenue on advertising and marketing.  At least 33.3 per cent of that figure must be spent specifically towards the brand building program.  Any intellectual property rights created by Gowings Bros or G. Retail in the course of the brand building program are to be owned by Gowings Bros.  The term ‘brand building program’ is defined in some detail in an attachment to the IPL agreement, which is incorporated by reference as part of that agreement.  On 9 November 2001, Gowings Bros purported to terminate the IPL agreement. 

14. Since their appointment, the Administrators and members of their staff have worked predominantly full time in undertaking a number of tasks relating to the administration of the G. Retail Companies.  The general area of their work can be summarised under the following heads:

    (a)conducting the business of the G. Retail Companies; 

    (b)general administration, including operation and financial control of the affairs of the G. Retail Companies and review of their books, records and accounts; 

    (c)ensuring compliance with statutory requirements; 

    (d)corresponding and communicating with the bankers of the G. Retail Companies; 

    (e)conducting investigations as to the assets of the G. Retail Companies and forensic investigation of financial data and financial material to ascertain the solvency status of the G. Retail Companies; 

    (f)review and maintenance of insurance in relation to the G. Retail Companies; 

    (g)notification to and communication and correspondence with creditors; 

    (h)arranging for the meeting of creditors required under s 436A of the Corporations Act;

    (i)dealing and negotiating with employees and the discharge of obligations to employees; 

    (j)corresponding and communicating with the directors of the G. Retail Companies; 

    (k)commencing and investigating the process of the sale of the businesses of the G. Retail Companies.

15. The investigations of the Administrators to date reveal that the main assets of G. Retail include stock in trade having a book value of approximately $7 million, part of which is clearance stock up to 4 years old.  Investigations are continuing to determine whether the book value accurately reflects the true value of the stock in trade.  The other main asset of G. Retail is the right to use the Gowings brand name under the IPL agreement. 

16. At the time of the Administrators’ appointment, the G. Retail Companies employed 214 employees.  At present, the outstanding employee entitlements total a figure in excess of $278,000 for annual leave, long service leave and superannuation.  If employees are made redundant, a further sum close to $700,000 in redundancy payments and payment in lieu of notice would become due.  Some employees have already been made redundant, resulting in the reduction of outgoings.

17. The creditors of the G. Retail Companies are owed approximately $3.5 million.  Most of those are unsecured creditors of G. Retail, apart from employees.  The unsecured creditors of Gowings Hardware are owed approximately $84,000.  The Administrators have been unable to ascertain the amounts owed to unsecured creditors by Gowings and Gowings Wholesale.  Creditors of Gowings Hardware consist predominantly of trade creditors and suppliers to the hardware business, which was operated independently of the other retail business.  The only creditors of Gowings and Gowings Wholesale are directors of those companies. 

18. There is only one secured creditor, namely, Westpac Banking Corporation (‘Westpac’), which is owed approximately $1 million by G. Retail.  That indebtedness is secured by fixed and floating charges registered over the whole of the assets and undertakings of G. Retail, Gowings and Gowings Wholesale.  The Commonwealth Bank of Australia owns computer equipment located at the support office.  The equipment is leased to one or other of the G. Retail Companies.

19. One of the key issues that has arisen since the appointment of the Administrators consists of retention of title claims made by trade creditors in respect of stock in trade.  The Administrators are presently aware of some 70 claims against stock owned by G. Retail and Gowings Hardware.  The Administrators have asked all possible claimants to notify the Administrators of their claims against any of the G. Retail Companies and to provide written details of their claims. 

20. The Administrators have also invited those creditors to conduct a stocktake of the stock in trade that is the subject of their claims, which is stored at the warehouse operated by the G. Retail Companies.  The Administrators have conducted their own stocktake and are satisfied that the computer systems of the G. Retail companies record stock sales accurately and with adequate detail.  In the event that stock in trade that is the subject of a valid retention of title claim is sold and the claim is sufficient to cover any sales proceeds, the Administrators consider they would be in a position to account to the creditor, in relation to the amount of the claim, from the proceeds of sale. 

21. The Administrators are satisfied that all claims are able to be resolved by arrangement with the creditors on an agreeable basis.  It is expected that the claims should be resolved within the next three to four weeks, such that stock in trade will either be returned, or the Administrators will have made an offer to acquire the stock from the respective creditors.  It is not expected that there would be any creditors with outstanding claims during any period of extension or after Christmas. 

22. The Administrators have established that the accounts of the G. Retail Companies for the year ending 3 August 2003 show a loss of $1.7 million.  The accounts for the 12 months ending on 1 August 2004 record a loss of $13 million for that year and the accounts for the 12 months ending 31 July 2005 show a loss of almost $3.5 million.

23. Following an initial review of the financial statements of the G. Retail Companies, the Administrators determined that the George Street store was not profitable.  Accordingly, on 13 November 2005, the operations at that store were closed in order to reduce outgoing costs.  The remaining stores continue to be profitable. 

24. Without an extension, the second meeting of creditors required by s 439A(2) would need to be held no later than 5 December 2005.  The Administrators are required to provide at such a meeting a report including their opinions as to what the creditors should do concerning deed of company arrangement, ending the administration or winding up.  The Administrators must have sufficient information prior to preparing such a report to enable them to form a considered opinion about which of those alternatives would be in the creditors’ best interests.  They have spent a considerable amount of time stabilising the business and dealing with the retention of title claimants and with Gowings Brothers with respect to the IPL agreement.  They have also commenced the possibility of sale of the businesses as a going concern by inviting expressions of interest. 

25. However, the Administrators require further time to investigate the affairs of the G. Retail Companies in more detail in order to be in a position to complete their report and provide their opinion pursuant to s 438A.  The Administrators consider that it would be in the interests of the creditors that the convening period for the second meetings be extended for up to 90 days for the following reasons:

    (a)The affairs of the G. Retail Companies are complex, with a large number of interested persons, including employees, landlords, Westpac and retention of title claimants.

    (b)The financial position of the G. Retail Companies is uncertain by reason of a large number of retention of title claims affecting stock in trade.

    (c)The Administrators wish to assess whether the G. Retail Companies are saleable, since one of their principal assets is the licence under the IPL Agreement, which is presently at risk.

    (d)The Administrators wish to take legal advice as to the possibility of potential causes of action against Gowings Brothers in relation to the corporate restructure that occurred in 2001.

    (e)The Administrators wish to consider whether a deed of company arrangement is feasible, with the object of selling the public shell of G. Retail.

1. Having regard to the further investigations that need to be conducted, the Administrators do not consider themselves to be in a position to formulate a recommendation to the creditors of the G. Retail Companies at the present time.  If the present application were not to succeed, the Administrators would, at the second meeting of creditors, recommend to the creditors that the meeting be adjourned for a period of 60 days to enable the Administrators to consider the possible sale of the business as a going concern or sale of the corporate shell and to complete their investigations and prepare and report an opinion.

2. The costs associated with convening a second meeting of creditors is considerable and could be in the vicinity of $14,000.  If the creditors did not adjourn the second meeting, the Administrators would not be able to produce a report to creditors that would be meaningful or beneficial, since their investigations are not yet sufficiently complete to enable them to form a proper opinion. 

3. The Administrators consider, at least on a preliminary basis, that the return to creditors would be maximised if the business of the G. Retail Companies were sold as a going concern.  Given that the business is a retail business, that may result in the opportunity of strong sales between now and Christmas being lost if the G Retail Companies were to be liquidated on 5 December 2005.  The Administrators estimate that sales for the period leading up to Christmas would be approximately $4.2 million.  They have formed the initial view that a sale of the business needs to be progressed quickly because they are presently not profitable. 

4. Preliminary investigations indicate that there are a number of issues that could affect the sale.  The first issue is that there are difficulties with the use of the brand name Gowings under the IPL Agreement.  The second issue concerns the retention of title claims, although, the Administrators hope that those matters will be finalised by Christmas. 

5. In addition to the sale of the businesses of the G. Retail Companies as a going concern, the Administrators intend to look to the possibility of selling the public shell of G. Retail.  They are hopeful that a price in the vicinity of $500,000 is a possible return from such a sale.  The sale would be effected by means of a deed of company arrangement.  The Administrators have not had an opportunity to consider any proposed deed.  Generally, because of the complexities of the operations conducted by the G. Retail Companies, the Administrators consider that it would be to the detriment of creditors not to be given additional time to complete their investigations. 

6. Notice of this application was given to all creditors present at the first meeting.  At that meeting, a committee of creditors of G. Retail was appointed.  That committee consists of Mr Lyndsay Phillips from LaFitte Clothing Pty Limited, Mr Michael Julian from Westfield, Mr Kim Mullins from Driza Bone, Mr John McLay from Outdoor Performance, and Mr Ian Hardey from Independent Studios.  Westpac, as secured creditor, supports the Administrators’ application for an extension.  LaFitte, Westfield, and Driza Bone also support the Administrators’ application.  The other members of the committee of creditors have not expressed opposition. 

7. The Administrators have drawn the Court’s attention to three categories of persons who have property rights that are suspended for the duration of the voluntary administration, subject only to the consent of the Administrators or leave of the Court.  They are creditors with retention of title claims, lessors who lease the stores to the G. Retail Companies and Gowings Bros, under the IPL Agreement.  The Administrators consider that there will be no real prejudice to any of those groups.  The retention of title claims have already been mentioned.

8. The Administrators, having disclaimed the lease of the George Street store, continue to pay rent under the leases in respect of the other stores.  The Administrators have informed the landlords of this application, and there has been no opposition from the landlords.

9. Gowings Bros is the landlord of the Market Street store, and the licensor under the IPL Agreement.  Gilbert and Tobin act for Gowings Bros.  Gilbert and Tobin have been informed that the Administrators proposed to make this application at 11.30 am today.  A copy of the proposed application and Mr Yates’ affidavit was provided to Mr Raymond McGuiness of Gilbert and Tobin.  Mr McGuiness indicated to Ms Williams, the senior associate who has the carriage of this application on behalf of the Administrators, that if Gowings Bros did not appear, counsel is at liberty to say that they do not wish to be heard in opposition to the application.  Gowings Bros were called when the hearing began but there was no appearance. 

10. In the circumstances, I am satisfied that there is no prejudice to any party by the proposed extension.   On the other hand, there are very good reasons for granting the extension, to enable the Administrators to complete the investigations that they wish to undertake, so that they will be in an adequate position to provide a recommendation and their opinion as to the course that should be adopted by the creditors. 

11. As I have indicated, the Administrators would be unable to have their remuneration approved until late February 2006.  The Administrators and their staff have already expended a substantial amount of time in conducting the administration to date.  They estimate that their fees to date are in the vicinity of $260,000.  At the first meeting of creditors, the Administrators informed the creditors present of their intention to apply to the Court for the committee of creditors to be authorised to approve fees pending the second meeting. 

12. There is nothing in the terms of s 447A that suggests that it should be read down.  It permits the making of orders that would alter the way in which s 439A is to apply.  It also permits the making of orders that would alter the way in which s 449E applies.  Section 449E provides that the administrator of a company under administration is entitled to such remuneration as is fixed by resolution of the company’s creditors passed at a meeting convened under ss 439A or 445F, as the case may be.  Section 445F is concerned with convening of a meeting at the behest of the administrator of a deed of company arrangement.  The Administrators request that an order be made under s 447A, whereby the committee of creditors would be authorised to fix the remuneration of the Administrators.  That appears to me to be a reasonable request.  The remuneration will still be subject to supervision by those representing the creditors. 

13. In all of the circumstances, it appears to me to be appropriate to make the orders sought by the Administrators. 

I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             19 December 2005

Counsel for the Plaintiffs:	Mr M Oakes QC
Solicitor for the Plaintiffs:	Blake Dawson Waldron
Date of Hearing:	25 November 2005
Date of Judgment:	25 November 2005