Hancock and Hird as voluntary administrators, in the matter of BC3 Thoroughbreds Aus Pty Ltd (administrators appointed) and BC3 Thoroughbreds Pty Ltd (administrators appointed)
[2013] FCA 1447
•20 December 2013
FEDERAL COURT OF AUSTRALIA
Hancock and Hird as voluntary administrators, in the matter of BC3 Thoroughbreds Aus Pty Ltd (administrators appointed) and BC3 Thoroughbreds Pty Ltd (administrators appointed) [2013] FCA 1447
Citation: Hancock and Hird as voluntary administrators, in the matter of BC3 Thoroughbreds Aus Pty Ltd (administrators appointed) and BC3 Thoroughbreds Pty Ltd (administrators appointed) [2013] FCA 1447 Parties: GEOFFREY TRENT HANCOCK AND MICHAEL CHARLES HIRD AS VOLUNTARY ADMINISTRATORS OF BC3 THOROUGHBREDS AUS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 134 305 892) AND BC3 THOROUGHBREDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 140 100 652) File number: NSD 2581 of 2013 Judge: YATES J Date of judgment: 20 December 2013 Catchwords: CORPORATIONS – administrations under Part 5.3A of the Corporations Act 2001 (Cth) – application for extension of convening period Legislation: Corporations Act 2001 (Cth) s 439A(6) Date of hearing: 20 December 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 33 Counsel for the Plaintiffs: Mr C Harris SC Solicitor for the Plaintiffs: Eakin McCaffery Cox
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2581 of 2013
IN THE MATTER OF BC3 THOROUGHBREDS AUS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 134 305 892) AND BC3 THOROUGHBREDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 140 100 652)
GEOFFREY TRENT HANCOCK AND MICHAEL CHARLES HIRD AS VOLUNTARY ADMINISTRATORS OF BC3 THOROUGHBREDS AUS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 134 305 892) AND BC3 THOROUGHBREDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 140 100 652)
Plaintiffs
JUDGE:
YATES J
DATE OF ORDER:
20 DECEMBER 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period for convening the second meetings of creditors of BC3 Thoroughbreds Aus Pty Ltd (Administrators Appointed) and BC3 Thoroughbreds Pty Ltd (Administrators Appointed) be extended to no later than 15 April 2014.
2.Pursuant to s 447A(1) of the Act, Part 5.3A of the Act have effect in relation to BC3 Thoroughbreds Aus Pty Ltd (Administrators Appointed) and BC3 Thoroughbreds Pty Ltd (Administrators Appointed) such that the meetings of creditors required by s 439A of the Act may be held at any time during, or within 5 business days after the end of, the convening period as extended by order 1 above, notwithstanding the provisions of s 439A(2) of the Act.
3.By 5.00 pm on 13 January 2014, the plaintiffs give written notice of these orders to the creditors of BC3 Thoroughbreds Aus Pty Ltd (Administrators Appointed) and BC3 Thoroughbreds Pty Ltd (Administrators Appointed).
4.Any creditor of BC3 Thoroughbreds Aus Pty Ltd (Administrators Appointed) and BC3 Thoroughbreds Pty Ltd (Administrators Appointed) or any other person with sufficient interest have liberty to apply to vary or discharge these orders on 48 hours’ notice being given to the plaintiffs and the Court.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2581 of 2013
IN THE MATTER OF BC3 THOROUGHBREDS AUS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 134 305 892) AND BC3 THOROUGHBREDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 140 100 652)
GEOFFREY TRENT HANCOCK AND MICHAEL CHARLES HIRD AS VOLUNTARY ADMINISTRATORS OF BC3 THOROUGHBREDS AUS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 134 305 892) AND BC3 THOROUGHBREDS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 140 100 652)
Plaintiffs
JUDGE:
YATES J
DATE:
20 DECEMBER 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
(REVISED FROM TRANSCRIPT)
This is an application made under s 439A(6) of the Corporations Act 2001 (Cth) (the Act) to extend time for the convening of the second meeting of creditors of two companies in voluntary administration.
The first company is BC3 Thoroughbreds Aus Pty Ltd (administrators appointed) (BC3 Aus). The second company is BC3 Thoroughbreds Pty Ltd (administrators appointed) (BC3). The plaintiffs, Geoffrey Trent Hancock and Michael Charles Hird, are the administrators appointed to each company on 9 December 2013 pursuant to resolutions passed under s 436A of the Act by the then sole director of each company.
At the present time, the plaintiffs are required to convene the second meeting of creditors of each company by no later than 14 January 2014. The extension they seek is to 15 April 2014 in each case.
Background
BC3 Aus is the wholly‑owned subsidiary of BC3. It was incorporated on 24 November 2008. BC3 Aus was originally the wholly‑owned subsidiary of BC3 Thoroughbreds US Inc, before that company ceased to trade in 2011. BC3 was incorporated on 20 October 2009. Its shareholders are BC3 Holdings Pty Ltd and Noble Edict Pty Ltd (Noble Edict).
The sole director and secretary of BC3 Aus and BC3 is Craig Cameron. Mr Cameron was appointed as the director and secretary of both companies on 29 May 2013. The former sole director and secretary of BC3 Aus and BC3 was Bill Vlahos. Mr Vlahos was the founding director and secretary of each company. He resigned as a director and secretary of each company on 9 December 2013.
In an affidavit made on 20 December 2013, Mr Hancock summarised the activities that the plaintiffs have undertaken as voluntary administrators since their appointment. It is not necessary for me to set out the detail of all those activities in these reasons. It is sufficient for me to note the following.
BC3 Aus
BC3 Aus operates a sophisticated and scientific training program for thoroughbreds. The company’s program is to select and purchase the best thoroughbreds, to break in and train them, and then to offer them for sale as horses ready to race. Individual exercise and training programs are developed by BC3 Aus for each horse. BC3 Aus also provides training for privately‑owned horses and agistment services.
BC3 Aus operates from premises at 80 Randalls Road, Connewarre, Victoria (the premises). Noble Edict purports to have entered into a lease with BC3 Aus in respect of its occupation of the premises for which BC3 Aus pays rent. However, the tenure of that lease is uncertain. Noble Edict claims to be the owner of the land on which the premises are erected, but the registered proprietor of the land is shown as another company, CJA & SMP Properties Pty Ltd.
Since occupying the premises, BC3 Aus has undertaken and funded improvements on them in conjunction with Noble Edict, including installing a racetrack, stables, horse walker, horse pens, and office buildings, to a possible value of $1.3 million. Mr Hancock said that these transactions will need to be investigated.
BC3 Aus has 11 employees. It also employs a number of casual staff to assist in the breaking in and training of recently‑purchased thoroughbreds.
BC3 Aus is in control of approximately 40 thoroughbreds. A number of PPSR registrations exist in respect of them in favour of William Inglis & Son Ltd (Inglis) and Magic Millions, who are the livestock agents and auctioneers for thoroughbreds purchased by BC3 Aus at auction. Other thoroughbreds are fully or partly owned in various percentages by BC3 Aus, private owners, and syndicates.
Mr Hancock has viewed a balance sheet for BC3 Aus as at 30 June 2013. This balance sheet is in the form of management accounts. These accounts have not been audited. Mr Hancock is unable to form an opinion as to their accuracy. Nevertheless, these accounts show that the total value of horses with PPSR registrations in favour of Inglis and Magic Millions is approximately $7.5 million.
Mr Hancock is currently seeking to realise horses where the ownership is free of uncertainty and he is able to obtain appraisals from bloodstock experts. He said that he has negotiated or is actively negotiating sales in respect of seven horses which will realise approximately $400,000. His investigations into the ownership and value of other horses in which BC3 Aus has an interest are ongoing.
The business of BC3 Aus turned over approximately $6.5 million in the 2011-2012 financial year. There are no secured creditors of BC3 Aus other than Inglis and Magic Millions who hold the PPSR registrations to which I have referred.
BC3
BC3 does not trade. Its only asset is the shares that it holds in BC3 Aus.
The first meetings of creditors
A first meeting of creditors of each company was held on 19 December 2013. In each case, a committee of creditors was formed. Significantly for present purposes, the creditors of each company, at the respective meetings on 19 December 2013, resolved that it was appropriate for the plaintiffs to approach the Court to make the present application.
Investigations concerning Mr Vlahos
It is necessary for me to make some further observations concerning Mr Vlahos’ association with each company.
Information available to Mr Hancock shows that the Fraud Squad of the Victorian Police has commenced an investigation into a punters’ club run by Mr Vlahos. Persons who were punters in that club allege that approximately $195 million of their funds has been lost or misappropriated by Mr Vlahos who, it is said, received these funds into various bank accounts controlled by him. On the day of the plaintiffs’ appointments as administrators, Mr Hancock had discussions with members of the Victorian Police and, subsequently, the Fraud Squad in relation to these missing funds and Mr Vlahos’ involvement.
Mr Hancock said that Racing Victoria has also commenced an investigation into Mr Vlahos’ affairs and his involvement in BC3 Aus.
Mr Hancock expressed his present belief that neither BC3 Aus nor BC3 is implicated in the alleged punters’ club fraud. However, the authorities have not finished their investigations.
Further, Mr Vlahos is the sole director and secretary of Noble Edict. I have already referred to the claim by Noble Edict to be the owner of the premises from which BC3 Aus conducts business. On 11 December 2013, Stephen Dixon and Laurence Fitzgerald of Grant Thornton were appointed as voluntary administrators of Noble Edict. Mr Hancock said that investigations into the alleged ownership of the land by and lease from Noble Edict will need to be undertaken to determine the true position concerning BC3 Aus’ occupation of the premises. He has, however, met with the current registered proprietor of the land and had discussions to ensure that BC3 Aus can continue to occupy the premises.
The sale of horses
As I have noted, at the time of the plaintiffs’ appointment, BC3 Aus was in control of 40 horses. There are PPSR registrations in favour of Inglis in respect of nine horses. Similarly, there are registrations in favour of Magic Millions in respect of nine horses. The remaining 22 horses are owned in various percentages by BC3 Aus, private owners, and syndicates. Mr Hancock has had discussions with Inglis, Magic Millions, and other owners concerning the current position of the horses and their possible sale in order to meet BC3 Aus’ ongoing cashflow needs.
Mr Hancock said that, in order for the horses to be sold, he will need to obtain veterinary checks and also investigate and ascertain the correct percentage ownership that each relevant person or syndicate has in respect of a given horse. He said that, from his limited investigations to date, the correct position as to ownership is not clear. He is currently working with all interested parties, including Racing Victoria, to determine the correct position. Mr Hancock said that, in his experience, it will be necessary to liaise with internal BC3 Aus sales staff, existing part-owners, trainers, and other interested parties to determine the level of interest in any particular horse or part-share thereof. Mr Hancock also said that, in his experience, interested purchasers will conduct their own inquiries into the value and physical condition of individual horses prior to committing to an offer to purchase. Mr Hancock said that the more information on the background of a horse he can give to a prospective purchaser, the easier it will be to sell that horse and the greater will be the likely sale price for the horse.
Mr Hancock said that, in order to maximise the return to BC3 Aus’ creditors and stakeholders, the sales of horses should take place by private sale, rather than in a liquidation where the horses would be part of a “fire sale” auction in which their true values may not be achieved. Auction sales of thoroughbred horses by large, well‑known, and reputable auctioneers, such as Inglis and Magic Millions, normally occur between the end of January and the end of April.
Possible deed of company arrangement
Mr Hancock gave evidence that, following his appointment, he has had a number of discussions with possible investors and interested parties in BC3 Aus. BC3 Aus and its specialised staff have a well-known reputation in the racing industry for producing quality thoroughbreds. From these preliminary discussions, it appears to Mr Hancock that it is likely that a deed of company arrangement will be proposed. However, according to Mr Hancock, the investigations by the Victorian Police and Racing Victoria to which I have referred will need to be determined before any meaningful discussions with possible investors can take place.
The alternative
Mr Hancock said that if he and his co-administrator do not continue to trade BC3 Aus during its voluntary administration, it would be impossible to formulate a deed of company arrangement. Discussions with investors would not continue. Mr Hancock said that if the companies were placed in liquidation at a second meeting of creditors, the employment of BC3 Aus’ employees would have to be terminated, alternative short‑term care for the horses would have to be organised, and all horses would have to be sold as soon as possible at one auction. As I have noted, in such a situation, the proper value for the horses may not be achieved.
Since the plaintiffs’ appointments, the business of BC3 Aus has continued to trade. Mr Hancock has given evidence that, currently, there is sufficient cashflow (including from income derived from the sale of horses) to cover its expected trading expenses during the period of proposed extension of its administration. He expressed the opinion that continued trading during any extension of the convening period will maximise the prospects of a return to creditors and preserve the ongoing operation of BC3 Aus.
Mr Hancock expressed the view that if BC3 Aus were placed in liquidation at a second meeting of creditors, the return to unsecured creditors would be minimal. He expressed the same view concerning BC3.
Mr Hancock said:
Given the complexity and size of the issues surrounding the business of BC3 Aus, particularly in light of the fraud investigation, Michael Hird and I have had limited time to undertake detailed investigations. With the intervening Christmas holiday period, it is unlikely that our investigations will be completed before the second meetings need to be convened.
Until such time as we can investigate fully whether there has been any involvement of BC3 Aus in the alleged fraud relating to the punters club and we become aware of the outcome of Racing Victoria’s investigations and that of the Victorian Police, I do not believe that Mr Hird and I will be in a position to make a recommendation as to the future of the companies.
I do not believe we will be able to discharge our duties under the Act for the purposes of the second meeting of creditors of BC3 Aus and [BC3] by 14 January 2014. An appropriate investigation to meet the requirements of Section 439A of the Act will enable us to form a considered opinion on the appropriateness of any deed of company arrangement proposal and whether or not the two companies should be placed into liquidation.
Consideration
When considering an application under s 439A(6) of the Act for an extension of the convening period for the second meeting of creditors, the Court must balance the interests of the creditors in a relatively speedy administration with the need to allow sufficient time for the administrator to carry out the required duties and maximise the benefit to creditors. An administrator needs to have sufficient time to investigate the affairs of the company and to be able to provide sensible advice and information to creditors.
In the present case, the plaintiffs rely specifically on the following matters for the extensions of time they seek. First, they need further time to carry out their duties and provide advice to the creditors. In particular, the plaintiffs say they need to obtain some clarity with respect to (a) the uncertainty caused by the investigations currently being conducted by the Victorian Police and Victoria Racing, and (b) the uncertainty concerning the extent of BC3 Aus’ ownership in each horse and the veterinary history and background of each horse. Secondly, there is a reasonable prospect that a deed of company arrangement will be proposed. Thirdly, it would be beneficial for the horses to be sold at recognised yearling and thoroughbred sales, the first of which, on the evidence, will not take place until March 2014. Fourthly, there will be sufficient funds to enable the administrations to continue and the companies to continue to trade until the expiration of the extensions that are sought. Fifthly, a most significant matter in the present application is the fact that the creditors of each company have endorsed the appropriateness of extensions being granted for the period sought.
In these circumstances, I am persuaded that it is appropriate that the extensions as sought should be granted.
Disposition
I will make the orders sought in paragraphs 1 and 2 of the originating process. I will also order that the plaintiffs give written notice, by 5.00 pm on 13 January 2014, of these orders to the creditors of BC3 Aus and BC3. I will grant liberty to any creditor of BC3 Aus or BC3, or any other person with sufficient interest, to apply to vary or discharge these orders on 48 hours’ notice to the plaintiffs and to the Court.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 8 January 2014
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