Herbert v Exuma Pty Ltd (Administrators Appointed)
[2003] WASC 167
•26 AUGUST 2003
HERBERT & ANOR -v- EXUMA PTY LTD (Administrators Appointed) [2003] WASC 167
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 167 | |
| 26/08/2003 | |||
| Case No: | COR:164/2003 | 3 JUNE 2003 | |
| Coram: | BARKER J | 3/06/03 | |
| 11 | Judgment Part: | 1 of 1 | |
| Result: | Application allowed | ||
| B | |||
| PDF Version |
| Parties: | JEFFREY LAURENCE HERBERT NORMAN MEL ASHTON EXUMA PTY LTD (Administrators Appointed) (ACN 009 023 250) |
Catchwords: | Corporations Law Administration Whether convening period for meeting of creditors should be extended by 120 days Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 439A |
Case References: | Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 Re Allbuild Construction Co Pty Ltd; Ex parte Featherby & Anor [2000] WASC 227 Re Brash Holdings Ltd (1994) 13 ACSR 793 Re Geraldton Building Co Pty Ltd (Administrators appointed) ACN 008 673 103; Ex parte Trevor [2000] WASC 320 Re Strickland & Anor as Administrators of Port Kennedy Resorts Pty Ltd (2001) 19 ACLC 328 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- NORMAN MEL ASHTON
Plaintiffs
AND
EXUMA PTY LTD (Administrators Appointed) (ACN 009 023 250)
Defendant
Catchwords:
Corporations Law - Administration - Whether convening period for meeting of creditors should be extended by 120 days - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 439A
Result:
Application allowed
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Category: B
Representation:
Counsel:
Plaintiffs : Mr M S Ferguson
Defendant : No appearance
Solicitors:
Plaintiffs : Minter Ellison
Defendant : No appearance
Case(s) referred to in judgment(s):
Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611
Re Allbuild Construction Co Pty Ltd; Ex parte Featherby & Anor [2000] WASC 227
Re Brash Holdings Ltd (1994) 13 ACSR 793
Re Geraldton Building Co Pty Ltd (Administrators appointed) ACN 008 673 103; Ex parte Trevor [2000] WASC 320
Re Strickland & Anor as Administrators of Port Kennedy Resorts Pty Ltd (2001) 19 ACLC 328
Case(s) also cited:
Nil
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1 BARKER J: On 3 June 2003, on the application of the plaintiffs by originating process dated 30 May 2003, I made an order extending the convening period in the administration of the defendant. I indicated, when making the order, that I would publish short reasons for decision later. These are those reasons.
2 Before me is an application made under s 439A(6) of the Corporations Act 2001 (Cth).
3 By s 439A(1), the administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subs (5) or extended under subs (6). By virtue of subs (5)(b), the relevant convening period is 21 days from 15 May 2003, that being the date that the plaintiffs were appointed joint and several administrators of Exuma Pty Ltd pursuant to s 436C of the Corporations Act by Pacific Credit Corporation Pty Ltd.
4 By subs (6) of s 439A, the Court may extend the convening period on an application made within the 21-day period referred to in subs (5)(b). This application has been duly made within that time.
5 Nothing in s 439A(6) sets out the criteria which should be regarded in exercising the discretionary power to extend the convening period. However, the object of Pt 5.3A of the Act, in which s 439A appears, is relevant. Section 435A provides that the object of 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.
6 The plaintiffs say that the grant of an extension of the convening period in this particular case will serve the object that is specified in subpar (b) of s 435A.
7 The authorities confirm that an administration is intended to proceed speedily and that the power to extend the convening period should only be exercised for good cause. It is accepted that in the case of a complex business or corporate setting, an extension of the convening period may be appropriate.
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8 In Re Brash Holdings Ltd (1994) 13 ACSR 793, in respect of an extension sought under s 439A of the then Corporations Law, Hayne J in the Supreme Court of Victoria allowed an extension of the time in which a second meeting of creditors of the company should be held, primarily for the reason that the company was one of a number within a group involving a complex administration.
9 Hayne J accepted that the administration was complex and that difficulties had arisen such that the administrators were not in a position to determine whether it was appropriate to propound any or what kind of deed of company arrangement in relation to the company. His Honour noted at 794 and 795:
"The general scheme of the provisions in the Corporations Law relating to administration of companies is that short time limits are prescribed. The general intent of the legislature appears to be that the administration provisions should permit a short interval of time during which proposals might be advanced for the further conduct of the company, whether those proposals take the form of the propounding of a deed of company arrangement or the passing of the company into liquidation or the bare termination of the administration. It is, however, claimed that the legislature contemplates that in certain circumstances (circumstances which are not particularised in the legislation) the periods fixed by the legislature for the convening of the second meeting of creditors may be extended by order of the court.
The administration of this group of companies is not simple. It is apparent to me that the administrators desire to take various steps to determine what would be the best outcome available for creditors of the companies in the group and that in order for the administrators to take those steps it is necessary that they have time in which to make necessary investigations and give consideration to the position of the companies and how their future may lie. In those circumstances, although the general scheme of the legislation dictates that the second meeting of creditors should occur promptly, I am of the view that the administrators should have the further time which they seek. I am of the opinion that to do that will better enable the administrators to make recommendations to creditors and put information before creditors that will enable creditors the better to exercise the various choices that will then confront them, the
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- creditors then being better informed of what steps are reasonably open for consideration by them."
10 Hayne J then granted a further extension of one month to the previously extended convening period.
11 In Re Allbuild Construction Co Pty Ltd; Ex parte Featherby & Anor [2000] WASC 227 Owen J, in this Court, identified the principles and procedure upon which an application under s 439A(6) of the Corporations Law should proceed. His Honour noted that orders should not be made under this section as a matter of course. Rather, they should be the exception rather than the rule. His Honour observed that the power to extend the convening period is a power that is not exercised frequently because of the need for these types of administrations to proceed speedily. Accordingly, an application for an extension of time needs to be supported by detailed information about the affairs of the company, so far as that is known, and the reasons for the delay in finalising the necessary information. The affidavit material should also explain why a particular period of extension has been sought. His Honour further emphasised these principles and the desired procedure in Re Strickland & Anor as Administrators of Port Kennedy Resorts Pty Ltd (2001) 19 ACLC 328. See also Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 to similar effect.
12 In Port Kennedy Resorts (supra) Owen J permitted a 90-day extension of the convening period, even though his Honour considered it was a "very long time indeed" in the context of the relevant division of the then Corporations Law. His Honour noted that in the case before him there were "unusual circumstances at work". They included the fact that the plaintiffs, as administrators, had only been in office a number of days, that the previous administrator was locked in litigation as to the validity of his appointment, that it would be necessary to consider multiple offers for the purchase of the company's assets, that any sale of assets had to be approved by the Minister and that further litigation in relation to the assets of the company could not be ruled out. His Honour (at [12]) also allowed the longer period for the following reasons:
"I am also mindful of the fact that there is a conflict of authority as to whether an applicant can gain from the Court more than one extension of the convening period: see, for example, Watson v Uniframes Ltd (1995) 13 ACLC 609 and, contra, Re Western National Earthmoving Corporation Pty Ltd (1997) 15 ACLC 1,665. In the light of the conflict, the bald statement I
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- made in Allbuild Construction, at [15], to the effect that the Court can only grant one extension may need to be reconsidered. It would be inappropriate, I think, to put the parties at risk if I were to grant a short-term extension on the basis that a further extension could be granted."
13 In Re Geraldton Building Co Pty Ltd (Administrators appointed) ACN 008 673 103; Ex parte Trevor [2000] WASC 320 Owen J also granted an extension of the convening period, pursuant to s 439A of the then Corporations Law. His Honour did so on the basis that the administrators were having difficulties coming to grips with the work in progress and debtors of the company by reason of the failure of the information technology system recently introduced by the company, as well as the sheer logistics of taking control of a number of construction sites spread throughout the north and mid-west of the State of Western Australia, which had caused the administrators considerable delays. Additionally, the administrators had been unable to establish an accurate financial position of the group in administration. Valuations of the assets were required to establish realisable values of identifiable assets. Time was required to call for expressions of interest in the business or assets that may be realised. There was also a possibility that a national or international firm of considerable substance had shown an interest in acquiring the assets of the group.
14 In Geraldton Building Co (supra) Owen J noted that, in the context of the legislative scheme, the proposed extension of 45 days was a relatively long period. However, given the time of the year (before Christmas/New Year), the size of the administration and the prospects of an outcome very much in the interests of creditors arising from mature and more considered negotiations and investigations, his Honour considered an extension of the convening period by 45 days should be granted.
15 These authorities all bear on the proper construction of s 439A of the Act, which is in similar terms to s 439A of the old Corporations Law.
16 In that context, the position here is as follows. The plaintiffs were appointed administrators by Pacific Credit Corporation (a company related to Exuma) by notice dated 15 May 2003. At the date of the appointment of the administrators Exuma:
(a) owned and operated 17 stores retailing tyres, exhausts and other products to the general public from six locations in
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- metropolitan Perth, 11 locations in metropolitan Brisbane and administration offices and warehouses in both Perth and Brisbane;
- (b) employed 109 people in Western Australia and Queensland;
(c) had achieved turnovers for the year ended 30 June 2002 and the period ended 7 May 2003 of approximately $22,000,000 and $18,500,000 respectively;
(d) according to its books and records (which had not been verified at the time of application by the administrators) owed employees, secured creditors and unsecured creditors in the order of $7,000,000;
(e) according to the books (which had not been verified by the administrators) owned assets with book values just in excess of $5,000,000;
(f) owned intellectual property referred to in an intellectual property licence agreement between Exuma and Diffen Franchising Pty Ltd dated 14 December 2001;
(g) under the terms of the licence agreement Diffen Franchising has the right to sub-licence the use of the intellectual property to franchisees. Ten franchisees currently carry on business using the intellectual property in Western Australia;
(h) Exuma had authorised approximately 11 persons carrying on business in regional and country areas of Western Australia to use the intellectual property in those regional and country areas;
(i) Exuma managed the collective purchase of stock for Exuma, the franchisees and the country agents and maintained a bulk store of tyres and other stock at 2 Adrian Street, Welshpool for the purpose of supplying stock to stores owned and operated by Exuma, the franchisees and the country agents;
(j) operated two administration offices; one at 2 Adrian Street, Welshpool, Western Australia and the other at 10 Walker Street, Tiringa, Queensland.
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17 On 3 May 2003 Mr Ian Diffen died. At the date of his death, the deceased was the sole director of, amongst other companies, Exuma and Diffen Franchising.
18 At the time of the hearing of the application the executors of the deceased's estate had applied for probate of his Will, which is expected to be granted within four to six weeks.
19 As to the intellectual property and franchising arrangements, one of the administrators, Mr Jeffrey Herbert, by affidavit evidence before the Court, states that Exuma has licensed the rights associated with intellectual property to Diffen Franchising pursuant to the aforementioned licence agreement. Prior to the licence agreement and pursuant to an intellectual property agreement dated 12 July 1996, Exuma licensed the use of the intellectual property to Ian Diffen Franchising Pty Ltd (not to be confused with Diffen Franchising). In or about July 2001, it was determined that all but one of the franchise agreements between Ian Diffen Franchising and the franchisees had expired, without renewal. On 19 July 2001, Exuma terminated Ian Diffen Franchising's right to use the intellectual property and entered into a licence agreement with Diffen Franchising. Mr Herbert believes that, save for three franchisees, Diffen Franchising has entered into new franchise agreements with each of the franchisees. As to those three, there is uncertainty as to the rights and obligations between Exuma, Diffen Franchising and the franchisees in question.
20 Mr Herbert further explains that, in the day-to-day operations of the Ian Diffen Group, the stores owned by Exuma, the franchisees and the country agents act as a buying group to obtain substantial discounts from third party suppliers of tyres, mufflers and other stock. The collective buying group of the stores owned by Exuma, the franchisees and the country agents operates in a way that involves Exuma ordering stock and forwarding invoices to each franchisee. Under the franchise agreements Diffen Franchising charges a management fee and, further, pays a licence fee to Exuma.
21 Mr Herbert further states that since his appointment, on three occasions his staff and he have met with franchisees and country agents and he has told them that, based upon his preliminary investigations, he would continue to trade Exuma's business as a going concern while he assesses the prospects of either selling its business and assets, or having an injection of capital into Exuma. He has also told them that, while continuing this process, he intends to maintain relationships with key
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- suppliers. He states that his staff and he have spent considerable time putting into place procedures for the order of goods from these suppliers to both franchisees and country agents. He says that the franchisees and country agents have been "relieved that Exuma's business was to continue as a going concern, rather than be liquidated, and were positive about the future prospects for both Exuma's business and my intention to continue to trade Exuma's business during the course of the administration" and that some of them "had invested considerable amounts in their franchises or agencies and that the future of their businesses was inextricably linked to Exuma's".
22 Thus, Mr Herbert expresses the belief that the profitability and, hence, value of Exuma's business will be maximised if the collective buying group is maintained.
23 Mr Herbert's further preliminary view is that the purposes of Pt 5.3A of the Act will be best achieved by selling Exuma's business and the intellectual property together as a going concern. However, before doing that the following things will need to occur:
(a) Exuma will have to be in a position to sell or assign its rights to use the intellectual property. To do so, the administrators will need to first terminate the licence agreement which, under the terms of the licence agreement, requires the service of notice of termination setting out a three-month notice period;
(b) They will have to resolve the nature of the rights and obligations between Exuma, Diffen Franchising and the three franchisees aforementioned and Mr Herbert does not know how long it will take to resolve those matters. His best estimate is presently three months;
(c) The administrator will have to advertise for sale the business and assets, including the intellectual property of Exuma for sale as a going concern, and allow for a sufficient period for potential purchasers to undertake due diligence investigations. Mr Herbert says that, given the substantial nature of Exuma's business, he envisages having to advertise the sale nationally.
24 In all of these circumstances, Mr Herbert believes that the sale process, inclusive of settlement, will take between three and five months once advertisements have been published.
(Page 10)
25 Mr Herbert discloses that two stores are owned by Exuma and carry on business from premises owned by Petian Pty Ltd, a company associated with Exuma. Petian is not currently subject to any form of insolvency administration.
26 The other 15 stores owned by Exuma carry on business from premises leased from various lessors unrelated to Exuma. He has advised of his intention to continue operating from premises leased by them and so will be responsible to those lessors under those leases.
27 Mr Herbert says that the protection of Exuma's interest in the leases is necessary in order to preserve Exuma's operation as a going concern. Thus, the statutory moratorium contained in s 440C of the Act preventing lessors from taking possession of the leased premises by Exuma for the duration of the administration is, in his opinion, necessary to ensure that he is able to sell Exuma's business as a going concern and, hence, maximise the return to Exuma's creditors. Mr Herbert further discloses that, at the first creditors' meeting, most creditors who were owed substantial amounts by Exuma were in attendance and either have not dissented from his proposal to seek an extension of the convening period, or have expressly agreed to that course of action. These include Westpac Bank on behalf of Challenge Bank, to whom Exuma is indebted in the sum of approximately $1.7 million. Other major creditors who fall into the same category include Bridgestone Australia Ltd, to whom a sum of approximately $1.2 million is owed, and a number of smaller creditors.
28 While an extension of the convening period of 120 days (four months approximately), which is the period of extension sought by the administrators, is obviously unusually long I am satisfied that an extension of that order should be granted in the unusual circumstances of the case. It is apparent that the company is in need of administration, principally because of the death of Mr Diffen, and that what is proposed by the administrators forms part of an orderly and practical assessment of the financial circumstances of the company which is most likely to maximise the interests of the company's and members' creditors. I accept that as a matter of fact:
(a) the process to maximise the proceeds from the sale of Exuma's business as a going concern will take until 15 September 2003;
(b) until the outcome of the sale process is known, the administrators cannot assess the financial position of Exuma in any detail or predict what the likely return to
(Page 11)
- Exuma's creditors may be, and, so, they cannot prepare the report specified in s 439A(4) of the Act or the statement specified in s 439A(4)(b) of the Act, each of which is required to be submitted to the meeting of creditors that must be convened under s 439A of the Act.
29 It is clear that Mr Herbert has proposed the 120-day extension having made a careful estimate of what work the administrators must do and with an understanding that he ought not have to apply to the court for a further extension of the period.
30 I also accept, on the face of the evidence before me, that none of Exuma's creditors will be prejudiced by reason of the order sought in this application and, indeed, that the interests of all the creditors dealing with the company are likely to be maximised by making the order sought.
31 For these reasons the convening period should be extended by 120 days until 1 October 2003.
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