IMO Aegis Correctional Partnership Pty Ltd

[2012] VSC 310

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT
CORPORATIONS LIST

S CI 2012 3855

IN THE MATTER OF AN APPLICATION UNDER SECTION 439A(6) CORPORATIONS ACT

IN THE MATTER OF AEGIS CORRECTIONAL PARTNERSHIP PTY LTD (ACN 138 166 873) (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) and AEGIS SECURITISATION NOMINEES PTY LTD (ACN 139 845 837) (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)

TIMOTHY BRYCE NORMAN AND SALVATORE ALGERI in their capacity as joint and several administrators of Aegis Correctional Partnership Pty Ltd (ACN 138 166 873) (receivers and managers appointed) (administrators appointed) Plaintiffs

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JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	9 July 2012
DATE OF REASONS:	27 July 2012
CASE MAY BE CITED AS:	IMO Aegis Correctional Partnership Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VSC 310	Revised 2 August 2012

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CORPORATIONS – External administration under Part 5.3A of Corporations Act 2001 - Application for extension of convening period – Corporations Act 2001 (Cth), s 439A, 447A – Extension granted and order made under s 447A of the Act permitting meetings to be held earlier than the period of five business days following expiry of the extended convening period.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr H Austin	Mills Oakley Lawyers
For the Receivers and Managers	Ms L Papaelia	King & Wood Mallesons

HIS HONOUR:

1. The plaintiffs make application under s 439A(6) and s 447A of the Corporations Act 2001 (Cth) (“the Act”) for an extension of the convening period prescribed by s 439A(5) of the Act.

1. On 13 June 2012, the plaintiffs were appointed as joint and several administrators of AEGIS Correctional Partnership Pty Ltd (“Project Co”) and AEGIS Securitisation Nominees Pty Ltd (“Securitisation”) (collectively “the companies”) pursuant to s 436A of the Act. On the same day, Daniel Bryant and David McEvoy were appointed by CBA Corporate Services (New South Wales) Pty Ltd as receivers and managers of Project Co and Securitisation pursuant to registered charges.

1. The plaintiffs seek an extension of 90 days of the convening period, that is, to 8 October 2012.  If such an extension is not granted, the convening period for Project Co and Securitisation will expire on 10 July 2012. 

1. On 9 July 2012, I made orders pursuant to s 439A(6) extending the convening periods to the date sought and I now provide my reasons for doing so.

1. Prior to the appointment of the administrators and receivers, the companies were participants in a private/public partnership with the State of Victoria for the construction and maintenance of a new prison near Ararat, Victoria (“the Project”).  The role of the companies was to construct the new facility on State owned land and, upon completion of the Project, to provide prison services for a period of 25 years. 

1. The finance for the project was provided by a syndicate of three banks being the Commonwealth Bank of Australia, Portigon and Adelaide and Bendigo Bank.  Those lenders are now owed in excess of $150 million. 

1. At the time of the appointment of the administrators, the Project was only partly constructed.  All construction work has ceased and has not recommenced. 

1. The companies both have two equal shareholders who are in turn ultimately owned respectively by Bilfinger Berger AG, a German corporation and Commonwealth Bank of Australia Limited.  Securitisation was incorporated to provide, in its capacity as trustee of the Securitisation Trust, Project Co with the funding required to complete the construction. 

1. One of the plaintiff administrators, Mr Timothy Norman, has sworn an affidavit in support of this application on 6 July 2012.  He states that his investigations into the affairs of the companies indicate that, in 2011 and early 2012, there were substantial delays and cost overruns on the Project, together with a number of defaults on the part of the companies, including, among other things, the agreement pursuant to which the Project was being undertaken. 

1. Since their appointment as administrators, the plaintiffs and their staff have completed a number of tasks which are detailed in paragraph 21 of Mr Norman’s affidavit.  Those tasks include liaising with the receivers, conducting the first meetings of creditors of the companies, obtaining reports as to affairs and dealing with Bilfinger in order to obtain access to the companies’ books and records which are held on Bilfinger’s computer servers. 

1. The plaintiffs have also commenced preliminary investigations into the affairs of the companies, including identification of their assets, the cause of the insolvency of the companies and possible voidable transactions and insolvent trading. 

1. The secured creditors have lodged an informal proof of debt for $199,249.482 in relation to each of the companies.  The reports as to affairs which have been provided indicate that Project Co has 12 unsecured creditors who claim to be owed a total of $148,012,892  The report as to affairs for Securitisation states that it was an unsecured creditor of Project Co in the amount of $143,934,112 however, this amount includes the debt owed to the secured creditors.  Securitisation has two unsecured lenders who claim to be owed approximately $2.5 million, both of whom are related parties and may to some degree at least be partially secured.

1. On 22 June 2012, Mr Norman conducted concurrent first meetings of the companies at which their appointment as administrators was confirmed. Committees of creditors were not formed. 

1. Mr Norman indicates that the receivers have indicated to him that they have been in discussions with a number of stake holders in relation to the future of the project.  On 4 July 2012, one of the receivers, Mr Bryant, wrote to the administrators indicating his belief that the most efficient way for the project to be progressed to completion may be for the companies to continue their previous role with some recapitalisation.  Mr Bryant states that the companies are party to a number of contracts which are central to the project and which would require renegotiation in the event of a wholesale restructure.  He says that should a solution be proposed which involves an ongoing role for the companies, it is likely that the receivers, the lenders or another stakeholder will propose a deed of company arrangement for consideration by the creditors of the companies.  If the companies were placed into liquidation at this point, that flexibility would be lost. 

1. Mr Bryant states that the receivers and managers support the plaintiffs’ proposal to seek to have the convening period for the second meeting of creditors extended.  He deposes that he is not aware of any stakeholder who might be prejudiced by such an extension and that each lender, i.e. the appointors of the receivers, have informed him that it supports the administrators’ proposal. 

1. Mr Norman cites the reasons for this application as being to (i) enable the completion of investigations of the companies’ financial positions, (ii) review the outcome of the receivers negotiations with stakeholders, (iii) retain the option of recapitalising the companies by a deed of company arrangement if this is in the best interests of creditors and (iv) be in a position to provide the requisite report under s 439A(4) which contains the required opinions as to the three options referred to in that sub‑section. Mr Norman states that he does not consider that he is presently in a position to prepare a report which adequately informs the creditors about the options available for the future of the companies or to hold a meeting of creditors to decide on the future of the companies. He says that if the convening period is not extended and the second meeting of creditors is held, he would recommend to the meeting that it be adjourned. This would result in there having to be two meetings rather than one, with the result that substantial expenditure would be incurred in convening the meeting only for it to be adjourned for a further meeting at a cost of approximately $15,000. In any event, he observes, the maximum period which a meeting of creditors could be adjourned once convened is 60 days. This would not allow sufficient time to complete the tasks which are required.

1. As I have indicated, the lenders and the receivers support the application for an extension of the convening period; there are no lessors of property who would be affected by the extension of the moratorium period which attends the granting of this application.

1. A number of recent authorities have summarised the principles to be applied in these types of applications.  In Algeri; Re Colorado Group Limited,[1] Judd J observed:[2]

   [1][2011] VSC 260.

   [2]Ibid, [24]-[25] (citation omitted).

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, Austin J noted that extensions had been granted in cases falling within the following broad categories:

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.

1. If the above factors are applied to the circumstances of the administrations of these companies, it is clear that there are substantial grounds to support an extension of time for the period sought by the plaintiffs. The plaintiffs’ application is supported by the receivers who are presently in negotiations with stakeholders which may ultimately culminate in a proposal for a deed of company arrangement. The plaintiffs, who are experienced administrators, have expressed the opinion that an extension will allow them sufficient time within which to complete the outstanding tasks required to be undertaken and then report to creditors in a way that is in compliance with their obligations under Part 5.3A of the Act and to maximise the prospects of reaching the best outcome for the creditors. Mr Norman states that the plaintiffs are currently not able to prepare and circulate a report which would comply with their obligations under s 439A(4) of the Act. The grant of an extension, he states, will avoid the unnecessary cost and expense of adjourned meetings.

1. In addition, the administrators also seek an order under s 447A(1) which allows them to hold the second creditors meeting at any time within the convening period as extended. If it subsequently transpires that a shorter period of time is required than that currently anticipated, the second creditors meeting may be held without any unnecessary delay. I consider that it is appropriate to make such an order in these circumstances. An order of this type was made by Kenny J in Re Midas Australia Pty Ltd and by Lindgren J in Re Daisytek Australia Pty Ltd.[3]

   [3](2003) 45 ACSR 446.

1. I will also make orders of the type made by White J in Carter vGlobal Food Equipment Pty Ltd[4]  that the creditors of the companies be given notice of these orders and that liberty to apply be granted to any person with sufficient interest to apply to the Court to vary them.

   [4](2007) 25 ACLC 1173.

1. For completeness, I set out  the orders that I made on 9 July 2012. 

1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening period defined in s 439A(5)(b) of the Act in respect of AEGIS Correctional Partnership Pty Ltd (ACN 138 166 873) (Receivers and Managers Appointed) (Administrators Appointed) and AEGIS Securitisation Nominees Pty Ltd (ACN 139 845 837) (Receivers and Managers Appointed) (Administrators Appointed) (Companies) be extended to midnight on 8 October 2012.

2.Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to each of the Companies as if the meeting of creditors of each of the Companies required by s 439A of the Act may be held at any time during the period comprising the convening period as extended by paragraph 1 above and the period of five business days thereafter, notwithstanding the provisions of s 439A(2) of the Act.

3.Exhibit “TBN-8” to the affidavit of Timothy Bryce Norman sworn on 6 July 2012 in support of this application be kept confidential and be retained on the Court file in a sealed envelope marked “Confidential Not to be Opened Without the Order of a Judge or an Associate Judge of this Court”.

4.Liberty is granted to the Plaintiffs to apply for a further extension of the convening period referred to in paragraph 1 above any time prior to 8 October 2012. 

5.Any person having a sufficient interest may apply to the Court for an order discharging or varying any of the orders made in paragraphs 1 or 2 above.

6.By 16 July 2012, the Plaintiffs give notice of these Orders to the Companies’ Creditors by:

uploading a copy of this Order onto the Deloitte website; and

sending a circular letter to each of the Companies’ Creditors (by email in respect of those Creditors who have informed the Plaintiffs that their email is their preferred method of communication, and by post in respect of all other known Creditors) informing them of the substance of these Orders.

7.The Plaintiffs’ costs of the application are costs in the administration of the Companies.