IMO Applied Investments Pty Ltd
[2012] VSC 499
•1 October 2012
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2012 5512
IN THE MATTER of APPLIED INVESTMENTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 005 601 641) (AND OTHER COMPANIES ACCORDING TO THE ATTACHED SCHEDULE OF COMPANIES)
| STEPHEN JOHN MICHELL AND DAVID CHARLES QUIN in their capacities as joint and several administrators of Applied Investments Pty Ltd (administrators appointed) (ACN 005 601 641) (and other companies according to the attached schedule of companies) | Plaintiffs |
---
JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 October 2012 | |
DATE OF JUDGMENT: | 1 October 2012 | |
CASE MAY BE CITED AS: | IMO Applied Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 499 | (Revised 12 October 2012) |
---
CORPORATIONS – External administration – Application by administrators pursuant to Section 439A(6) and Section 447A(1) for extension of the convening periods for meetings of group of companies to be held under Section 439A – Applications granted.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S.B. Rosewarne | Allens |
HIS HONOUR:
The plaintiffs (“the administrators”) are the administrators of eight companies in the Applied Investments Pty Ltd Group which are identified in the schedule attached to the originating process (“the Companies”). They make application pursuant to s 439A(6) and s 447A(1) of the Corporations Act2001 (Cth) (“the Act”) for an order extending the period for convening the second meeting of creditors for each of the companies in administration. The administrators also seek orders pursuant to s 447A(1) of the Act that the second meeting of creditors for each of the companies may be convened and held at any time during or within five business days after the end of the convening period, as extended by the Court, notwithstanding the provisions of s 439A(2) of the Act.
The application is supported by an affidavit of one of the administrators, Mr Stephen Michell. Mr Michell deposes that on 6 September 2012 he and his co‑appointee Mr Quin were appointed by the sole director of the companies, Mr Ronald Scott, as joint and several administrators pursuant to s 436A of the Act.
The businesses of the companies are conducted under the name Applied Climate Control. Prior to the administrators’ appointment, the companies employed 30 full time staff. They operate from leased premises in New South Wales, Queensland, South Australia, Western Australia and Victoria.
The companies are a major supplier of emergency relief equipment to air conditioning contractors, flood recovery operators, facility managers, building managers and maintenance departments. The companies have an extensive range of products for hire, including portable air conditioners, chillers, fans and portable dehumidifiers. In addition, the companies offer a similar range of products for sale, including air curtains, dehumidifiers and portable air conditioning units. They also conduct a distribution network for air curtains, electric heaters, dehumidification heat pumps and portable air conditioners.
In paragraph 9 of his affidavit, Mr Michell details the various tasks which the administrators had performed since their appointment. These include the usual tasks, such as completion of relevant statutory lodgements and notifications, as well as securing premises from which the companies operate.
Since their appointment, the administrators have responded to various queries from creditors, employees, financiers and landlords of the companies. Each landlord of premises from which the companies operate has been contacted and arrangements have been made for the companies to remain in possession of each site in the short term. The administrators have confirmed to each landlord that they accept liability to pay rent and outgoings for the premises commencing 14 September 2012.
All of the 30 employees of the companies have been stood down without pay. The administrators have also written to all the employees advising them formally of their appointment and that the employees’ entitlements may be protected under the Federal Government GEERS program. Some staff have been engaged to produce information, in particular as to the location of some 9,000 items of equipment that are currently hired to third parties. That equipment is located all around Australia.
In addition, the administrators have commenced investigations into the financial affairs of the companies, have commenced the sale process of the businesses conducted by the companies and have convened and held the first meeting of creditors.
Following their appointment, the administrators have concluded that the companies do not have sufficient funds to continue their business operations. It was determined to suspend trading of the businesses with a view to selling them as soon as possible.
Applied Investments Pty Ltd is the holding company of the other companies. It has total secured creditors to the value of $6,344,041, it owes priority or employee entitlements in the amount of $143,402 and has unsecured creditors totalling $831,717.71. Applied Investments Pty Ltd is the tenant of each of the premises from which the companies operate, with the exception of premises at Radio Drive, Dandenong (which is leased by Applied Climate (Vic) Pty Ltd). It is also a party to several leases relating to air conditioning equipment that it offers for hire and is an unsecured creditor of the other companies.
The financial position of each of the other members of the group is detailed in the affidavit of Mr Michell. Each company has total secured creditors of approximately $3 million under a joint and several debt owing to National Australia Bank (“NAB”) and various amounts owing to unsecured creditors, including employee entitlements.
The first meetings of creditors of the companies were conducted concurrently on 17 September 2012. A quorum was not reached in at the meeting for one of the companies, Applied Climate Control (NT) Pty Ltd. The appointment of joint and several administrators was confirmed at other first meetings at which quora were attained. A number of creditors attended the first meeting of Applied Investments Pty Ltd including a secured creditor, Mylar Pty Ltd, the Deputy Commissioner of Taxation and representatives of the employees. The creditors at the first meetings in respect of the other companies comprised the Commissioner of Taxation together with one or more of the employees of that company. No committee of creditors was formed by the creditors of any of the companies.
The affidavit of Mr Michell details the progress which has taken place so far in regard to the investigation of the companies’ affairs and the proposal to sell the business as a going concern. The administrators have determined by reason of their investigations to date that the companies may have been insolvent for some time prior to entering administration. The director, Mr Scott, may be held liable for debts incurred whilst the company was trading insolvent. It also appears that a number of transactions have been made to related entities, some of which appear to be uncommercial in nature.
Because of the illness of Mr Scott, it has not been possible for a Report as to Affairs to be completed in respect of each of the companies and this has hamstrung the progress of the administrations. Because of this, the administrators say that they are not in a position to complete their role in investigating the affairs of the company as s 438A of the Act requires so that a report which would comply with s 439A(4) of the Act can be completed.
The plaintiffs have identified a number of potentially voidable transactions with related entities but there is a lack of documentation relating to those transactions.
After their appointment, the administrators have assessed whether the business should be sold as a going concern or the assets of the companies should be auctioned. It has been determined that the process most likely to maximise the return to creditors will be a sale of the business as a whole rather than an individual asset sale. Advertisements have been placed in the press to progress such a sale and expressions of interest have been received. Four written offers have been made to purchase the business or a substantial part of it, including stock, plant and equipment, office furniture and intellectual property. Although a Deed of Company Arrangement was proposed by one interested party, this proposal has been subsequently determined by that party not to be viable. Discussions and negotiations have been ongoing with persons who have expressed an interest in purchasing the business.
In the administrations of the Companies, s 439A(6) of the Act operates such that the convening period for the second meeting of creditors of the company will expire on Thursday, 4 October 2012 unless extended by the Court. Mr Michell is of the opinion that an extension of the convening period for each of the companies to Thursday, 15 November 2012 is in the best interests of the creditors of the companies. His reasons for expressing this view include that the s 439A Report to Creditors would not presently be able to be completed. Such a report would ordinarily detail, amongst other things, information relating to the assets and the auction realisation values, the sale process including the details of parties in negotiations to purchase the business and the return to creditors. Mr Michell also states that if this information should be disclosed to any parties, including those parties that have made offers while negotiations are being conducted, it may prejudice the sale process and potentially the possibility of attaining the highest price for the sale of the business.
It is said that an extension of the convening period and the associated statutory moratorium will assist the administrators in maintaining the status quo while they pursue the completion of the sale of the business as a whole as opposed to selling the individual assets of the business by way of auction. This is particularly the case where offers to purchase the business contemplate the assignment of any agreements, including various equipment leases and leases of the premises. If the companies should be placed into liquidation, it may be necessary to disclaim the leases from which they operate.
Mr Michell considers that, whilst it is unlikely that the unsecured creditors of the companies will receive any return from the sale of the business, a sale of the business as a whole is in the best interests of unsecured creditors by reason that it is likely to achieve a higher, more certain sale price and reduce the amount which the secured creditor may prove in a winding up. This will enhance return to the unsecured creditors from any other funds that ultimately may become available pursuant to, for example, voidable transaction claims under Part 5.7B of the Act. It may also reduce or prevent claims by leaseholders arising from the termination or breach of their leases, again improving the return to unsecured creditors and keep open the possibility that the employees of the companies will be retained by the incoming purchaser.
Mr Michell concludes that he believes that the request for the extension of the convening period will provide the administrators with sufficient time within which to complete the outstanding tasks referred to in the Report to Creditors in compliance with the obligations under the Act. He deposes that if the matters are able to be finalised in a shorter period, the administrators will convene the second meeting of creditors sooner. However, if the convening period is not extended by the Court and the second meeting of creditors is required to be held, Mr Michell would recommend that the meeting be adjourned until the matters referred to in the affidavit can be completed. This would result in it being necessary to convene two meetings for eight separate entities, at a cost he estimates of approximately $20,000.
Mr Michell states that on 26 September 2012, the creditors of the companies were circularised stating that the plaintiffs intended to make the current application to the Court. The circular was also provided to landlords of the premises.
The major secured creditor, NAB, has no objection to the application for an extension. The administrators also received an email from a secured creditor Mylar Investments, confirming that it has no objection to the proposed extension. A member of Mr Michell’s staff, Mr Pulverman, has told him and he believes that the Australian Taxation Office, one of the major unsecured creditors of the companies, has indicated that the DCT was in support of the application. No creditors have given notice of an objection to an extension of the convening period.
In these types of applications, the Court is required to balance in the interests of the creditors on the one hand, with those affected by the extension of the moratorium period, most obviously the lessors of the business. The extension sought is a relatively short one, six weeks.
The principles to be applied in these types of transactions were comprehensively considered by Austin J in Re Riviera Group Pty Ltd.[1] The principles of particular significance in the context of these administrations are the size and scope of the business, the complicated corporate group structure, the lack of access to corporate financial records, the time needed to enable an orderly disposal of assets, the time required for a thorough assessment of a proposal for a Deed of Company Arrangement and for allowing for the sale of the business as a going concern and, more generally, additional time to enhance the return for unsecured creditors.
[1](2009) 72 ACSR 352, especially at [13].
A consideration of these factors in the circumstances of the present case leads me to conclude that, on the evidence before the Court, it is appropriate to grant an extension of the convening period. As Austin J observes as paragraph 14:
The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category) the Court tends to grant an extension and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the Court is satisfied that the administrator’s estimate of time has a reasonable basis.
In my view, the matters put on behalf of the administrators in support of the application outweigh the fact that the statutory moratorium may adversely affect the interests of some creditors, particularly owners or lessors of properties used by the companies. While the continuation of administration will impact on them, these creditors’ interests are largely protected. By operation of s 443B of the Act, the administrators are liable to pay rent to the landlords in relation to the premises that the companies continue to use or occupy. Should a landlord wish to re-enter its premises, they can apply for leave to take possession under s 440C of the Act. All creditors will be notified of the extension of the convening period. The orders sought by the administrators will provide that persons with a sufficient interest may apply to vary the extension order.
In addition, paragraph 2 of the originating process seeks a so-called Daisytek order which will allow the meeting of creditors to be convened earlier, in five business days if this is considered appropriate. Such an order was made in Re Daisytek Australia Pty Ltd[2] and it is appropriate to make such an order in this instance.
[2](2003) 45 ACSR 446.
On 1 October 2012 I made orders as follows:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the period within which the plaintiffs must convene the second meeting of the creditors of the companies according to the attached schedule of companies (Companies) be extended until midnight on 21 November 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 second meeting of creditors of each of the Companies required by s 439A of the Act may be convened and held at any time, or within 5 business days after the end of, the convening period as extended by the Court under order 1 above, notwithstanding the provisions of s 439A(2) of the Act.
3.The plaintiffs (or their solicitors) inform the creditors of the Companies and landlords of any premises occupied by the Companies of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of these orders.
4.Liberty to apply is granted to any person who can demonstrate sufficient interest to vary or discharge order 1 or order 2 above on not less than 72 hours notice to the plaintiffs.
5.The plaintiffs have liberty to apply for any purpose connected with the administration of the Companies, including but not limited to seeking a further extension of the convening period, prior to 12 November 2012.
6.The costs of and incidental to this application be costs and expenses in the administration of and be paid out of the assets of the Companies.
---
SCHEDULE OF COMPANIES
| Applied Investments Pty Ltd (Administrators Appointed) | ACN 005 601 641 |
| Applied Climate Control Pty Ltd (Administrators Appointed) | ACN 006 274 308 |
| Applied Climate Control (Vic) Pty Ltd (Administrators Appointed) | ACN 081 048 277 |
| Applied Climate Control (Sth Aust) Pty Ltd (Administrators Appointed) | ACN 085 778 516 |
| Applied Climate Control (NSW) Pty Ltd (Administrators Appointed) | ACN 082 730 390 |
| Applied Climate Control (Qld) Pty Ltd (Administrators Appointed) | ACN 083 435 330 |
| Applied Climate Control (WA) Pty Ltd (Administrators Appointed) | ACN 089 135 204 |
| Applied Climate Control (NT) Pty Ltd (Administrators Appointed) | ACN 070 048 994 |
---
0
2
0