IMO Promains Pty Ltd
[2014] VSC 73
•7 March 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2014 937
| IN THE MATTER of PROMAINS PTY LTD (ACN 105 124 141) and PROMAINS NOMINEES PTY LTD (IN ITS OWN CAPACITY AND and MICRON PIPELINES PTY LTD (ACN 123 839 501) and PROMAINS (QLD) PTY LTD (ACN 109 630 908) LUKE CHRISTOPHER TARGETT AND RACHEL ELIZABETH BURDETT-BAKER (in their capacities as Administrators of Promains Pty Ltd (ACN 105 124 141) (Receivers And Managers Appointed) (Administrators Appointed), Promains Nominees Pty Ltd (in its own capacity and as trustee for the Promains Unit Trust) (ACN 097 116 366) |
| Plaintiffs |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 March 2014 | |
DATE OF RULING: | 7 March 2014 | |
CASE MAY BE CITED AS: | IMO Promains Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 73 | |
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CORPORATIONS — External administration — Group of companies in administration under Part 5.3A of the Corporations Act 2001 (Cth) — Application for extension of convening period of second meetings of creditors required to be held under s 439A of the Corporations Act 2001 (Cth) — Receivers and managers appointed on same day as administrators — Time required to negotiate possible sale by receivers and managers of businesses conducted by group — Administrators not in receipt of information necessary to compile report to creditors required for second meeting by s 439A of the Corporations Act 2001 (Cth) — Extension of 3 months granted — Re Riviera Group Pty Ltd (2009) 72 ACSR 352 and Algeri; Re Colorado Group Limited [2011] VSC 260 referred to.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T. I. Purdey | Hall & Wilcox |
HIS HONOUR:
On 5 February 2014, the plaintiffs (“the Administrators”) were appointed as administrators of Promains Pty Ltd (“Promains”), Promains Nominees Pty Ltd (“Nominees”), Micron Pipelines Pty Ltd (“Micron Pipelines”) and Promains (Qld) Pty Ltd (“Promains (Qld)”) (collectively “the Group”) pursuant to s 436C of the Corporations Act 2001 (Cth) (“the Act”), by Westpac exercising its rights under the general security agreements it held over the Group. On the same day, Westpac exercised its rights under the security agreements to appoint Mr Matthew Burns and Mr Andrew Hewitt as joint and several receivers and managers of the Group.
On 3 March 2014, the administrators filed an originating process seeking an extension of the convening period for the second meetings of creditors under s 439A(6) of the Act together with certain ancillary orders. The administrators also sought orders pursuant to s 447A(1) of the Act modifying the operation of the provisions dealing with the convening of the second meeting of creditors. If the extension were not granted the convening period for the second meetings of creditors would expire on 5 March 2014.
On 3 March 2014, I made orders of the type proposed by the administrators and indicated that I would publish my reasons for doing so. These are my reasons.
The application is supported by an affidavit of one of the administrators, Rachel Elizabeth Burdett-Baker. The receivers and managers support the application and one of them, Mr Byrnes, has sworn an affidavit on 3 March 2014 that confirms many of the matters deposed to by Ms Burdett-Baker.
The receivers presently control the business and assets of the Group and are making all decisions regarding the continued trading of the business and the realisation of assets. They are presently in the process of marketing the businesses of the Group with a view to selling them as a going concern. The administrators are limited in their ability to form a view about the prospects of the Group because any proposed deed of company arrangement would depend upon the approach of the receivers in realising the assets of the Group and the sale prices received for the assets.
The Group carries on the business of manufacturing, distributing and installing pipe systems for water, sewer, mining and large infrastructure projects. At the date of the appointment of the administrators and the receivers, it had approximately 60 employees, of which 25 were engaged by Promains, 10 by Promains (Qld) and 25 by Micron Pipelines. None of those employees have yet been retrenched, however several of them have resigned.
Promains and Micron Pipelines lease premises at Link Drive, Campbellfield in Victoria from C4 Developments Pty Ltd on a ten-year lease. Those companies also lease adjoining premises from Top Cat Installations Pty Ltd under a monthly tenancy. Promains (Qld) leases premises at Narangba in Queensland from Graham and Peta Walker under a five-year lease. Promains also leases premises at Moorebank, NSW from several parties under a monthly tenancy. The receivers are meeting the Group’s rental obligations. They frankly state that one of the purposes of seeking the extension is to obtain the benefit of the attendant moratorium imposed on the landlords that will prevent them from retaking possession of the leased premises. It is said that should the landlords be allowed to do this, it could compromise the proposed sale of the Group’s business as a going concern.
Unfortunately none of the landlords identified have been advised of the making of this application. Because their interests are affected by the extension of the convening period by reason of the moratorium that prevents those landlords from taking possession of the premises, I have made an order that they be informed of the making of these orders within seven days, and have granted liberty to apply to them and to other persons affected by the making of the orders so that they may bring applications to set the orders aside if they wish to take this course.
The Group has finance facilities from the Westpac Group, which are secured by the general security agreements to which I have referred. Leading up to the appointment of the administrators and the receivers there were a number of defaults by the Group under the security agreements including financial defaults, breaches of financial covenants and the resignation of the sole director of the companies, John Robin McLellan.
As at 5 February 2014, the Group was indebted to Westpac for over $28 million. Because of the defaults, Westpac appointed the administrators and receivers.
In her affidavit, Ms Burdett-Baker states that she is a partner of the accounting firm BDO with 20 years’ specialist experience in restructuring, risk management and insolvency. Ms Burdett-Baker is an official liquidator and a registered liquidator. In her affidavit, she states that most of the books and records of the Group, to the extent that they are available, are currently in the possession of the receivers. She details the financial position of the Group as it is presently known. The assets include cash at bank of approximately $685,000, items of plant and equipment for use in the manufacture and distribution arms of the Group, stock to the value of approximately $4 million, debtors of approximately $4 million, and various intellectual property rights.
The administrators were provided with the MYOB accounting files for the Group on 27 February 2014 and have started but have not yet completed reviewing them. To the extent that she is able, Ms Burdett-Baker details the liability position of each member of the Group. Each is indebted to Westpac for at least $28 million and there are significant liabilities owed by each of them to unsecured external and related-party creditors. Westpac supports the application for the extension of the convening period, and this is evidenced by a letter from it of 3 March 2014.
The consolidated accounts for the Group indicate that of recent times there has been a sharp decline in financial position. As at 30 June 2013, the Group had underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of $1.234 million, but for the financial year to 31 January 2014, there is an EBITDA deficiency of $1.876 million. The administrators are currently investigating how this could have come about.
Ms Burdett-Baker details in her affidavit the tasks that the receivers have, according to the information she has been given, undertaken to date. Those tasks are tasks that would typically be carried out by the administrators if receivers were not in office. She also details the tasks that the administrators have undertaken to date, including the holding of the first meeting of creditors of the group, collection of records, attending to enquiries raised by employees and other such matters.
Ms Burdett-Baker has been informed by the receivers that they are currently undertaking a process by which it is anticipated that the business of the group may be sold as a going concern. To that end, the receivers advertised the business for sale on 11 February 2014. As a result of those advertisements, 31 non-disclosure agreements were provided to interested parties, followed by the distribution of an information brief to 23 interested parties on 12 February 2014. On 13 February 2014, the Group’s business and assets were advertised for sale in The Age newspaper. A limited due diligence period commenced on 19 February and is still underway. Ms Burdett-Baker has been informed by the receivers that they were in negotiations with a number of parties in respect of the potential sale of the business and assets.
The administrators seek an extension of three months, that is, until 4 July 2014, to the date by which the second meeting of creditors must be convened. This will enable the receivers to complete negotiations and the finalisation of the sale of the business, which it is said will be completed by approximately 12 March 2014. The settling of any such contract would take approximately one week after that. In addition, time is required to enable any purchaser to remove the assets from the leased premises, which it is estimated would take approximately 90 days. A further allowance of two weeks is made for unanticipated delays.
Ms Burdett-Baker was informed by the receivers that if the sale of the business does not eventuate, they will require approximately 90 days from 5 March to remove the assets from the leased premises and conduct an orderly sale of them.
Ms Burdett-Baker also states that during the additional period, the administrators will explore whether any party will consider proposing a deed of company arrangement. If one is proposed, it will be necessary to negotiate its terms with the principal creditors of the Group and draft the deed to reflect the parties’ agreement. In addition, it will be necessary to prepare a report of creditors under s 439A of the Act for the purposes of consideration at the second meeting of creditors.
Until the sale process has progressed and alternative realisation strategies have been explored in the receivers’ sale negotiations, the administrators do not know which assets (if any) will remain once the proceeds are applied in satisfaction of the Westpac debt. In this regard, the sale process is presently confidential and the administrators do not know the estimated surplus, if any, which will be available after application of the sale proceeds to the Westpac debt. It is therefore not possible for the administrators to assess the potential return to creditors if the sale of business proceeds or, alternatively, if the Group were wound up. In such circumstances, it is not possible for the administrators to proffer the necessary opinion required for a report under s 439A of the Act.
Ms Burdett-Baker contends that an extension of the convening period will give both the administrators and receivers time to facilitate the sale and relocation of the business and assets, give flexibility in the sale process and, if a sale should not be concluded, to investigate the possibility of whether a proposal for a deed of company arrangement is available to be put to creditors or to provide an orderly wind down and sale of the assets. She states this will maximise the amount realised from the assets for the benefit of the creditors.
Ms Burdett-Baker states that the receivers have informed her that the prospects of recovering Westpac’s secured debt will be maximised if the business is sold as a going concern, and that the extension of the convening period will not prejudice creditors, lessors or members of the Group. It is said that by continuing to trade the business with a view to concluding the sale of the business and assets, the receivers would be dealing on a day-to-day basis with suppliers that owe debts to the Group, and this would facilitate swift and a cost-effective collection of its debts. If the business is sold as a going concern, some employees of the Group are likely to be retained. In addition, the existing leases of the premises occupied by the Group will probably be assigned to the successful purchaser or new leases will be entered into with the lessors by the successful purchaser on terms that involve the purchaser accepting some or all of the outstanding liability of the Group to the lessors under the leases.
In his affidavit, Mr Byrnes indicates that the receivers support the application for the orders being sought by the administrators. Mr Byrnes confirms the matters referred to by Ms Burdett-Baker in her affidavit insofar as they refer to the receivers’ involvement. He states that the receivers have paid rental payments to lessors of the premises occupied by the Group. Further, suppliers are continuing to be paid in respect of ongoing supply to the business of the Group.
Mr Byrnes states that as at the date of swearing his affidavit there are a number of parties interested in the purchase of the assets and business of the Group. He deposes that given the state of the Group’s financial records, the variety of claims that have been made against the Group since the receiver’s appointment, and the fact that the marketing and sale process has not yet been completed, the receivers are not yet in a position to determine what sale price will be achieved and what the return to creditors might be.
Mr Byrnes confirms that if the business is sold as a going concern it is likely that a greater return will flow to the creditors and that some of the existing employees will be retained as employees of the business. He also confirms that if there is a sale as a going concern it is likely to benefit employees of the Group who may obtain continued employment, the lessors whose leases are likely to be assigned to the purchaser of the business, and trade suppliers, who are continuing to supply to the group during the trade on period and who may be able to continue to supply the business if a sale occurs.
Mr Byrnes considers that if the orders sought are not made, there is a risk that the landlords of the premises from which the Group operates may terminate these leases. If that should occur, there is a risk that any sale of the business and assets as a going concern would be compromised.
The principles to be applied in considering whether an extension should be granted have been summarised in several authorities. In one of these, Algeri; Re Colorado Group Limited,[1] Judd J observed:
[1][2011] VSC 260 (“Colorado”).
[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 Capital Partners 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 by Walker (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-Aire Security 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 Scottsdale Homes No Pty Ltd (No 2) [2009] FCA 190; Re Fitzgerald; Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; Re Vouris; Marrickville Bowling and Recreation Club Ltd [2008] FCA 622.
[26] Applying all of these principles to the facts of this case, I am of the opinion that there are substantial grounds to support an extension of time for the period it sought by the administrators. These are:
(1)The application is supported by the receivers, who have commenced the sale process, and who depose that they require up to nine months within which to complete that process so as to provide the best possible outcome to stakeholders including employees and suppliers. The process may also promote a scheme of company arrangement.
(2)The administrators have expressed the opinion that it is in the best interest of the creditors, including employees and suppliers, that the convening period be extended for a period of up to nine months.
(3) The administrators are currently unable to prepare and circulate a meaningful report to creditors so as to comply with their obligations under s 439A(4) of the Act. Such a report is required to enable the creditors to be adequately informed about the options for the future of the Group. The preparation of such a report, in the absence of the completion of the sale process, would be premature.
(4) A reasonable extension will avoid unnecessary cost and expense of adjourned meetings.
(5)If the sale process is successful, it is very likely that many of the employees will continue in their employment.
(6) While the receivers continue to operate the businesses in order to maintain their value for the purpose of the sale process they are acquiring goods and services from suppliers who comprise a large part of the unsecured creditors.
(7)The extension of the convening period, permitting the sale process to run its course, will facilitate the exploration of a possible recapitalisation of the group by way of a deed of company arrangement.
The present case has close similarities to those features referred to by Judd J at paragraph 26 above. The reasons he gave for concluding that there were substantial grounds in that case to support an extension of time for the period sought by the administrators included:
(i) The application was supported (as it is here) by the receivers, who had commenced the sale process and who had stated that they required a lengthy period within which to complete the process so as to provide the best possible outcome to stakeholders;
(ii) The administrators had expressed the opinion in that case (as here) that it was in the best interest of the creditors including employees and suppliers, that the convening period be extended;
(iii) As is the case here, the administrators were unable to prepare a meaningful report to creditors so as to comply with their obligations under s 439A(4) of the Act, and the preparation of such a report in the absence of the completion of the sale process would be premature;
(iv) If the sale process were successful, some employees would continue in their employment.
As in Colorado, I consider that the evidence in this case establishes that there are substantial grounds to grant the extension sought. It is a relatively modest extension compared with some that are sought by administrators in complex administrations of this sort.
The plaintiff’s application is supported by the receivers, who are presently in negotiations with parties who may buy the business of the Group as a going concern. Ms Burdett-Baker is an experienced insolvency practitioner and has expressed the opinion that the extension sought will allow sufficient time for the receivers and managers to maximise the prospects of reaching the best outcome for the creditors.
In addition, the administrators seek an order under s 447A allowing them to hold a second creditors’ meeting at any time within the convening period as extended. This type of order, called a Daisytek order, is commonly made in applications of this sort, and it is appropriate that it be made in this instance.[2]
[2]See Colorado at [29].
In addition, as mentioned above, I make orders that the lessors of the premises be formally notified of the making of these orders and of their ability, if so advised, to make application to vary them.
For completion, the orders that I made on 3 March 2014 are as follows:
1. Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (“the Act”), that the convening period in respect of each of Promains Pty Ltd (ACN 105 124 141) (Receivers and Managers Appointed) (Administrators Appointed), Promains Nominees Pty Ltd (in its own capacity and as trustee for the Promains Unit Trust) (ACN 097 116 366) (Receivers and Managers Appointed) (Administrators Appointed), Micron Pipelines Pty Ltd (ACN 123 839 501) (Receivers and Managers Appointed) (Administrators Appointed) and Promains (QLD) Pty Ltd (ACN 109 630 908) (Receivers and Managers Appointed) (Administrators Appointed) (“the Promains Group”) be extended to 4 July 2014.
2. Pursuant to s 447A of the Act, that Part 5.3A of the Act is to operate in relation to the administration of each member of the Promains Group as if the second meeting of creditors required by s 439A of the Act may be convened and held at any time during the period as extended under order 1 above and the period of five business days thereafter, notwithstanding the provisions of section 439A(2) of the Act.
3. Liberty be granted for the plaintiffs to apply to the Court for any purpose connected with the administration of the Promains Group, including but not limited to any further extension of the convening period referred to in order 1 above at any time prior to 4 July 2014.
4. That the plaintiffs or their solicitors are to inform the landlords of any premises or property used or occupied by, or in the possession of, the Promains Group of these orders by sending a circular letter to each said landlord within seven days after the making of these orders.
5. That the plaintiffs or their solicitors are to inform all known creditors of the Promains Group of these orders by sending a circular letter or email, as the case may be, to each known creditor within seven days after the making of these orders.
6. That any person having a sufficient interest may apply to the Court to vary any of the principal orders in paragraphs 1 and 2 above on the provision of at least seven days’ written notice to the plaintiffs.
7. That the costs and expenses of this application are costs and expenses in the administration of the Promains Group.
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