In the matter of ACN 153 866 114 Pty Ltd (administrators appointed)

[2015] NSWSC 2039

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of ACN 153 866 114 Pty Ltd (administrators appointed) [2015] NSWSC 2039
Hearing dates:	23 December 2015
Decision date:	23 December 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Extension of convening period for second meeting of creditors ordered.
Catchwords:	CORPORATIONS — Administration — Creditor’s meeting — Where administrators sought extension of convening period for second meeting of creditors — Whether the Court should grant application to extend time for a second meeting of creditors under s 439A(6) of the Corporations Act 2001 (Cth) – whether extension is in best interests of company’s creditors
Legislation Cited:	- Corporations Act 2001 (Cth), ss 439A(6), 447A, Pt 5.3A - Personal Property Securities Act 2009 (Cth)
Cases Cited:	- Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 - Owen (in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd)) v Madden (No 4) [2012] FCA 1491; (2012) 92 ASCR 255 - Re BCD Resources NL (recs and mgrs apptd) (admins apptd) [2015] NSWSC 777 - Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 - Re Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352
Category:	Principal judgment
Parties:	Darren John Vardy and Jason Lloyd Porter as voluntary administrators of ACN 153 866 114 Pty Ltd (administrators appointed) (Plaintiffs)
Representation:	Counsel: N Mirzai (Plaintiffs)   Solicitors: Craddock Murray Newman (Plaintiffs)
File Number(s):	2015/367645

Judgment – ex tempore

1. By Originating Process filed on 15 December 2015, Messrs Vardy and Porter as voluntary administrators of ACN 153 866 114 Pty Ltd (Administrators Appointed) (“Company”) apply for orders under ss 439A(6) and 447A of the Corporations Act 2001 (Cth), in a relatively common form, to extend the convening period for the second meeting of creditors in the administration of the Company. An order is sought, in a common and desirable form, that will permit the meeting to be held at any time during, or within five business days after, the end of the extended convening period. An order is also sought, in a common and also desirable form, reserving liberty to any creditor of the Company or any other person with sufficient interest to apply to vary or discharge the relevant orders.

2. The application is supported by affidavits of Mr Vardy, who is one of the administrators of the company, dated 14 December and 22 December 2015. Those affidavits set out the work which has been done in the administration and the present state of matters involved in the administration. I will not, given that the application has some urgency, set out those affidavits at length. It is sufficient to identify the three critical issues in the application, before turning to the applicable legal principles.

3. First, the administrators point to a significant dispute which exists, between the Company and the supplier of a substantial piece of equipment, in the nature of piling equipment, as to whether that equipment has vested in the Company, in the relevant circumstances. As Mr Mirzai has fairly accepted, that dispute is likely to be a neutral factor, so far as any extension of the convening period is concerned, because an extension of a reasonable period is not likely to bring about certainty as to the resolution of that dispute. It is ultimately likely that, even within an extended convening period, the administrators will need to provide advice to creditors at a second meeting of creditors based on contingencies, including the possibility that the asset vests in the Company or that it does not. The administrators have already begun to contemplate those alternative possibilities in evidence that has been led before the Court.

4. The second factor, which seems to me to be of greater significance in the application, is that the Company’s assets are subject to a number of security interests, and that the administrators are in the process of confirming the position as to whether the relevant creditors hold valid security interests for the purposes of the Personal Property Securities Act 2009 (Cth). Given the number of registrations of security interests, and the fact that some of those registrations may relate to significant equipment, it is plainly a matter of some significance whether those registrations are valid and whether those creditors are to be treated as secured creditors or as unsecured creditors of the Company. It seems to me that there is significant force in the proposition that the administrators are not presently in a position to reach a concluded view as to those matters, where their inquiries are ongoing and a significant number of creditors have not yet responded to them, and that would in turn impact on the utility of information which could presently be provided to creditors at a second meeting in the administration. In particular, information provided to creditors which contained a wide range of outcomes, because it treated the question whether the relevant registrations were valid or not as unknown, is less likely to be useful than information which could address that question once the administrators had reached conclusions about it.

5. Third, it appears that steps have been taken, in dealings with an associated entity, to develop a potential deed of company arrangement, although those steps are not complete, and are to some extent dependent upon financing of any proposal to be put by that associated entity. That proposal involves an arrangement by which payments are presently being made to trade creditors of the Company, to the advantage of those trade creditors, with a potential outcome that they will be paid out by February 2016. Plainly, that is to the advantage of at least those creditors, for the present, albeit the permanence of that advantage may be a matter that comes under review if the Company is ultimately placed in liquidation. Equally, an offer is contemplated which, if it is ultimately made, provides a meaningful return to other creditors, particularly secured creditors and, on the administrator's analysis, would allow a significantly better result than the likely result on a liquidation. That is a matter of some significance so far as an application of this kind is concerned, because it means that, in effect, if the time period for the convening period is not extended, then creditors will not have the opportunity of considering an offer which, if it comes to pass, is more favourable than a liquidation, and an extension of the convening period at least allows them the possibility that such a proposal will be put.

6. So far as other interested persons are concerned, the associated company, it appears, is meeting lease obligations to those persons who might otherwise be affected by a moratorium, and employees of the Company have been transferred to the associated company, with at least a substantial proportion of their entitlements having been assumed by that associated company. To that extent, those employees are not adversely affected by an extension of the period of the administration, by being deprived of, for example, access to alternatives which might have been applicable had their entitlements not been met.

7. The principles applicable to an application of this kind are well established. The Court's function in determining such an application is to reach an appropriate balance between the expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]. In Re Riviera Group Pty Ltd (admins apptd)(recrs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352, Austin J pointed to several reasons which may support such an extension, in a passage which has been frequently cited subsequently, as including the time needed to exercise an orderly process of disposal of assets, which might, in some circumstances, include the alternative of a deed of company arrangement proposal to such a disposal; or the fact that the extension of time is otherwise likely to enhance the return for unsecured creditors, a possibility which I have noted here; and the impact of any extension of time on a person whose claim is affected by the statutory moratoriums under Pt 5.3A of the Corporations Act, which is a matter to which I have already referred, in noting that it appears the associated company is meeting ongoing obligations to persons affected by the moratorium and employees are not adversely affected.

8. In Re BCD Resources NL (recs and mgrs apptd) (admins apptd) [2015] NSWSC 777 at [12], I in turn noted those factors, and pointed to the possibility that the grant of an extension of time will be preferable to the declining of an extension, where creditors would otherwise be left with no real option other than a winding up, and deprived of the possibility of an alternative option which an extension of time would provide. The Court can, and should, also give weight to the considered judgment of the administrator in matters of this kind: Owen (in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd) v Madden (No 4) [2012] FCA 1491; (2012) 92 ASCR 255 at [36]; Re BCD Resources NL above at [12].

9. In the present case, I have considered whether the extension of time which is sought, to 15 March 2016, is unreasonably long in the circumstances. That matter is addressed in Mr Vardy's further affidavit, where he identifies the reasons that that extension of time is sought for that period, including the fact that that timetable would contemplate payment of trade creditors in full and the fact that the associated company is in discussions with financiers that contemplated raising the relevant finance for a deed of company arrangement in February 2016. I should also have regard, as a matter of practical common sense, to the fact that the intervening holiday period will necessarily involve a loss, and possibly a significant loss, of time in progressing a proposal over that period. The administrators also express the view that an extension for that period is necessary for them to conduct the additional investigations to which they have referred, to form conclusions and to prepare a more meaningful report to creditors with their recommendation. Again, I should give weight to their view as to the time which is required.

10. On balance, it seems to me that there is sufficient advantage in the extension of time that is sought, by way of allowing creditors the opportunity of a better outcome, and better information and more informed participation in a second meeting of creditors, to warrant the extension sought, where steps have been taken to seek to mitigate the disadvantage which might otherwise be suffered by creditors subject to the moratorium, were the obligations owed to them not being met over that period. I can also have regard to the fact that, as the evidence indicates, creditors were given notice of the possibility that such an extension would be sought, at the first meeting of creditors; have been further advised of this application; and that creditors and interested parties will have the opportunity to apply, if so advised, to seek a variation to the order sought.

11. Accordingly I make orders in accordance with the short minutes of order initialled by me and placed in the file. They include the common order that the costs of the application be costs in the administration of the Company. I am satisfied that order should be made where the application is properly brought in order to advance the interests of the creditors and the administration.

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Decision last updated: 01 March 2016