In the matter of Acquire Learning Pty Ltd (ACN 168 523 279) (administrators appointed), Acquire Learning & Careers Pty Ltd (ACN 159 509 323) (administrators appointed) and Acquire Retail Pty Ltd (ACN 167 927 693)...
[2017] VSC 572
•22 September 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 02135
IN THE MATTER of Acquire Learning Pty Ltd (ACN 168 523 279) (administrators appointed) Acquire Learning & Careers Pty Ltd (ACN 159 509 323) (administrators appointed) and Acquire Retail Pty Ltd (ACN 167 927 693) (administrators appointed)
| BARRY WIGHT (in his capacity as joint and several administrator of each of Acquire Learning Pty Ltd (ACN 168 523 279) (administrators appointed) Acquire Learning & Careers Pty Ltd (ACN 159 509 323) (administrators appointed) and Acquire Retail Pty Ltd (ACN 167 927 693) (administrators appointed)) | Plaintiffs |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 September 2017 |
DATE OF REASONS: | 22 September 2017 |
CASE MAY BE CITED AS: | Re Acquire Learning & Careers Pty Ltd (administrators appointed) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 572 |
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CORPORATIONS – External administration – Application for further extension of convening period of company in administration pursuant to s 447A of the Corporations Act 2001 (Cth) – Administrators required to carry out extensive investigations prior to compiling their report to creditors for purpose of consideration at second meeting of creditors, in particular comparison of the outcome that would be achieved for creditors by implementation of proposal by related parties as compared with a liquidation of the company – Further extension of convening period warranted together with ancillary orders.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Maiden | Norton Rose Fulbright Australia |
HIS HONOUR:
On 1 June 2017, the first plaintiffs (the administrators), who are the voluntary administrators of the second to fourth plaintiffs Acquire Learning Pty Ltd (‘Acquire’), Acquire Learning & Careers Pty Ltd (‘AL&C’), and Acquire Retail Pty Ltd (‘Acquire Retail’) (‘the Companies’), sought and were granted an extension of the convening period for the second meetings of creditors in the voluntary administrations of all three of the companies, to 19 September 2017. AL&C is the holding company of four subsidiaries within a corporate group - Acquire, Acquire Retail, Compare Courses Pty Ltd, and Recruit Easy Pty Ltd (collectively ‘the Group’). My reasons for granting those extensions were published as Re Acquire Learning Pty Ltd (Administrators Appointed).[1]
[1][2017] VSC 376 (28 June 2017) (‘My earlier reasons’).
On 13 September 2017, the administrators filed an interlocutory process seeking a further extension of the convening period for the second meeting of creditors in the voluntary administration of the third plaintiff, AL&C, together with ancillary orders.
The interlocutory process sought orders pursuant to a 439A and s 447A of the Corporations Act 2001 (Cth) (‘the Act’). I determined to make the order under s 447A(1) of the Act rather than under s 439A(6) as there is considerable authority for the proposition that the Court’s power to order an extension of time for a convening period under s 439A does not extend to authorising a subsequent extension under that section.[2] There is, however, clear authority for the proposition that there is power under s 447A of the Act to further extend the convening period notwithstanding that an earlier extension has already been granted.[3]
[2]Re Henry Walker Eltin Group Ltd (Administrators Appointed) & Ors (2005) 54 ACSR 383, 387 [1] (Hely J.).
[3]Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 (1 May 2015) [33] (Gleeson J).
The administrators rely on affidavits affirmed by Mr Wight, who is one of the administrators, filed on 1 June 2017 in support of the first application (‘first Wight affidavit’), and on 13 September 2017 (‘second Wight affidavit’).
By reason of the orders made by me on 1 June 2017 and by operation of s 439A(5) of the Act, the administrators are required to convene the second meeting of creditors for each of the companies by no later than 19 September 2017 and hold those meetings by 26 September 2017.
The administrators did not seek any extension of time for convening the second meeting of creditors of Acquire or Acquire Retail. The administrators’ Counsel indicated to the Court that it is expected the creditors of those companies will resolve that they be wound up at the second meetings of creditors required to be convened by 19 September 2017.[4]
[4]Transcript of Proceedings, Re Acquire Learning & Careers Pty Ltd (administrators appointed) (Supreme Court of Victoria, S CI 2017 02135, Gardiner AsJ, 14 September 2017) 9-11.
On 14 September 2017, I made orders granting further extension of the convening period in the voluntary administration of AL&C to 19 January 2018, together with certain ancillary orders including a Daisytek order to enable the administrators to convene the meeting earlier if that course was indicated.[5] The administrators had originally sought an extension of three months but in the course of the hearing on 14 September 2017 it was considered more appropriate to grant an extension to a time early in the new year. This was to obviate any difficulties which might arise if it was to become necessary to make another application in the period immediately prior to the Christmas/New Year court recess. I do not consider that any of the stakeholders affected by the extension would be unduly prejudiced by the granting of by a slightly longer extension.
[5]Re Daisytek Australia Pty Ltd (admin apptd) (2003) 45 ACSR 446.
At the hearing on 14 September 2017, I indicated that I would publish my reasons for making those orders, which I now do.
In my earlier reasons, I outlined the general background in relation to the administrations of the companies,[6] and the statutory framework dealing with extensions of convening periods of companies in administration.[7] It is appropriate to briefly set out the approach which has been taken in earlier authorities dealing with this type of application.
[6]My earlier reasons, [6]-[16].
[7]My earlier reasons, [22]-[29].
In Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2)[8] Gleeson J observed:
[8][2015] FCA 401 (1 May 2015).
34.In Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683, Jacobson J said:
[22]The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales.
[23]The matters which courts have tended to take into account in deciding whether to exercise the discretion under the Act have been usefully stated by Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 352 at [13]. It is unnecessary to repeat his Honour’s summation of the relevant categories which inform the exercise of the power to grant an extension of time. The principles have been referred to recently by Farrell J in Re Harrison’s Pharmacy Pty Limited [2013] FCA 458 at [11] and by me in Re CMA Corporation Ltd [2013] FCA 875 at [21]. Those authorities also make it clear that the length of the extension is one in respect of which the Court must be satisfied that the extension is reasonable and appropriate in the circumstances.
35.In Re Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 at [13], Farrell J said:
[13]Section 439A(4) of the Act requires an administrator to provide to creditors, with the notice of the second meeting, a report about the company’s business, property, affairs and financial circumstances. The administrator must also provide a statement of his or her opinion about whether it would be in the creditors’ interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. The statement must also provide the administrator’s reasons for that opinion and any other information which is known to the administrator and would enable the creditors to make an informed decision among those alternatives. If a deed of company arrangement is proposed, the statement must set out details of the proposed deed. In order for administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: see [Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30] at [16]. See also: In the matter of Pan Pharmaceuticals Limited [2003] FCA 598, in which Lindgren J concluded at [41] that the essential issue is whether the extension is necessary to enable the administrators to arrive at an opinion so as to place creditors in the position to choose between those alternatives.
36.In Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30 at [16] to [17], McKerracher J said:
[16]In order for the administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935 at [1]. That includes sufficient time to investigate and carry out a sale process in which structured ‘due diligence’ procedures are adopted: Re Diamond Press at [11], Re Hans Continental Smallgoods Pty Ltd [2008] FCA 1933 at [21]. It also includes time to pursue a possible recapitalisation. In Re Chemeq Ltd; ex parte McMaster [2007] WASC 154 an extension of six months was allowed for this purpose.
[17]What will be ‘sufficient’ will obviously depend on the complexities of the issues involved in the administration.[9]
[9]Ibid [34]-[36], quoting Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683 (25 June 2014) [22]-[23] (Jacobson J); In the Matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (21 May 2013) [13] (Farrell J); Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30 (2 February 2010) [16]-[17] (McKerracher J).
In Parbery, in the matter of NewSat Limited (Administrators Appointed) (Receivers and Managers Appointed)[10] Beach J observed:
An administrator is required to provide to creditors, with the notice of the second meeting, a report about the company’s business, property, affairs, and financial circumstances (s 439A(4)). The administrator must also provide a statement of his opinion as to whether it would be in the creditors’ interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. The statement must also provide the administrator’s reasons for that opinion and any other information which is known to the administrator and would enable the creditors to make an informed decision amongst the available alternatives. If a deed of company arrangement is proposed, the statement must set out details of the proposed deed. In order for an administrator to carry out his functions properly, it is necessary that he should have sufficient time to investigate the affairs of the company under administration and to provide relevant commercial information and advice to the creditors (see Farrell J’s discussion in In the matter of Harrisons Pharmacy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 at [9] to [13]). The essential issue is whether the extension is necessary to enable the administrator to arrive at an opinion so as to place creditors in the position to choose between the relevant alternatives.[11]
[10][2015] FCA 435 (8 May 2015).
[11]Ibid [61], citing In the Matter of Harrisons Pharmacy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (21 May 2013) [9]-[13] (Farrell J).
The principles applied to first extensions have often been applied in respect of applications for subsequent extensions.[12]
[12]See, eg, Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd [2009] FCA 25 (14 January 2009) [9] (Jacobson J); Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110 (3 March 2009) [16]-[17], [21]-[23], [32] (Barrett J); Kaso, Re Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 (28 July 2017) [19] (Moshinsky J).
Further extensions have been granted in circumstances enabling the terms of a deed of company arrangement (‘DOCA’) proposal be finalised,[13] and to enable the sales of businesses or assets to be entered into and completed.[14]
[13]See, eg, Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 (1 May 2015).
[14]See, eg, Re Rhodes & Beckett Pty Ltd (No. 2) [2017] VSC 388 (30 June 2017).
Tasks undertaken by the administrators
Mr Wight’s affidavits detail the activities undertaken by the administrators since their appointment on 12 May 2017. In the first Wight affidavit, Mr Wight provided a breakdown of the creditors for each company. In his second affidavit, he provides an updated table summarising the proofs of debt received by the administrators to this time. Those proofs remain subject to assessment by the administrators. The position in this regard is now as follows:
Company
Preferred Creditors
Unsecured Creditors
Related Party Creditors
Total value of creditors
AL&C
$2,769,029
$26,898,708
$48,197,525
$77,865,262
AL
$1,591,926
$11,633,312
Nil
$13,225,237
AR
Nil
$1,026,079
$20,514
$1,046,593
It is obvious these are somewhat high level administrations with a very significant deficiency to creditors. The assessment of the proposal for a DOCA by AL&C will involve substantial analysis on the administrators’ part. It also seems clear from the affidavit material that Mr Wight and his staff have been industrious in applying themselves to the task at hand.
In his first affidavit, Mr Wight described the tasks that were still to be completed in the administrations as at the date of making his application. In his second affidavit, he deposes to the work carried out in respect of each of those tasks relating to AL&C since that time.
Since 1 June 2017, the administrators have:
(a) reviewed the historical shareholding in AL&C (including how additional subscriptions were funded);
(b) reviewed the loan agreements entered into between AL&C and each of its shareholders in December 2015 (arising from loans advanced in the 2015 financial year), and the effect on those transactions of Division 7A of the Income Tax Assessment Act (Cth) (‘Division 7A’);
(c) reviewed the draft Division 7A loan agreements between AL&C C and each of the shareholders, which were not executed prior to the appointment of the administrators and arise from loans advanced in the 2016 financial year;
(d) traced and identified payments made by AL&C to shareholders since the 2013 financial year, in the amount of approximately $28 million;
(e) undertaken interest and minimum annual repayment calculations at 30 June 2017 pursuant to the terms of the Division 7A loan agreements, as a result of which the administrators concluded that approximately $14.5 million remained owing and outstanding by the shareholders to AL&C under the loan agreements at 30 June 2017;
(f) undertaken searches available on publicly available databases in respect of each of the shareholder entities;
(g) issued multiple demands to the shareholders seeking repayment of the balances outstanding and, if the relevant shareholder claimed to be unable to pay the loan in full, requiring documentary evidence supporting that claim;
(h) engaged in correspondence with the solicitor engaged to represent the majority of the shareholders;
(i) made requests to the shareholders for provision of information necessary to undertake an assessment with regard to the financial position of each shareholder (and any trusts and beneficiaries that sit under each shareholder entity); and
(j) received confirmation from the shareholders who propose a DOCA in respect of AL&C (‘the DOCA Proponents’) that each of the outstanding shareholder loans would be dealt with in the proposed DOCA.
Since that date, the administrators have been involved in the acquisition and disposal of the assets and business of AL&C. In that regard they have:
(a) held discussions with management personnel to identify and discuss the subsidiaries that were acquired or formed by AL&C and subsequently disposed of prior to the appointment of the administrators;
(b) reviewed the documentation relating to each of the transactions referred to above, including share sale deeds, and deeds of loan forgiveness;
(c) reviewed the books and records of AL&C, including emails of key management personnel, to identify information in respect of the acquisition and/or disposal of entities, including copies of board packs and minutes;
(d) prepared background information in respect of the nature of each entity and the reasons for acquisition/disposal;
(e) conducted financial analyses in respect of the trading performance of the businesses operating within the Group, including details of intercompany loan transactions; and
(f) considered the appropriateness of each transaction (both acquisition and/or disposal) having regard to the outcome of the investigations.
Since the first application, the administrators have conducted an assessment of intercompany loan accounts between entities within the Group. In that regard they have:
(a) reviewed the movement of loans between AL&C and its related entities, including the write-off, consolidation, and re-assignment of loans;
(b) considered the basis for and usage of funds transferred to and from AL&C;
(c) reviewed financial data including the accounting system, management accounts, financial statements, loan accounts, bank statements, and reconciliations; and
(d) formulated views about the appropriateness of intercompany loan transactions and the recoverability of intercompany loans.
The administrators have also carried out an assessment of the VET FEE-HELP audit. In that regard they have:
(a) researched the history of the VET FEE-HELP scheme[15] including an overview of the scheme, the problems identified with the scheme, and the reforms implemented to the scheme by the Federal Government in March 2015, January 2016 and January 2017; and
(b) analysed the impact of the changes to the VET FEE-HELP scheme and audits of RTOs on the Group, including the disposal of certain entities and whether it contributed to the ultimate failure of the Group.
[15]See the discussion in paragraph 6 of my earlier reasons in regard to this scheme and the involvement of AL&C.
In my earlier reasons, I refer to the ACCC investigations and the findings of Murphy J in the proceedings brought by the ACCC in the Federal Court of
Australia.[16] Since 1 June, when I granted the first extension, the administrators have:
[16]See paragraph 6(ix) of my earlier reasons and the reasons of Murphy J which are reported as Australian Competition and Consumer Commission v Acquire Learning & Careers Pty Ltd [2017] FCA 602 (30 May 2017).
(a) reviewed documentation in respect of the ACCC investigation and prosecution;
(b) reviewed the judgment obtained by the ACCC in the Federal Court in July 2016, and the orders then made against AL&C by Murphy J; and
(c) considered the impact of the Federal Court judgement against AL&C, having regard to the administrators’ appointment.
The administrators have conducted an assessment of the value of key assets within the Group. Since the date that I first made orders granting an extension of the convening period, the administrators have:
(a) liaised with the Group’s bankers to identify and deal with any bank accounts holding credit funds;
(b) undertaken a full expressions of interest campaign, including obtaining and uploading data onto a data room as required, in order for interested parties to conduct due diligence;
(c) liaised with all parties who expressed an interest in certain assets within the Group, including undertaking negotiations in respect of any offers made;
(d) assessed offers made and formulated strategies in respect of specific assets to achieve the best outcome for creditors;
(e) accepted offers and completed the sale of various assets within the Group;
(f) considered outstanding debts and the recoverability of those debts;
(g) attended several meetings with the directors of the Companies and their advisors in respect of the formation of a DOCA proposal; and
(h) analysed the draft DOCA proposal, including considering information required to conduct a comparative analysis between the draft DOCA proposal and a liquidation scenario.
The administrators have also enquired into and investigated events leading to the failure of the Group. In that regard they have:
(a) held various meetings with the Group’s management personnel to collate relevant information and commence analysis of financial data;
(b) liaised with various parties to obtain all physical and electronic records of the Group;
(c) engaged, and liaised with, an information technology expert to obtain a forensic image and copy of the Group’s electronic records;
(d) conducted analysis of the Group’s historical cash-flow, financial performance, and financial position;
(e) assessed the Group’s financial position as at the date of the administrators’ appointment, and the recoverability of assets identified;
(f) reviewed the financial data within the Group, including the accounting system, management accounts, financial statements, loan accounts, bank statements, and reconciliations prepared;
(g) considered the major events leading up to the administrators’ appointment, including the acquisition and disposal of entities, changes within the VET FEE-HELP framework, the impact of these events on the Group, the Group’s financial performance for the five years preceding the administrators’ appointment, the Group’s relationship with its financiers, and the ACCC investigation and prosecution;
(h) reviewed and analysed records regarding the directors’ conduct and made an assessment of the Group’s insolvency; and
(i) liaised with the Group’s insurers regarding any potential claims under the Group’s directors and officers liability insurance policy.
The administrators, as they are required to do in order to properly prepare the report for the creditors’ consideration at the second meeting, have undertaken investigations to identify and quantify potential voidable transactions, more particularly, payments which may constitute unfair preferences. They have not identified any payments by AL&C that might be pursued as voidable preferences as a result of that process.
Mr Wight states that, in order to compile a properly informative report, the administrators are required:
(a)to complete an assessment of the realisation strategy for AL&C that will provide the most advantageous outcome for the creditors;[17]
(b)to finalise the sale of assets;[18]
(c)to consider and negotiate the DOCA proposal;[19]
(d)to progress their investigations into matters that will be relevant to an assessment of the relative merits of liquidation and execution of any finalised DOCA proposal, including the recoverability of the shareholder loans, any breaches of directors’ duties, and the existence and value of potential insolvent trading claims;[20] and
(e)to come to a properly-considered opinion and provide an adequately reasoned report to creditors.[21]
[17]Paragraph [36] of the second Wight Affidavit.
[18]Paragraph [33] of the second Wight Affidavit.
[19]Paragraph [34] of the second Wight Affidavit.
[20]Paragraphs [33] and [36] of the second Wight Affidavit.
[21]Paragraphs [35]-[38] of the second Wight Affidavit.
Mr Wight states in his second affidavit that in the event a second extension of the convening period is granted, the administrators’ intend to carry out certain further tasks which he goes on to detail in his affidavit. These further tasks are as follows.
The shareholder loans comprise the most significant asset which could potentially be realised for the benefit of AL&C’s creditors. Mr Wight regards it as imperative that the administrators undertake a thorough assessment with regard to the financial position of each shareholding entity (and any associated trusts and beneficiaries of a shareholder entity) so that creditors can be fully informed regarding the recoverability prospects in the event that AL&C. is placed into liquidation.
In this regard, the administrators have been liaising and negotiating with certain parties, including some of AL&C. the DOCA Proponents.
At the time of the first application for extension, the DOCA Proponents had provided the administrators with a draft proposal for a DOCA, which was in its early stages and contained only the broad details of the proposed DOCA. Mr Wight deposes that it was not in a form presentable to the creditors of AL&C.
From 30 May 2017 to this time, the administrators have continued to engage with the DOCA Proponents and their advisors, with a view to advancing the DOCA proposal to a stage that was suitable for presentation to creditors. This includes seeking further clarification of the proposal.
In late August 2017, the administrators received a more advanced version of the draft proposal that involves complex financial, taxation, and legal considerations requiring proper assessment and testing by the administrators. The draft DOCA proposal contains commercially sensitive and confidential information, which remains subject to negotiation and possible revision.
After protracted negotiations between the administrators, the administrators’ solicitor, and the shareholders’ solicitor in early September 2017, a confidentiality agreement was entered into between the administrators and the DOCA Proponents This agreement preserves the confidentiality of the DOCA Proposal and information provided in support of it subject to some exceptions, including its use for the purpose of the administrators’ report pursuant to s 439A of the Act. The administrators requested an order that the Court keep the DOCA proposal exhibited to Mr Wight’s affidavit confidential. I considered such an order was appropriate in the circumstances and so included such an order in the Order made by me on 14 September 2017.
Following on from the negotiations, and subject to the terms of the confidentiality agreement between the parties, the shareholding entities have now agreed to provide a documentation package to the administrators to evidence their affairs and financial positions (the documentation is to extend to the trusts and beneficiaries that are associated with each of the shareholder entities). The administrators first requested this information in early June 2017 and have since been hindered by the delay in the provision of this information, a matter outside of the administrators’ control.
The DOCA Proponents have agreed to provide the additional information requested by the administrators by no later than 22 September 2017, at which point further time will be required for the DOCA to be developed, negotiated, and considered by the administrators, and put to the creditors. Mr Wight states that it is likely, upon the receipt of the requested information, that further additional enquires will need to be conducted and additional information sought. The administrators consider that it could take them a number of months to:
(a) receive, consider, test, supplement (where necessary), and form conclusions regarding the efficacy and reliability of the information received; and
(b) form a view in order to make a recommendation to creditors in relation to the DOCA Proposal.
When the administrators receive the information from the DOCA Proponents they anticipate that they will be required to carry out an extensive analysis and it is most likely that additional information may be sought at meetings held with the legal representatives for the proponents. It is likely that the following tasks will be required to be conducted involving further time:
(a) testing the financial analysis, assumptions, and data underpinning the proposal;
(b) reviewing the taxation, Division 7A, and other implications of the loans on the various shareholder entities in order to consider the outcome should AL&C be wound up as opposed to executing a DOCA, and the associated impacts (if any) on AL&C;
(c) possibly, conducting examinations of directors;
(d) requesting supplementary information;
(e) considering how the DOCA contribution would be raised and evaluating the associated risks; and
(f) determining whether the shareholder loans are otherwise recoverable via an alternative course.
Because the shareholder loans are such a substantial asset of AL&C it is important that the administrators be able to give creditors an informed opinion regarding the estimated recoverability from the shareholder loans should AL&C be wound up.
The administrators may also seek taxation advice from an external accountant as part of the necessary analysis in respect of any potential taxation implications to the DOCA Proponents may be exposed to as a result of the outstanding balances being called upon for payment. The creditors’ interests are affected by such implications as it will impact on the ability of the DOCA Proponents to implement the DOCA proposal.
As well as the matters which are described above, Mr Wight states that the administrators still require additional time to:
(a) seek confirmation from management personnel regarding a number of intercompany transactions including their accounting treatment;
(b) finalise their position regarding any breaches of directors’ duties, including in respect of the acquisition and disposal of entities, and financial support provided by AL&C;
(c) seek verification from management personal regarding the factual accuracy of the administrators’ financial analyses, including the administrators’ analysis of intercompany loan accounts;
(d) hold discussions with the Group’s financier regarding previous financial facilities provided, and to confirm conclusions regarding the repayment of facilities and previous defaults;
(e) finalise the sale of the G1X loan;
(f) finalise the insolvent trading review and form an opinion regarding the likely date of insolvency and potential claims against directors;
(g) finalise the administrators’ opinions regarding the reasons for the companies’ failure;
(h) continue to liaise with AL&C’s insurers regarding any potential claims under the D&O policy; and
(i) review the final proposed DOCA and undertake a comparative analysis between the final proposed DOCA and a liquidation scenario.
Mr Wight states that the period of the requested extension is the time required to undertake the outstanding tasks outlined above and, most significantly, to form a view with respect to the final form of the DOCA proposal. Pursuant to s 439A(4b) of the Act, the administrators are also required to prepare and provide a report and statements, and to express an opinion for consideration by the creditors, about whether it would be in the creditors’ interests for (i) the administration of AL&C to end and the control of the company to be returned to the directors, (ii) for the company to execute a DOCA, and (iii) for the company to be wound up.
Mr Wight deposes that, as at the date of his affirming the second Wight affidavit, the administrators could not sensibly form a recommendation for creditors to decide on in accordance with s 439C of the Act without undertaking the extensive enquiries which are described above.
Mr Wight states in his affidavit that he does not believe the administrators will be able to properly report to creditors and form the opinions required under s 439A(4b) of the Act by the date of the second meeting of creditors, nor until they have fully considered the impact of the shareholder loans which form the largest asset of AL&C in order to determine, on balance, whether the final DOCA proposal will result in a more favourable outcome in relation to the recovery of these loans.
The draft DOCA proposal does not involve Acquire Retail or Acquire and the administrators have formed a preliminary view that it is in the best interests of creditors of Acquire Retail and Acquire that each of those entities be placed into liquidation. For this reason they do not seek an extension of the convening period of the administrations of either Acquire Retail or Acquire.
Persons affected by the further extension of the convening period
In any application for an extension of the convening period there will be parties whose interests may be adversely affected by the grant of an extension because of the accompanying extension of the so-called moratorium period. Mr Wight is of the opinion that the prejudice to the stakeholders is likely to be minimal or can be minimised.
As I indicated in my earlier reasons, there are no secured creditors affected by the making of the extension orders. [22]
[22][36].
As regards the lessors of property occupied by AL&C, the administrators have vacated each of the leased premises that were previously occupied by all of the companies and accordingly the lessors are will not be prejudiced by an extension. In any event, the Group’s leases were all held by Acquire Retail, not by AL&C.
The administrators are not trading on any part of the business of the companies, and AL&C does not employ any of the remaining employees of the Group, who are all employed by Acquire. As I have noted, no extension is sought in respect of the administration of Acquire, and the administrators intend to recommend that it be placed into liquidation. Upon the liquidation of Acquire, the employees’ entitlements (if any) to access the Commonwealth Government’s Fair Entitlement Guarantee Scheme under the Fair Entitlements Guarantee Act 2012 (Cth) will crystallise, such that the administrators do not consider the employees will be prejudiced by the further extension sought in respect of AL&C. Mr Wight states that, to the extent that the employees have an entitlement as actual contingent creditors of AL&C pursuant to a deed of cross-guarantee between AL&C and Acquire, the employees are ordinary unsecured creditors of AL&C and therefore the administrators do not consider that the employees will be prejudiced by the extension sought.
The administrators’ staff have advised Mr Brian O’Dwyer, an employee who purportedly heads up a ‘working party’ representing the broader employee group, about the making of this application. At the time of the hearing of the second application, Mr Wight had not received a response from Mr O’Dwyer or any other employee as to their attitude in regard to the further extension.
As to ordinary unsecured creditors, Mr Wight indicates that efforts have been made to contact those creditors who are considered to be most impacted by the potential extension, to put those creditors on notice of this application. Those creditors include News Limited, the ACCC, Hatch Group Holdings Pty Ltd, Franklyn Scholar (Australia) Pty Ltd, and J2S Group Australia Pty Ltd. Mr Steven Hatch of Hatch Group Holdings Pty Ltd, Franklyn Scholar (Australia) Pty Ltd, and J2S Group Australia Pty Ltd have responded and advise that they support the application for the further extension. As at the date of the hearing of this matter on 14 September 2017, the administrators have not received a response from any of the other creditors who were informed of the making of this application.
Mr Wight states that the DOCA Proponents have told him that they support the decision to extend and, other than having to wait longer for resolution of the administrations, there is no impact on the other creditors by reason that the Group is not trading.
Mr Wight indicates that the DOCA Proponents made a contribution of $20,000 towards the costs of the application for the further extension on the basis that they support the application and desire the administrators to have the additional time sought in order for them to continue the negotiations with the administrators and finalise their proposal.
The administrators’ solicitors, Norton Rose Fulbright, sent a letter to the Australian Securities and Investments Commission on 13 September 2017, putting ASIC on notice of this application and the hearing date.[23]
[23]An application for extension of a convening period of a company administration is not one of the provisions identified in Rule 2.8(3) of the Supreme Court (Corporations) Rules 2013 (Vic) that require notification to ASIC.
The administrators, through Mr Wight, indicate that they do not consider that they are currently in a position to prepare a report to creditors which adequately informs them about the options for the future of the companies or to hold a meeting of creditors to decide on the future of AL&C. As such, the administrators believe the extension is in the best interest of creditors, and they contend they are attempting to implement a strategy that will maximise the value of the assets of AL&C as well as the return to the relevant stakeholders. They are of the opinion that any report prepared within the current convening period would be inadequate to inform the creditors as to the options for the future of AL&C.
If the convening period is not extended and the second meeting of creditors is required to be held, Mr Wight states that the administrators would recommend that the meeting be adjourned. The maximum available time for an adjournment of the second creditors’ meeting by creditors is for 45 business days, which is not likely to be sufficient time for the administrators to conclude all of the tasks required to be completed.
In my opinion, there are good reasons presented by Mr Wight for a further extension of the convening period. It is likely that it will produce a better outcome for the stakeholders involved in the administration of AL&C. Those whose interests are potentially adversely affected by the extension of the moratorium period have indicated that they support the extension proposed or, despite being on notice, have not stated their attitude to it. There would be no point at all requiring the administrators to convene the second meeting with all the expense that that involves when the process of negotiation of the Proposed DOCA and the report to creditors is still to be completed.
If one conducts the balancing exercised referred to in the authorities dealing with these types of applications, it is clear to me that an extension is warranted. I also considered that it was appropriate to make an order preserving the confidentiality of the draft proposal for the DOCA which is Exhibit EW-5 to Mr Wight’s second affidavit as it is a commercially sensitive document at this juncture.
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