In the matter of Hamelin Brands Pty Ltd

[2021] NSWSC 137

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Hamelin Brands Pty Ltd [2021] NSWSC 137

Hearing dates:

23 February 2021

Date of orders:

23 February 2021

Decision date:

23 February 2021

Jurisdiction:

Equity - Corporations List

Before:

Williams J

Decision:

Order that the convening period of the second meeting of the creditors be extended up to and including 30 April 2021 and may be convened at any time before, or within, 5 business days after that date; order that notice of the second meeting may be given to creditors by email; order that costs of and incidental to this application be costs and expenses in the administration of and be paid out of the assets of the company.

Catchwords:

CORPORATIONS – voluntary administration – second meeting of creditors – application for extension of convening period under Corporations Act 2001 (Cth) s 439A – no issue of principle

Legislation Cited:

Corporations Act2001 (Cth), ss 436A, 439A, 447A, Part 5.3A

Insolvency Practice Rules (Corporations) 2016 (Cth), rr 75-15, 75-225

Insolvency Practice Schedule (Corporations), r 90-15

Cases Cited:

Re Strawbridge (in their capacity as joint and several voluntary administrators of each of Virgin Australia Holdings Ltd (admins apptd) (ACN 100 686 226)) and Others (No 2) (2020) 144 ACSR 347

Category:

Procedural rulings

Parties:

Riad Tayeh and Sueleen McCallum in their capacity as joint and several administrators of Hamelin Brands Pty Ltd ACN 000 994 310 (Administrators Appointed) (First Plaintiffs)
Hamelin Brands Pty Ltd ACN 000 994 310 (Administrators Appointed) (Second Plaintiff)

Representation:

Counsel:
Mr D Krochmalik (Plaintiffs)

Solicitors:
Douros Jackson Lawyers (Plaintiffs)

File Number(s):

2021/51911

Publication restriction:

N/A

Ex tempore Judgment

1. On 27 January 2021, the First Plaintiffs were appointed as joint and several administrators of the Second Plaintiff Hamelin Brands Pty Limited, pursuant to a resolution passed by its directors under s 436A of the Corporations Act2001 (Cth).

2. I shall refer to the First Plaintiffs as the Administrators and the Second Plaintiff as the Company.

3. The Administrators convened the first meeting of creditors on 8 February 2021, after sending initial information to creditors on 28 June 2021.

4. By originating process filed in Court today, the Administrators seek orders pursuant to ss 439A(6) and 447A of the Corporations Act:

1. extending the period for convening the second meeting of creditors for a period of approximately nine weeks to 30 April 2021;

2. permitting the second meeting to be convened at any time within that period; and

3. permitting the notice of the second meeting required    by r 75‑225(1) of the Insolvency Practice Rules (Corporations) 2016 (Cth) to be given to creditors by email, save in respect of those creditors for whom the Administrators have no email address or where the Administrators receive a non-delivery notice in response to an email, in which case notice is to be given by post, and by publishing the notice on the ASIC published notices website.

5. If the time for convening the second meeting of creditors is not extended, the Administrators will need to send notice of that meeting to creditors today. The present application has been heard on an urgent basis in those circumstances.

6. The Originating Process is supported by an affidavit of one of the Administrators, Ms Suelen McCallum. Ms McCallum has been an insolvency practitioner for more than 30 years and a registered liquidator since 2015. In the course of her career, she has been appointed as an external administrator to over 200 companies. The following matters are drawn from Ms McCallum's affidavit and the documents exhibited to that affidavit.

7. The Company is a manufacturer and supplier of office products and stationery that distributes its products nationally from its head office in Sydney.

8. The Company has four members. Sixty per cent of the shares in the Company are held by one member, Holdham SAS.

9. Holdham SAS is a French corporation, which is part of a group of companies known as the "Hamelin Group".

10. The Hamelin Group is a market leader in the field of manufacturing school and office products and carries on business in that field under several brand names.

11. The Company has debts owing to statutory creditors, employees and trade creditors. The list of creditors exhibited to Ms McCallum's affidavit runs to three pages. Employees claim to be owed approximately $1.3 million. The largest unsecured creditors are the Australian Taxation Office (for the amount of approximately $1.67 million) and the Company's landlord, GTA Real Estate Interchange, which claims to be owed approximately $1.924 million.

12. The Administrators’ investigations to date have revealed that there are also a number of intercompany loans from Holdham SAS and its related entities, to the Company. Holdham SAS claims to be a secured creditor of the Company for a debt of approximately $3.37 million. Holdham SAS has not taken any steps to date to enforce its security interest. The Administrators have extended the decision period under s 441A of the Corporations Act to 30 April 2021 at the request of Holdham SAS.

13. In addition to attending to statutory matters, the Administrators have undertaken a wide range of work since their appointment including:

1. taking control of the Company's assets and affairs and undertaking an initial assessment of its operational and financial position;

2. commencing investigations into the affairs of the Company in order to report to creditors as to reasons for the Company's financial position;

3. ongoing communications with Holdham SAS and other entities in the Hamelin Group to gain access to the group's financial records in order to review various intercompany transactions;

4. obtaining access to the Company's books and records and information technology servers to extract the appropriate reports and information required for the Administrators' investigations;

5. ensuring that appropriate insurances are in place for the operation of the Company's business (which Ms McCallum describes as having been particularly cumbersome due to certain insurances being organised through the Hamelin Group and those policies being held with offshore insurers);

6. gathering appropriate information about the Company's trading operations in order to compile budgets and cashflow projections to predict likely trading outcomes during the trade on period;

7. reviewing the Company's staffing requirements in order to adequately service business operations; and

8. corresponding and negotiating favourable terms for continued business with both overseas and domestic suppliers to the Company.

14. At the same time as undertaking this work, the Administrators have been continuing to trade the business of the Company with a view to restructuring certain aspects of the business and potentially selling some parts of the business as a going concern. This decision was based on their assessment that, with significant restructuring, the core of the business would be a profitable operation and there was an opportunity to profitably realise certain non-core aspects of the business which have potential value to prospective purchasers. Moreover, Holdham SAS offered an in principle indemnity indemnifying the Administrators in respect of any trading liability incurred during the administration period. Based on their investigations to date and their budgeted cashflows, the Administrators consider that the Company's business can be traded profitably throughout the administration period (including the extension that is the subject of this application, if granted), assuming that current trading levels are continued and current supplier and customer support continues.

15. Notwithstanding the work done to date, Ms McCallum deposes that the Administrators have had insufficient time since their appointment to:

1. fully understand the Hamelin Group corporate structure and to satisfy themselves whether the intercompany loans were in fact made and what (if any) amounts remain owing by the Company under those loans; and

2. form a concluded view as to the solvency of the Company (although Ms McCallum considers that the Company is likely to be insolvent).

16. At the present time Ms McCallum deposes that the Administrators would find it difficult to finalise their investigations, provide sufficient detail in the report to creditors that is required by rr 75-225 of the Insolvency Practice Rules (Corporations) 2016, and provide comprehensive information and recommendations in that report so as to assist creditors to make a fully informed decision as to the future of the Company.

17. Ms McCallum deposes that an extension of the convening period for the second meeting will enable the Administrators to:

1. develop a comprehensive plan to restructure the Company's trading operations with a view to realising the assets and business of the Company as a going concern, including progressing current negotiations concerning the potential outsourcing of the Company's warehousing operations;

2. advance preliminary discussions that are currently underway with Holdham SAS as to the possibility of a Deed of Company Arrangement, which negotiations have not reached a stage where a formal and viable DOCA proposal has been put forward; and

3. undertake further investigations in order to form a view about whether any DOCA proposal that may be put forward is in the best interests of creditors.

18. Ms McCallum has expressed the opinion that, based on the information presently available to the Administrators concerning the Company's current financial position and operations, a realisation of the Company's assets and business as a going concern, either through a partial sale of assets or divisions of the business or through a DOCA, will result in a better outcome for creditors than its immediate liquidation. For this reason the Administrators consider that it is in the best interests of creditors for the Company to continue in administration during an extended convening period up to 30 April 2021.

19. During that period (if the extension sought is ordered by the Court) the Administrators expect that the following will occur:

1. negotiations will be conducted with potential purchasers of parts of the Company's business;

2. a DOCA proposal will be advanced as part of a possible sale or restructure of the Company;

3. the Company's business will continue to trade profitably, thereby preserving its value;

4. the Administrators' investigations will continue into the affairs of the Company in order to provide creditors with an understanding as to the factors which caused the Company to be placed into administration; and

5. the Administrators will prepare a detailed report to creditors, which sets out their views on any DOCA proposal (if one is forthcoming) and otherwise conclude their investigations and provide a recommendation to creditors, so that they may make a fully informed decision as to the future of the Company.

20. By contrast, if the convening period for the second meeting is not extended it is likely that the Administrators would either cause the second meeting to be adjourned in any event (which would result in additional costs being incurred) or would recommend that the Company be wound up because it is likely insolvent and there is not, at this stage, a formal and viable DOCA proposal. The Administrators consider that a winding up would likely lead to a worse outcome for creditors because it would limit possible avenues for sale or restructure of the business, noting that a lesser sale price would be likely to be achieved in a liquidation scenario compared to a going concern scenario.

21. The Administrators are not aware of any creditor or other stakeholder who would be adversely affected by the Court granting the extension of the convening period for the second meeting, particularly in circumstances where:

1. the Administrators are forecasting profitable trading during the administration period (subject to the assumptions that I mentioned earlier);

2. the employees continue to be employed and to receive their ordinary salary and wages; and

3. importantly, rent continues to be paid to the Company's landlord under the terms of the lease.

22. Ms McCallum deposes that if a sale or restructure of the business is achieved earlier than within the next nine weeks, or if it becomes clear that no such sale or restructure will occur, then the Administrators will call the second meeting of creditors without waiting for the nine week extension period to lapse. Ms McCallum deposes that it is the Administrators intention to convene the second meeting at the earliest sensible opportunity.

23. As I have already referred to, the first meeting of creditors was convened on 8 February 2021. At that meeting, the Administrators informed creditors that they intended to apply to the Court for an extension of the convening period until approximately early to mid April 2021. The representatives of the Australian Taxation Office and the proxy holder for employee creditors at that meeting expressed support for the proposed extension application. The proxy holders for the Company's landlord were unavailable to express a view and no other creditor expressed either active support or opposition to the foreshadowed application.

24. On 18 February 2021, the Administrators sent to creditors a copy of the Originating Process that has been filed in Court today and invited them to contact the Administrators’ office if they wished to discuss the proposed application or had concerns about how it might affect them as a creditor. No creditor has contacted the Administrators office in response to this correspondence.

25. The principles applicable to an application for an extension of the convening period for the second meeting of creditors under s 439A of the Corporations Act have recently been summarised in Re Strawbridge (in their capacity as joint and several voluntary administrators of each of Virgin Australia Holdings Ltd (admins apptd) (ACN 100 686 226)) and Others (No 2) (2020) 144 ACSR 347; [2020] FCA 717 at [64] to [68].

“64 The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an 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 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).

65     The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Ltd (admin apptd) [2019] FCA 11 at [3]–[8], where his Honour endorsed the comments of Austin J in Re Riviera Group Pty Ltd (admins apptd) (recrs and mgrs apptd) (2009) 72 ACSR 352; [2009] NSWSC 585 (Re Riviera) at [13] as to the categories of cases in which an extension is granted including, relevantly:

(1)    where the size and scope of the business in administration is substantial (citing Lombe, Re Babcock & Brown Ltd (admins apptd) [2009] FCA 349; Worrell; Re Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584; [2009] FCA 70; and ABC Learning Centres Ltd, Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947);

(2)    where the extension will allow sale of the business as a going concern, citing Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admins apptd) [2008] FCA 721; Re Uni-Aire Security Pty Ltd (admins apptd) [2006] FCA 1423; and

(3)    more generally, where additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, Re Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; Ex parte Vouris; Re Marrickville Bowling & Recreation Club Ltd (under administration) [2008] FCA 622.

66    An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: Mentha, Re Hans Continental Smallgoods Pty Ltd (admins apptd) [2008] FCA 1933 (Jacobson J); Re Riviera (Austin J); Re Austcorp Group Ltd (admins apptd) [2009] FCA 636 (Re Austcorp) (Lindgren J); and Re Kavia Holdings Pty Ltd (admins apptd) (recs and mgrs apptd) [2013] NSWSC 737 (Black J).

67     In Mighty River International Ltd v Hughes (as deed administrators of Mesa Minerals Ltd (subject to deed of company arrangement)) (2018) 359 ALR 181; 130 ACSR 427; [2018] HCA 38 at [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded:

‘… Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator’s estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. …’

68     Finally, the administrator’s own opinion as to the need for an extension will be given weight in an application 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 (recs and mgrs) (No 4) (2012) 92 ACSR 255; [2012] FCA 1491 at [26] (Logan J); Re Belmont Sportsmans Club Co-Operative Ltd (admin apptd) [2015] NSWSC 543 at [9] (Black J); Re application by Jahani (in their capacity as joint and several administrators of Northern Energy Corporation Ltd (admins apptd)) (No 2) [2019] FCA 382 at [67] (Farrell J); Re Duro Felguera Australia Pty Ltd (admins apptd) [2020] FCA 422 at [32] (Gleeson J).”

26. Applying those principles to the evidence summarised above, I am satisfied that the orders sought by the Administrators should be made. For the reasons advanced in submissions made on behalf of the Administrators.

27. The extension of the convening period will permit the Administrators a proper opportunity to conduct the work necessary to properly explore a potential restructure and sale of all, or parts, of the business as a going concern with a view to achieving a better outcome for creditors that would be likely to flow from a sale in a liquidation scenario.

28. The extension will also permit the Administrators a proper opportunity to explore a possible Deed of Company Arrangement.

29. Without the extension, the Administrators will simply not have had a sufficient time to meaningfully report to creditors and formulate recommendations, leaving them in a position where they may have no practical alternative other than to recommend a winding up or to adjourn the second meeting of creditors (thereby incurring additional costs that will be costs in the administration).

30. The additional time required is understandable having regard to the Company's national operations and the intercompany arrangements which affect the Company's current financial position and require further investigation. It seems to me that the nine week extension sought is proportionate to the work required to be done.

26. As I referred to above the Administrators do not consider that the extension would prejudice the interest of creditors or other affected parties, particularly in circumstances where they project that the Company will continue to trade profitably during the extended administration. I also note the lack of opposition to the proposed extension from creditors, and the support for the extension expressed by the ATO and the proxy holder for employee creditors at the first meeting.

27. In any event the orders sought appropriately grant liberty to any interested party to apply to set the orders aside so that any unforeseen prejudice may be addressed by the exercise of that liberty.

28. Finally, as I have mentioned earlier, the Administrators seek an order in terms that will permit them to hold the second meeting at any time during the extended convening period leaving them the flexibility to do so as early as is sensible as Ms McCallum has explained.

29. As I have mentioned earlier, this application has been foreshadowed since 8 February 2021. However, the application was first notified to the Corporations Duty Judge at 12pm today, the same day on which the Administrators would otherwise have been required to send notice of the second meeting to creditors if the extension were not granted. The Administrators’ solicitors pressed the Court to hear the application this afternoon.

30. Applications of this nature ought not be made at the last minute. To do so creates an artificial urgency that interferes with the orderly and efficient management of the publicly funded resources of the Court that must be available for all litigants to call upon.

Orders

36. The Court makes the following orders:

1. On the undertaking of the Plaintiffs’ solicitor to pay the applicable filing fee, leave be granted to the Plaintiffs to file in Court the Originating Process dated 23 February 2021.

2. Pursuant to section 439A(6) of the Corporations Act 2001 (Cth), the convening period defined in section 439A(5)(b) of the Corporations Act 2001 (Cth) in respect of the second plaintiff, Hamelin Brands Pty Ltd (the Company), be extended up to and including 30 April 2021.

3. Pursuant to section 447A(1) of the Corporations Act 2001 (Cth), Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to the Company such that, notwithstanding section 439A(2) of the Corporations Act 2001 (Cth), the second meeting of the creditors of the Company required under section 439A of the Corporations Act 2001 (Cth) may be convened at any time before, or within, five (5) business days after the end of the convening period as extended by paragraph 2 above, provided that the first plaintiffs (the Administrators) give notice of the meeting to eligible creditors of the Company (including the persons or entities claiming to be creditors of the Company) at least five (5) business days before the meeting.

4. Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) and section 90-15 of the Insolvency Practice Schedule (Corporations), Part 5.3A of the Act is to operate in relation to the Company as if the notice of the second meeting of creditors required to be given pursuant to section 75-225(1) of the Insolvency Practice Rules (Corporations) 2016 (Cth), any notice under section 75-15(1) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Notice) and the documents required by those rules to be included with the Notices (Report), will be validly given to creditors of the Company by reason of the following steps having been taken:

1. where the Administrators:

1. have an email address for a creditor, by sending the Notice by email to each such creditor; and

2. do not have an email address for a creditor but have a postal address for the creditor (or have received notification of non-delivery of a notice sent by email in accordance with subparagraph (a)(i) above), by sending the Notice by posting a copy of it to the postal address for each such creditor; and

2. by causing the Notice to be published on the Australian Securities and Investments Commission published notices website at

5. The Administrators take all reasonable steps to cause notice of these orders to be given, within two (2) business days of the making of these orders, to:

1. the creditors of the Company (including persons or entities claiming to be creditors), in the manner set out in subparagraph 4(a) above; and

2. the Australian Securities and Investments Commission.

6. Any person who can demonstrate a sufficient interest has liberty to apply to vary or discharge any orders made pursuant to paragraphs 2 to 4 above, on two (2) business days’ written notice being given to the plaintiffs and to the Associate to the Corporations Duty Judge.

7. The plaintiffs have liberty to apply on two (2) business days’ notice in relation to any variation of these orders or any other matter generally arising in the administration of the Company.

8. 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 Company.

9. These orders be entered forthwith.

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Amendments

24 February 2021 - Date of decision amended

Decision last updated: 24 February 2021