In the matter of S J Whiting Nominees Pty Ltd (Administrator Appointed) (ACN 137 122 466)
[2019] VSC 127
•5 March 2019 (ex tempore), revised 21 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 00842
IN THE MATTER of S J Whiting Nominees Pty Ltd (Administrator Appointed) (ACN 137 122 466)
| MATTHEW MULDOON in his capacity as Voluntary Administrator of S J WHITING NOMINEES PTY LTD (Administrator Appointed) (ACN 137 122 455) | Plaintiff |
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JUDGE: | Gardiner As J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 March 2019 |
DATE OF JUDGMENT: | 5 March 2019 (ex tempore), revised 21 March 2019 |
CASE MAY BE CITED AS: | In the matter of S J Whiting Nominees Pty Ltd (Administrator Appointed) (ACN 137 122 466) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 127 |
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CORPORATIONS – Company under external administration under Part 5.3A of the Corporations Act 2001 (Cth) – Application for extension of convening period of second meeting of creditors pursuant to s 439A(6) and s 447A – Major asset of company gambling machine entitlements issued under the Gambling Regulation Act (2003) (Vic) – Plaintiff required to explore process of selling such entitlement – Administration of a complexity which requires a longer convening period than that prescribed by Part 5.3A of the Corporations Act 2001 (Cth) – Application granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A J Purton | Corrs Chambers Westgarth |
HIS HONOUR:
On 1 March 2019, I made orders extending the convening period within which the administrator must convene the second meeting of creditors of the Company to 7 May 2019, an extension of eight weeks after the end of the statutory convening period, together with certain other ancillary orders. I indicated on the occasion of making those orders that I would publish my reasons for doing so which I now do.
Background
On 7 February 2019, the plaintiff, Matthew Muldoon (‘the Administrator’) was appointed as administrator of S J Whiting Nominees Pty Ltd (ACN 137 122 466) (‘the Company’) by a secured creditor, Bendigo and Adelaide Bank Ltd (‘the Bank’) pursuant to s 436C of the Corporations Act 2001 (Cth) (‘Corporations Act’).
By an originating process filed 28 February 2019, the Administrator seeks orders for an extension of the convening period for the second meeting of creditors of the Company until 7 May 2019 (‘Application’). Unless extended, the convening period ends on 7 March 2019. The Application is supported by affidavits of the Administrator sworn on 27 February 2019 and Jessica Cole, sworn 1 March 2019.
On 19 February 2019, the first meeting of creditors required to be convened under s 436E of the Corporations Act took place. No committee of inspection was appointed as the creditors followed the Administrator’s recommendation that given the size of the administration a committee of inspection was not necessary.
The Company was incorporated in 2009 and traded as ‘Miners Tavern’ and operated a public house and gaming venue at a premises it leased on Lydiard Street North, Ballarat, Victoria (‘The Premises’). As at the date of the hearing of the Application, the Premises were being vacated. The Administrator intended to return possession to the landlord, SJO Pty Ltd (‘the landlord’), on either 1 March or 4 March 2019.
The Company currently holds 24 Gaming Machine Entitlements (‘GMEs’) issued by the Minister for Consumer Affairs, Gaming and Liquor Regulation which the Administrator estimates to be valued at approximately $2.4 million. The GMEs are recorded on the Victorian Commission for Gambling and Liquor Regulation (‘VCGLR’) register which records the Company’s current entitlements. The Company also holds a liquor license and a venue operator’s license (‘VOL’).
The Administrator states that because the business of the Company is operated from leasehold premises, he has been in discussion with the landlord on numerous occasions to determine whether the landlord has an interest in purchasing the business of the Company, including the GMEs, as a going concern. The landlord has already indicated that it is not interested in acquiring the plant and equipment situated at the Premises.
The Administrator deposes that the business of the Company was not financially viable, financial information is scant and that ‘certain key business agreements with the landlord and Tabcorp Gaming Services are unlikely to reflect the current market position’.
While awaiting legal advice with respect to the sale and transfer of the GMEs the Administrator traded the Company’s business from the date of his appointment until close of business on Thursday 21 February 2019. The Administrator ceased trading the Company’s business upon receipt of legal advice as well as confirmation from the Bank that it was unwilling to fund future trading. The Administrator has engaged solicitors to advise in relation to the administration generally. He has retained other legal advisors with expertise in liquor and gaming regulation in Victoria to provide advice in relation to those issues and to assist with determining the process involved in selling the GMEs.
Prior to going into administration, the Company had undertaken a sale of business campaign for approximately six months with no interest from any prospective purchasers. The Administrator is of the view that a further sale of business campaign is unlikely to attract any interest and because the business was largely unfunded and operating at a significant loss, he was not in a position to continue to trade after 21 February 2019 in order to explore any further sale options.
Since his appointment the Administrator has undertaken a preliminary review of the operations and financial position of the Company. He conducted the first meeting of creditors on 19 February 2019. The Administrator has also been liaising with the landlord as to the landlord’s interest in purchasing the business including the GMEs, as well as engaging a brokerage firm to assist in the sale of GMEs.
The Administrator deposes that as at the date of his appointment, the books and records of the Company indicated the Company had total assets of $1,376,008.81 and total liabilities of $2,581,211.11. The Administrator states that he has not yet formed a view as to the accuracy of the books and records and his investigations are ongoing. The Administrator estimates the Company’s liabilities to be in the order of $3.9 million based on actual amounts contained in the books and records together with the amounts claimed in informal proofs of debt lodged prior to the first creditors’ meeting. Those proofs are yet to be adjudicated upon. The Administrator has also engaged Grays Asset Services to conduct a valuation of the Company’s plant and equipment assets and was provided with a valuation on 20 February 2019.
According to the informal proofs of debt received by the Company, there are thirteen creditors of the Company with claims totalling $2,876,080.69. Of that sum, approximately $1.7 million is owed to the Bank. The employees, whose services have all been terminated, are owed approximately $40,000. The Administrator expects to be in a position to form a concluded view as to the Company’s financial position at the end of the proposed extended convening period.
Under ss 439A(1) and 439A(5) of the Corporations Act, the Administrator is required to convene the second meeting of creditors by no later than 7 March 2019 and, having regard to the fact that 11 March 2019 is a public holiday, to hold that meeting by 15 March 2019. By operation of rule 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (‘Insolvency Practice Rules’), the Administrator is also required to prepare and provide a report about the Company’s business, property, affairs and financial circumstances and to express an opinion about whether it would be in the interests of the Company’s creditors for the administration of the Company to end and control be returned to the Director, for the Company to execute a deed of company arrangement (‘DOCA’) or for the Company to be wound up. Such a report must express reasons for that opinion and provide such information to enable the creditors to make an informed decision.
Reasons the extension is sought
The primary reason for seeking the extension of time is to allow the Administrator sufficient time to undertake all steps which can practicably be taken to maximise the value of the GMEs including the timing of such sale. The extension will also enable the Administrator to make an informed recommendation to the creditors as to the future of the Company.
The Administrator deposes that the current GMEs will expire on 15 August 2022 (‘Current GMEs’) but under the 2022 GME Agreement the company has with the Minister for Consumer Affairs, Gaming and Liquor Regulation, are renewed with an effective date of 16 August 2022 (‘2022 GMEs’). He deposes that there are no restrictions in place with respect to any transfer of the Current GMEs, but the situation may not be the same be with respect to transfer of the 2022 GMEs which takes effect on 16 August 2022. The potential restrictions on the transfer of the 2022 GMEs was elaborated upon at the hearing of the Application by Counsel for the Administrator, Mr Purton, and this is discussed below.
The Administrator deposes that he has engaged with the VCGLR with respect to the GMEs and the VOL and this engagement is ongoing. Because of the complexity surrounding the potential transfer of 2022 GMEs, especially in the context of external administration, the Administrator’s investigations in relation to this issue are continuing. The Administrator has made payment of approximately $40,000 of the first instalment due in respect of the 2022 GMEs.
The broker engaged to negotiate with parties interested in purchasing both the Current GMEs and the 2022 GMEs expects that it may take several weeks to elicit any offers and to document and negotiate any sale and transfer. The Administrator states that he is advised by the broker that there is an active market for GMEs and it is likely that there will be many offers at market value. There have been no discussions as yet with interested parties, save for those conducted with the landlord.
Mr Purton submitted at the hearing of the Application that if the Company’s VOL is cancelled then this may result in a statutory forfeiture of the GMEs. In that regard, he referred to s 3.4A.26(1)(a) of the Gambling Regulation Act (2003) (Vic) (‘Gambling Act’) which relevantly provides:
3.4A.26 Gaming machine entitlements forfeited if venue operator’s license cancelled, surrendered or not renewed
(1)This section applies if a venue operator’s license held by a venue operator –
(a)is cancelled by the Commission under section 3.4.25(4); or
…
(2) On the relevant day -
(a)every gaming machine entitlement held by the venue operator (other than a gaming machine entitlement assigned to the venue operator under Division 3A) is forfeited to the State; and
…
(3) In this section –
License cancellation day means -
(a)the day on which notice under section 3.4.25(4) takes effect; or
…
Mr Purton stated in this regard that although it is difficult to discern from the terms of s 3.4.25(4) what power the Commission might rely on to cancel the VOL, the Administrator has received advice which suggests that cancellation of the VOL is a possibility if the Company goes into liquidation but that it is less likely if the Company remains in administration or is subject to a deed of company arrangement.
Mr Purton also submitted that another important consideration in deciding whether to grant an extension of the convening period arises by virtue of a determination by the responsible Minister in respect of GME allocation and transfer rules promulgated pursuant to the Gambling Act published in the Victoria Government Gazette dated 13 August 2018 (‘Determination’). Rule 8(a) of the Determination provides:
(a)A venue operator must not transfer a gaming machine entitlement that takes effect on or after 16 August 2022 before the day which is 6 months before the day on which the gaming machine entitlement takes effect.
Mr Purton stated that the effect of the Determination is that the Administrator would be unable to sell the 2022 GMEs before 6 months before 16 August 2022.
Mr Purton stated that while r 8(a) of the Determination prevents a sale of the 2022 GMEs before 6 months before 16 August 2022, there is an exception contained within r 8(b) which would effectively enable the 2022 GMEs to be sold prior to this time provided the GMEs were transferred as part of a going concern sale of the existing business. Mr Purton submits that the only potential candidate for the sale of the Company’s business at this time is the landlord.
Mr Purton states that if the Company were placed into liquidation, another option to avoid offending r 8(a), albeit an impractical option, would be to continue the liquidation up until 6 months before 16 August 2022, when a sale of the 2022 GMEs would then be available. Mr Purton stated that if the Company went into liquidation then, as explained above, it is still possible that both the Current GMEs and the 2022 GMEs would be forfeited to the State in any event and for that reason the Administrator is not attracted to placing the Company into liquidation.
The overall effect of r 8(a) appears to be that negotiating a sale of the 2022 GMEs that does not offend r 8(a) will take time, and voluntary administration is a more appropriate course because liquidation could expose the Company to forfeiture of both the Current GMEs and 2022 GMEs.
Mr Purton stated that the Administrator has not determined the best option for the sale of GMEs but indicated that the Administrator is keen to explore the option of a DOCA in which the GMEs are held as an asset of the Company to be transferred at a future point in time.
Mr Purton stated that it is expected that by 7 March 2019, the Administrator will know whether a sale of the Company’s business including the GMEs to the landlord is likely to proceed. It will then also be clearer what course should be adopted to sell the GMEs.
The Administrator expresses the view that as the business has ceased trading and there is no additional cost burden arising from continued trading during an extended convening period, that the benefits gained from the extension far outweigh any detriment to creditors. Mr Purton stated that as at the date of the hearing the Company had no outstanding payments due to the landlord in respect of the lease. As the Company is no longer in possession of the Premises, then the prejudice which ordinarily arises by virtue of the operation of s 440B of the Corporations Act, which has the effect of restricting the landlord’s rights to the Premises, no longer apply. In any event, the landlord supports the Administrator’s Application, as stated below.
Notice to creditors
Ms Cole’s affidavit indicates that the creditors known to the Administrator have been informed of the making of this Application, but only on the day of the hearing of the Application. She states that at the time of swearing her affidavit she had not received any responses from any creditors opposing the Application.
Ms Cole deposes that the extension to the convening period is supported by the Bank and the landlord. Ms Cole deposes that she is informed by the Administrator that on 28 February 2019 the Administrator had a telephone conversation with Adam Kirkwood-Scott on behalf of the landlord and was informed that the landlord supports the Application and is considering whether it will put forward a DOCA. Ms Cole further deposes that she is informed by the Administrator that he had a telephone conversation with Scott Allen, a representative of the Bank, in which Mr Allen confirmed that the Bank supports the Application.
Legal principles to be applied
In considering whether to grant an extension of the convening period, the court should have regard to the general objectives of Part 5.3A of the Corporations Act.[1]
[1]See for example, Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (‘Mann’) and Re Allbuild Construction Co Pty Ltd (Administrators Appointed); Ex Parte Featherby & Anor [2000] WASC 227.
There is a tension between the goal of voluntary administration, namely speedy resolution and the overall object of Part 5.3A as stated in s 435A, namely maximising the chances of the company or its business continuing in existence or achieving a better result for creditors than would be achieved in an immediate winding up.
An additional reason for expedition is that the statutory moratorium on the prosecution of proceedings against the company and enforcement of rights by secured parties, owners or landlords should not be prolonged without good cause.[2]
[2]Mann (n 1) 612; Re PH (Melbourne) Pty Ltd (administrator appointed); ex parte Sims [2002] FCA 637.
However, courts have recognised that the interests of creditors can be prejudiced not only by delay but also, for example, by the convening of premature meetings, where the administrator has been unable to obtain adequate information for the preparation of the report and statements required by s 439A(4)[3] in a form which enables creditors to make an informed decision.[4]
[3]Former s 439A(4) has been repealed (effective 1 March 2017) and is now replicated in rule 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth).
[4]Re Brash Holdings Ltd (admin apptd) (1994) 13 ACSR 793; Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (Mcgrath and Honey as joint liquidators) and Others (2003) 46 ACSR 77.
In Re Riviera Group Pty Ltd (admins apptd) (recs and mgers apptd) (ACN 102 298 279) and Others,[5] Austin J identified a number of broad categories of cases in which extensions of the convening period had been granted. In the context of this Application the following factors are, in my view, particularly relevant:
the time needed to execute an orderly process of disposal of assets;
the time needed for thorough assessment of a proposal for a deed of company arrangement;
where the extension will allow sale of the business as a going concern; and
more generally, that additional time is likely to enhance the return for unsecured creditors.
[5](2009) 72 ACSR 352, 355 [13].
Mr Purton stated that the Administrator seeks the extension for the following reasons:
(a) The Administrator believes that the best return to creditors will be achieved if he is able to agree a sale and transfer of the GMEs. The legislative framework surrounding the GMEs is complex. It has been necessary for the Administrator to obtain specialist legal advice as to the realisation of the GMEs. Having obtained that advice, the Administrator has only just embarked on a process to sell the GMEs.
(b) Liquidation of the Company may result in termination of the venue operator’s licence, and a statutory forfeiture of the GMEs. Statutory forfeiture of the GMEs would greatly reduce the likely return to creditors. Sale of the GMEs through a DOCA may be one way to avoid statutory forfeiture of the GMEs, but the sale process has just commenced and the Administrator has no proposal for a DOCA to put to the creditors.
(c) The Administrator is not presently able to make a meaningful recommendation to creditors, as required by r 75-225 of the Insolvency Practice Rules. While it is his opinion that the best return to creditors will be achieved if the GMEs are sold outside of liquidation (so as to avoid statutory forfeiture), if the convening period is not extended, then he would have no choice but to recommend that the Company be wound up.
(d) The extension to the convening period is supported by the secured creditor and the landlord. The landlord is currently exploring whether it is in a position to put forward a proposed DOCA.
(e) While an additional period of two months is sought, a Daisytek[6] order is also sought under s 447A, which would allow the Administrator to convene the second creditors meeting earlier, if he is able to achieve a quick sale of the GMEs. In addition, the orders preserve liberty to apply to any person who may be affected by the orders sought.
[6]Re Daisytek Australia Pty Ltd (admin apptd) and Another (Bowen and Hall as joint admins) (2003) 45 ACSR 446.
Consideration
The Administrator details in his affidavit the tasks undertaken by him as the Administrator to date. This evidence reveals that while the administration is relatively small and with only thirteen known creditors, the issues concerning the transfer of the 2022 GMEs are complex and require careful consideration in order to allow for the best possible sale and return to creditors. It seems clear that this process could not be performed within the time constraints imposed by the Corporations Act for the convening and holding of the second meeting of creditors and preparation of a report under pursuant to r 75-225 of the Insolvency Practice Rules.
It seems clear that the interests of the creditors in this administration, including the employees and the unsecured creditors, are advanced by allowing an extension of the convening period. The sale and transfer of the Company’s major asset, the GMEs, is a complex one that cannot be practicably carried out by the Administrator in the prescribed statutory time frames. The extension will enable the GMEs to be realised in a lengthier, more orderly time frame which is likely to result in a better outcome for all creditors than if the GMEs were sold off in a liquidation scenario (assuming this was an available option), and indeed most certainly if the liquidation were to result in a forfeiture of the GMEs.
I consider that there are sufficiently strong reasons for the granting of the extension. The most significant material prejudice which potentially arises to those affected by the making of these orders is the extension of the moratorium period affecting the landlord and the Bank, however the Application is supported by them. I consider that that any prejudice which subsequently becomes apparent can be satisfactorily addressed by the provision of liberty to apply in any event.
I will also make an order under s 447A to enable the Administrator to hold a second creditors meeting at any time within the convening period as extended or within five business days thereafter. This type of order, known as a Daisytek order, is commonly made in these types of applications to give administrators flexibility to perform their functions.
For completeness, I set out the orders that I pronounced on 1 March 2019.
THE COURT ORDERS THAT:
1. Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (‘Corporations Act’), the convening period within which the plaintiff must convene the second meeting of creditors of S J Whiting Nominees Pty Ltd (Administrators Appointed) (Company) be extended to 7 May 2019 (Extended Convening Period).
2. Pursuant to section 447A(1) of the Corporations Act, the second meeting of creditors of the Company required by section 439A of the Corporations Act may be held at any time during the Extended Convening Period or within five business days after the end of the Extended Convening Period, notwithstanding the provisions of section 439A(2) of the Corporations Act.
3. Liberty is granted to any person who can demonstrate sufficient interest to discharge or modify these orders on three business days’ written notice to the plaintiff.
4. Liberty is granted to the plaintiff to apply for any further extensions of the convening period for the Company.
5. The costs of and incidental to this application are costs and expenses in the administration of and are to be paid out of the assets of the Company.
6. The plaintiff give written notice of this order to each creditor affected by it by:
(a) emailing a copy of the order to the email address for that creditor known to the plaintiff; or
(b) where no email address is known, by posting a copy of the order to the plaintiff’s last known address for that creditor;
within three business days following the date of this order.
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