In the matter of Thrive Collective Pty Ltd (admins apptd)

[2018] NSWSC 2049

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Thrive Collective Pty Ltd (admins apptd) [2018] NSWSC 2049
Hearing dates:	18 December 2018
Decision date:	18 December 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order that the First Plaintiffs not be personally liable to repay any debt or liability to the extent that their indemnity against the Second Plaintiff’s property is insufficient to satisfy any debt or liability in respect of the loan agreement, and associated orders made. The orders be stayed until mid-morning, 21 December 2018.
Catchwords:	CORPORATIONS – external administration – application to limit administrators’ personal liability – where proposal for the company to enter into a loan agreement to fully pay employee entitlements – where lenders be subrogated to position of the employees in a liquidation under s 560 of the Corporations Act 2001 (Cth) – whether entry into loan agreement is in the best interests of creditors – whether the application advances the interests of Pt 5.3A of the Corporations Act 2001 (Cth).
Legislation Cited:	- Corporations Act 2001 (Cth) Pt 5.3A, ss 443A, 447A, 560
Cases Cited:	- Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142 - Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493
Category:	Principal judgment
Parties:	Scott David Harry Langdon and Rahul Goyal in their capacity as joint and several administrators of Thrive Collective Pty Ltd (admins apptd) (First Plaintiff) Thrive Collective Pty Ltd (admins apptd) (Second Plaintiff)
Representation:	Counsel: M L Rose (Plaintiffs)   Solicitors: ERA Legal (Plaintiffs)
File Number(s):	2018/388656

Judgment – ex tempore (revised 24 january 2019)

1. By Originating Process filed today by leave, Mr Langdon and Mr Goyal, as joint and several administrators (“Administrators”) of Thrive Collective Pty Ltd (admins apptd) (“Company”) seek an order under s 447A of the Corporations Act 2001 (Cth) that Pt 5.3A of the Act is to operate so that, if their indemnity against property of the Company is insufficient to meet any debt or liability incurred by them in respect of a loan agreement which they propose to enter, then they will not be personally liable to repay such debt or liability to the extent of that insufficiency. I will refer to the circumstances in which that loan agreement arises below. Other orders sought, as amended in the course of this application, will have the effect that notice will be given to creditors of the orders, both by email and at a first meeting of creditors tomorrow, and the orders will be stayed until Friday morning, so that creditors have an opportunity to apply to set them aside, if so advised. That course has been taken against the contingency that the orders have any adverse effect upon the priority of creditors inter se, although Counsel has not presently been able to identify any such adverse impact.

2. The application is supported by an affidavit of Mr Langdon dated 18 December 2018, which refers to the background to the application. Mr Langdon notes that the Company was founded in 2012 to create a health and wellness brand, and the relevant group sold, among various services, a range of meals from shopping centre premises. The Administrators were appointed on 8 December 2018, and have since undertaken activities including communicating with creditors and employees, terminating the employment of company staff and commencing to calculate their entitlements. Mr Langdon refers to the operation of several restaurants by the Company in food courts in major metropolitan centres, and to matters which had arisen that have contributed to the Company being placed in administration, after it suffered substantial losses in two successive financial years. Mr Langdon notes that the Company employed 160 employees across nine restaurant locations and a head office, and owes outstanding employee entitlements to a significant number of employees, including full time, part time and casual employees, and several employees terminated prior to his appointment.

3. Mr Langdon refers to a proposal made by Thrive Group Holdings (“Holdings”), the parent company of the Company, to make a loan for the purpose of paying employee entitlements prior to Christmas 2018. It appears that Mr Langdon may have initiated the dialogue in respect of that matter, given a particular concern as to the Company's inability to pay all outstanding employee entitlements from its own resources, and the timing of the voluntary administration, immediately prior to Christmas. It is now proposed that Holdings will advance funds which will permit the Company to pay those employee entitlements, on the basis that it would then seek to be subrogated to the position of employees in a liquidation under s 560 of the Corporations Act.

4. Mr Langdon expresses the view that this approach will advance the objective of Pt 5.3A of the Act and it is in the best interests of creditors, so far as it will allow employees to receive employee entitlements earlier than they would otherwise do so, where they may otherwise need to wait until either a deed of company arrangement is executed or the Company is placed in liquidation and they obtain any assistance available under the Fair Entitlements Guarantee scheme. Mr Langdon also points to the possibility that employees would obtain a greater return than under the Fair Entitlements Guarantee scheme, including payment of outstanding superannuation, although Mr Rose, who appears for the Administrators, indicates that no change in the priorities applicable under the Corporations Act has been identified. It is understandable that the Administrators are reluctant to accept a personal liability for the proposed loan, in circumstances that the administration is at a very early stage, and there is uncertainty as to the amount that will ultimately be recoverable from the Company's assets. Mr Rose draws attention to the fact that it would be highly unlikely in the relevant circumstances that the Administrators could achieve more attractive funding, within a short time frame, particularly where Holdings has offered to provide such funding without interest. Mr Rose emphasises, in submissions, the advantage to employees, in particular, of early payment of their entitlements, given the time of year.

5. Mr Rose draws attention to the case law as to the circumstances in which the Court may make an order of this kind, under s 447A of the Act, to limit an administrator's personal liability under s 443A of the Act. Such an order is most often made in circumstances where funding is provided to permit a company's business to continue pending sale: see, for example, the review of the relevant principles in Mentha, in the matter of Griffin Coal Mining Company Pty Ltd (admins apptd) [2010] FCA 1469; (2010) 82 ACSR 142. However, this application has something in common with the position considered in Secatore in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493, where funding was to be applied by voluntary administrators for several purposes, one of which was to pay employee entitlements.

6. I am satisfied that, in this case, the application does advance the interests of Pt 5.3A of the Act, so far as it is of advantage to employees, and it is not immediately apparent that there is any disadvantage to other creditors, who would have the same priority in a liquidation, if all that occurs is that Holdings, which has advanced the amounts payable to employees, is subrogated to employee entitlements. I recognise, however, that the application has, understandably given its urgency, been brought on an ex parte basis. It is possible that the application and its results would have effects which neither the Administrators nor counsel, nor the Court, can presently identify. These might include, for example, any change in creditors’ order of priority which has not presently been identified, or possibly, the effect of concentrating voting power in Holdings, which would otherwise be exercised by employees.

7. In these circumstances, it seems to me that the Court can be satisfied that the orders should be made, to assist employees who may otherwise be in a position of difficulty, given the time of year, and provided that there is no unreasonable detriment to other creditors from the making of the order. It seems to me that the proper course, in those circumstances, is that which the Administrators proposed, namely that the orders be made, so as to allow them to enter this arrangement, but exposed to creditors at the first meeting of creditors; and notified to creditors by email in the manner proposed; and stayed until mid-Friday morning, 21 December 2018 so that any creditor who is concerned about any adverse implication of the orders can apply to set them aside. The time which is allowed for such an application is the maximum that can be allowed, while still giving the Administrators the opportunity to ensure that payments are made to employees prior to Christmas, so as to achieve the objective of the application. It seems to me that the balance that is achieved by that approach, between notice to creditors, and allowing the benefit of the proposal, if it is not opposed by creditors is an appropriate one in the circumstances.

8. I note, for completeness, that an application for a suppression order that had originally been sought was not pressed, and it seems to me that that course was appropriate where access to the relevant information may ultimately be necessary if a creditor seeks to bring any application to vary the Court's orders. I need not deal further with that application.

9. I make orders 1 to 4 in the short minutes of order initialled by me and placed in the file. I do not make orders 5 and 6 as previously included in the short minutes of order. I make orders 5 to 7 as renumbered, and I note the matter recorded in paragraph 8 of the short minutes of order, initialled by me and placed in the file.

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Decision last updated: 24 March 2019