Jahani, in the matter of Miniso Master Franchisee Pty Ltd (Administrators Appointed) (No 2)
[2020] FCA 1140
•7 August 2020
FEDERAL COURT OF AUSTRALIA
Jahani, in the matter of Miniso Master Franchisee Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1140
File number: NSD 768 of 2020 Judgment of: STEWART J Date of judgment: 7 August 2020 Catchwords: CORPORATIONS – application by administrators under s 439A(6) of the Corporations Act 2001 (Cth) for an extension of the convening period for the second meeting of creditors of the company – where retail stores required to be closed because of coronavirus restrictions – where administrators required to communicate with company personnel through interpreters – where additional time needed for orderly disposal of assets and thorough assessment of proposed deed of company arrangement –where additional time likely to enhance return to creditors – application granted Legislation: Corporations Act 2001 (Cth) Pt 5.3A, ss 435A, 439A, 439C, 443B, 447A Cases cited: In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002
In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585; 72 ACSR 352
Jahani, in the matter of Miniso Master Franchisee Pty Ltd (Administrators Appointed) [2020] FCA 1066
Mighty River International Limited v Hughes [2018] HCA 38; 265 CLR 480
Owen, in the matter of River City Motorway Pty Ltd (admin apptd) (recs and mgrs apptd) v Madden (No 4) [2012] FCA 1491; 92 ACSR 255
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 27 Date of hearing: 7 August 2020 Counsel for the Plaintiffs: T Jonker Solicitor for the Plaintiffs: Hamilton Locke ORDERS
NSD 768 of 2020 IN THE MATTER OF MINISO MASTER FRANCHISEE PTY LTD
SAID JAHANI AND PHILIP CAMPBELL-WILSON IN THEIR CAPACITY AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATORS OF MINISO MASTER FRANCHISEE PTY LTD ACN 617 284 214
First Plaintiff
MINISO MASTER FRANCHISEE PTY LTD ACN 617 284 214
Second Plaintiff
ORDER MADE BY:
STEWART J
DATE OF ORDER:
7 AUGUST 2020
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period, as defined by section 439A(5) of the Act, with respect to the second plaintiff (the Company) be extended up to and including 21 September 2020.
2.Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company as if the meeting of creditors of the Company, required by s 439A(1) of the Act, may be held at any time during the period as extended under order 1 above, and the period of five (5) business days thereafter, notwithstanding the provisions of s 439A(2) of the Act.
3.Liberty to apply be granted to any person, including any creditor of the Company or the Australian Securities and Investments Commission (ASIC), who can demonstrate sufficient interest to vary the orders sought on the giving of three (3) business days’ notice to the plaintiffs, and to the Court.
4.Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company such that notice of the second meeting of the creditors of the Company will be validly given to creditors by:
a.causing the notice to be published on the ASIC ‘published notices’ website at a hyperlink to the notices published on the ASIC published notices website by email to the email address of each creditor at such email address as is recorded in the books and records of the Company; and
c.where an email address is not recorded in the books and records of the Company but a postal address is recorded, sending by post the notices to the postal address of each creditor at such postal address as is recorded in the books and records of the Company.
5.Within 48 hours of these orders the plaintiffs are to cause a notice of these orders to be given to the creditors (including persons claiming to be creditors) of the Company and to ASIC by the following means:
a.by email to those creditors who have provided the plaintiffs with an email address;
b.by post or facsimile to all other creditors known to the plaintiffs; and
c.by post to ASIC.
6.The costs and expenses of and incidental to the interlocutory process be costs and expenses in the administration of the Company
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from the transcript)STEWART J
This application was brought by the joint and several voluntary administrators of Miniso Master Franchisee Pty Ltd. The administrators seek orders pursuant to s 439A(6) of the Corporations Act 2001 (Cth) extending the convening period under s 439A(5)(a) in respect of the company for a period of six weeks up to and including 21 September 2020. If the extension is not granted, the convening period will end on 10 August 2020. The administrators also seek an order pursuant to s 447A(1) of the Act permitting the second meeting to be held at any time during the convening period and not only at its end.
The first meeting of creditors was held on 23 July 2020. The minutes of that meeting record the background to the business of the company as follows.
Miniso Australia was established in 2016 and is a retailer of household and consumer goods. It operates 32 stores in Australia as well as an online store. The company in respect of which the administrators are appointed is a wholly owned subsidiary of Miniso Holdings Pty Ltd, which is the shareholder of a number of other administrative and operating entities within the Miniso group.
The company holds the licence of the ‘Miniso’ brand from Tabata Holdings Ltd, a company incorporated in Hong Kong, to trade the brand in Australia. Tabata is also the ultimate holding company to Miniso Holdings and the group.
Miniso operates a hybrid ownership model of business whereby the stores operate through franchisee agreements, joint venture arrangements and stores wholly owned by the Miniso corporate group. The company purchases and holds stock on behalf of the entities within the Miniso group. The administrators identified 12 group owned stores, 13 franchises, six joint ventures and one wholesale store within the group. Additionally, the company had one office in Sydney and it has an office in Melbourne.
As a result of the COVID-19 pandemic and its associated restrictions, the company has suffered a significant downturn in revenue and the directors determined that the company was insolvent, leading to the appointment of the administrators. The problems have become particularly acute with the worsening situation of the pandemic in Victoria in recent weeks.
The administrators were appointed on 13 July 2020 pursuant to a resolution of the board of directors under s 436A of the Act.
On 17 July 2020, Jagot J made orders including order (1) that pursuant to ss 443B(8) and 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, varying the operation of ss 443A(1)(c) and 443B(2) of the Act, the administrators are not personally liable for rent or other amounts payable by the company in respect of property leased, used or occupied by the administrators of the company until 16 August 2020. Her Honour’s reasons are published as Jahani, in the matter of Miniso Master Franchisee Pty Ltd (Administrators Appointed) [2020] FCA 1066. The administrators do not, in this application, seek an extension of order (1) made on 17 July 2020.
Since the matter was before the Court on 17 July 2020, the administrators have, amongst other things, undertaken the following:
(1)Continued to trade the company in order to conserve its value for a potential sale and/or recapitalisation.
(2)Continued to investigate the financial position of the company and the position vis-à-vis creditors. The known unsecured creditors of the company, including the landlords, are owed approximately $24.3 million and the secured creditors of the company are owed approximately $132,431.
(3)Concluded a stocktake that shows a stock value of approximately $3.8 million and that the company owns the stock.
(4)Commenced rent relief negotiations with the landlords which was foreshadowed in the first application.
(5)Issued a notice to the landlord of the head office in Sydney in accordance with s 443B(3) of the Act and vacated those premises.
The administrators have undertaken various investigations and collected information in accordance with s 438A of the Act. They have also advanced discussions with a potential deed proponent with respect to a recapitalisation plan that will involve the majority of stores and the continuation of the Miniso business.
Notwithstanding the work they have already done, the administrators say that they are presently unable to provide any meaningful recommendation or proposal to creditors as required by s 439A of the Act in respect of the future of the company. They consider that the following matters require continued work:
(1)Considering and advancing a potential deed of company arrangement (DOCA) proposal.
(2)Further and continuing investigation with respect to the financial position of the company.
(3)Consulting with retail store owners, including 14 retail stores in Victoria that are currently closed due to COVID-19 restrictions in relation to ongoing trading and operational issues.
(4)Negotiating with landlords of the retail stores, including as to rental relief.
(5)Considering whether to issue any further notices pursuant to s 443B of the Act with respect to retail stores, the wholesale store or the Melbourne office.
A particular issue specific to the administration of the company is that a high proportion of the retail store owners are Chinese with English as a second language. A number are currently living overseas. A Cantonese and Mandarin speaking manager reporting to the administrators has worked with the company to contact these retail store owners to explain the administration process to them, assist them with proofs of debt and to translate documents into Mandarin and Cantonese. That process obviously takes time.
Section 439A of the Act deals with the timeframe in which the administrator of a company must convene a meeting of the company’s creditors where they may, under s 439C, resolve to execute a DOCA in the administration, end the administration or wind-up the company. The administrator must convene such a meeting within the convening period as fixed by s 439A(5) or as extended by s 439A(6): see s 439A(1). The meeting must be held within five business days before or within five business days after the end of the convening period: s 439A(2).
The court may extend the convening period on an application made during or after the period referred to in s 439A(5), which is relevantly 20 business days beginning the day after the administration begins: ss 439A(5) and 439A(6).
Section 447A(1) of the Act provides that the court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to any particular company.
In considering an application under ss 439A or 447A in respect of the convening period, the court will have regard to the objectives of Pt 5.3A of the Act (see s 435A), including maximising the chances of the company or part of its business continuing in existence, or if that is not possible, maximising the return to creditors and shareholders compared to a winding up and the need for expedition in an administration, but will also have regard to the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return to creditors: In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 at [7] per Black J.
Over time, the courts have come to recognise that significant extra time may be required by administrators and should be allowed in complex cases, 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 a reasonable basis. The courts have tended to grant extensions for the periods sought by administrators. See Mighty River International Limited v Hughes [2018] HCA 38; 265 CLR 480 at [73] per Nettle and Gordon JJ (in dissent as to result).
Relevant matters in support of an application for extension include the following matters as set out in In the matter of Riviera Group Pty Ltd (admins apptd)(recrs & mgrs apptd) [2009] NSWSC 585; 72 ACSR 352 at [13] per Austin J:
(1)the size and scope of the business;
(2)complex corporate group structure and intercompany loans;
(3)lack of access to corporate financial records;
(4)the time needed for thorough assessment of a proposal for a DOCA; and
(5)where the extension will allow sale of the business as a going concern.
The value judgment expressed by the administrators as to what is in the best interests of the creditors as a whole will ordinarily be given considerable weight: Owen, in the matter of River City Motorway Pty Ltd (admin apptd) (recs and mgrs apptd) v Madden (No 4) [2012] FCA 1491; 92 ACSR 255 at [26] per Logan J and also Renex Holdings at [9].
It has become common practice for courts, where orders are made extending the convening period, to make an order under s 447A(1) of the Act that will permit the administrators to convene the second creditors meeting and hold it at any time during the extended convening period and, therefore, earlier than s 439A(2) would permit: Riviera Group at [20]. This course maximises the administrators’ flexibility to pursue the most expeditious course.
As indicated, the extension is sought to enable the administrators to conclude their investigations; to properly investigate the company’s business, property, affairs and financial circumstances; and to enable them to provide a recommendation to creditors as required under the Act. The administrators’ opinion is that enabling the retail store owners in Queensland, New South Wales and Western Australia to continue to trade while the administrators conclude the remaining work will provide most value to creditors. One reason for this is that the company will receive franchise fees from retail stores while they are trading. It will also allow the retail stores to stay open, generate revenue and make JobKeeper payments to eligible employees in Victoria.
The administrators continue to work with a related party that has expressed interest in putting forward a DOCA proposal. At this stage, however, no proposal which is capable of recommendation to the creditors at the second meeting has been put to the administrators. The proposed structure being advanced would involve the broader business continuing as a growing concern, with the aim being to keep as many stores open as is viable.
Even in circumstances that a DOCA proposal is not put forward, the extension will allow the administrators the opportunity to work with the retail store owners and stock agents to sell all current stock in a managed wind down, which the administrators consider will return more to creditors than a fire sale of the current stock in a liquidation if the extension is not granted. This is particularly the case in Victoria where all retail stores are currently closed under the COVID-19 stage 4 restrictions there. The creditors have been notified of this application and none has notified the administrators that they oppose the application.
The orders that are sought provide, in the usual way, for any party with sufficient interest to apply to vary the orders. This offers, in my judgement, sufficient protection for creditors. The only prejudice to creditors identified by the administrators is to the landlords, in respect of whom order (1) of 17 July 2020 applies. As the administrators do not seek an extension of order (1) of 17 July 2020, as I have said, the administrators will be personally liable for rent accrued from 16 August 2020 until the end of the administration, be it through a DOCA or the company entering into liquidation.
The day on which the administrators’ exemption from rent ends, 15 August 2020, is five days after the end of the convening period, which is, accordingly, the last date that the second meeting of creditors would be held in the absence of the extension that the administrators seek by this application. There is, therefore, no appreciable prejudice to the landlords in the orders that are sought. They were given notice of the application and have not opposed the relief that is sought. The administrators will continue to meet all approved supplier expenses incurred for the period in which the company trades.
Absent the orders that are sought, the administrators will have no other option than to recommend liquidation in their report preceding the second meeting of creditors. The impact of this will be the closure of all stores, the likely insolvency of independent store owners and a diminished return to all creditors, given a forced fire sale of remaining stock.
For those reasons, I am satisfied that it will benefit the creditors, as a whole, for the convening period to be extended, and I will therefore grant the relief sought in the interlocutory process.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate:
Dated: 12 August 2020
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