JEFFREY LAURENCE HERBERT and SIMON GUY THEOBALD as Administrators of CHALLENGE AUSTRALIAN DAIRY PTY LTD (Administrators Appointed)(Receivers and Managers Appointed) - [2010] WASC 361

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: JEFFREY LAURENCE HERBERT and SIMON GUY THEOBALD as Administrators of CHALLENGE AUSTRALIAN DAIRY PTY LTD (Administrators Appointed)(Receivers and Managers Appointed) [2010] WASC 361

CORAM: MASTER SANDERSON

HEARD: 23 NOVEMBER 2010

DELIVERED : 23 NOVEMBER 2010

PUBLISHED : 7 DECEMBER 2010

FILE NO/S: COR 204 of 2010

BETWEEN: JEFFREY LAURENCE HERBERT and SIMON GUY THEOBALD as Administrators of CHALLENGE AUSTRALIAN DAIRY PTY LTD (Administrators Appointed)(Receivers and Managers Appointed)
Plaintiffs

Catchwords:

Company law - Application by administrators for an extension of time to convene meeting - Turns on own facts

Legislation:

Nil

Result:

Extension granted

Category: B

Representation:

Counsel:

Plaintiffs: Mr D K Skender

Solicitors:

Plaintiffs: McKenzie Moncrieff Lawyers

Case(s) referred to in judgment(s):

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947
Re Evans & Tate Ltd; Ex parte Jones [2007] WASC 235; (2007) 25 ACLC 1580

MASTER SANDERSON: This was an application by the administrators of Challenge Australian Dairy Pty Ltd (the Company) for an extension of time within which to convene a meeting of creditors. The matter was brought on at short notice. After considering the evidence filed in support of the application and the detailed submissions made by counsel I made the orders sought. I indicated I would publish reasons for that decision. These are those reasons.
The plaintiffs were appointed administrators of the Company on 28 October 2010. Receivers and managers were appointed to the Company by the National Australia Bank Ltd on the same date. Under s 439A(1) of the Corporations Act 2001 (Cth) (the Act) the plaintiffs were required to convene a meeting of creditors on or before 26 November 2010. It is open to the court to grant an extension of time to convene such a meeting under s 439A(6) of the Act.
The application was supported by an affidavit of Jeffery Lawrence Herbert sworn 22 November 2010. The application also sought a modification of the operation of pt 5.3A of the Act pursuant to s 447A. In addition the plaintiffs sought leave to make a further application to extend the convening period should it prove necessary and a modification to the operation of s 439A(2) of the Act so as to permit the s 439 meeting to be held more than five business days before the end of the convening period.
One of the orders sought by the plaintiffs was that the affidavit of Mr Herbert in support of the application be kept confidential. Having read the affidavit it is clear it contains sensitive commercial information and accordingly I ordered it be sealed and only viewed with leave of the court. These reasons have been prepared keeping in mind the need to maintain commercial confidentiality in relation to certain proposed transactions.
The starting point for any application for an extension of time to extend the convening period is that generally a court will expect the administrators to adhere to the specified time limits. However the need to extend time in a particular case is recognised by the power of a court to do so. The exercise of that power should be approached with the objects of pt 5.3A of the Act in mind. There is a detailed discussion of the relevant principles by EM Heenan J in Re Evans & Tate Ltd; Ex parte Jones [2007] WASC 235; (2007) 25 ACLC 1580 [15] ‑ [23]. I would respectfully adopt what his Honour had to say in those paragraphs.
The objects of pt 5.3A of the Act are set out in s 435A. That section reads as follows:
The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence---results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
In Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947 Emmett J in discussing the objects of pt 5.3A of the Act said:
An important objective of Part 5.3A is that creditors be informed as soon as possible about a company's position and be put in a position to vote on the future of the company as soon as possible. The Court's function ... is to strike an appropriate balance between the expectation that external administration will be a relatively speedy and summary matter and the requirement that the sensible and constructive actions required for maximising the return for creditors and possible return for shareholders are not prejudiced. If the Court is persuaded that the prospects of a better outcome for creditors will be improved by a potentially longer period of administration, then the Court would ordinarily grant an extension [8].
There do not need to be special grounds for the extension being sought and the matter is one to be determined on the evidence in each case. One factor for consideration is whether or not an extension of time is necessary to enable the administrator to provide the report and recommendation required under s 439A(4) of the Act.
In this case the appointment of receivers and the retention of the control of the Company's assets by the receivers including the immediate control of books and records is a factor which is relevant to the question of whether an extension should be granted. Although not determinative the wishes of creditors will be a relevant consideration. It will be relevant if the evidence does not point to significant prejudice to creditors beyond prejudice inevitably suffered as a result of the delay of provision of information to creditors generally. Further, the liberty of an interested person to apply to have the orders amended will be a significant factor.
Section 447A of the Act gives the court broad powers including the power to alter what would otherwise be the operation of pt 5.3A in relation to a particular company: see Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The authorities clearly show that s 447A may be used as a basis both for a further application to extend the convening period and to modify the operation of s 439A(2) of the Act so as permit the second meeting of creditors to be held before the end of the convening period: see Re Evan & Tate [22], [31].
Turning then to the merits of this application the Company is a milk and milk product producer located in the south‑west of Western Australia. It currently employs approximately 80 people. There is no doubt that the appointment of receivers has complicated the plaintiffs' task. The receivers control the Company and its books and records. They are continuing to trade and are in the process of realising current assets such as stock and receivables. As the plaintiffs do not control the books and records of the company they have been forced to rely on financial information provided by the receivers from time to time in order to estimate what the financial position of the Company might be at any point in time. As the business is trading, financial information is continually changing. Despite these difficulties the plaintiffs have prepared a statement of position based on information received by them from the receivers.
Based upon this information and subject to a number of qualifications the plaintiffs have estimated what return might be available to unsecured creditors. At this stage it would be inappropriate to disclose this figure. It is sufficient if I say that the plaintiffs reasonably estimate the return will be substantially less than 100 cents in the dollar.
Somewhat to the plaintiffs surprise they have received an expression of interest from a third party in relation to a possible restructure of the Company. A written proposal was received from that third party on 19 November 2010. That was only five days before the expiry of the convening period. The plaintiffs formed the view, reasonably in my opinion, that the proposal was incomplete and required further clarification. They reached that conclusion for three broad reasons.
First, there was an absence of detail in the proposal. It was not entirely clear who the new investor would be nor the amount of funds to be contributed. It was not clear the manner in which the claims of creditors would be satisfied and it was not clear as to the timing of each step of the proposal. That is not to say the absence of detail rendered the proposal hopeless. But any fair reading of what was put forward raises fundamental questions which required further consideration.
Second, due to the appointment of receivers the plaintiffs do not have up to date and accurate information concerning the ongoing trading performance of the business of the Company. Without that information the plaintiffs cannot determine the impact of certain aspects of the proposal on creditors. Further, there has not been time to discuss the proposal with the other shareholder of the Company Challenge Dairy Co‑operative Ltd (Challenge Dairy). The proposal requires significant commitments by Challenge Dairy for it to be successful.
Thirdly, negotiations are required to flesh out the details of the proposal. Legal and accounting advise is required and it has not been possible for the plaintiffs to obtain either in the time available. The plaintiffs feel without further negotiation and more time to undertake investigations they could not discharge their duties as administrators of the Company with respect to the proposal.
In summary then the plaintiffs consider it would be premature to put the proposal to the creditors at present. While they recognise that if agreement can be reached there might be considerable advantages to the creditors by the proposal they are not yet in a position to say what the difference may be between accepting a proposal and liquidating the Company. In other words they are uncertain as to what financial advantage if any would flow from a restructure as against a liquidation. As they are not able to form a view on that issue they do not see themselves as being in a position to convene a meeting of creditors.
The plaintiffs have settled on an extension until 31 January 2011 as being a sufficient period within which to undertake further discussions and obtain the necessary information to put to creditors. Based upon what Mr Herbert has to say in his affidavit I am satisfied he has taken into account, so far as he can, all the contingencies and the period proposed is reasonable. But it must be acknowledged there may be factors which could further delay the holding of a meeting. Given the uncertainties it seems to me that allowing the meeting to be held earlier than 31 January 2011 and allowing the plaintiffs to apply for a further extension if necessary are both appropriate orders.
Finally, the plaintiffs have the support of the committee of creditors of the Company. The National Australia Bank does not oppose the application. It is difficult to see that any prejudice will be suffered by the creditors as the result of an extension. In all the circumstances I was satisfied that the granting of the extension was in the best interests of the Company and was consistent with the aims of pt 5.3A of the Act.