Krejci, in the matter of Australian Mutual Holdings Pty Ltd (in Administration)
[2019] FCA 1125
•22 July 2019
FEDERAL COURT OF AUSTRALIA
Krejci, in the matter of Australian Mutual Holdings Pty Ltd (in Administration) [2019] FCA 1125
File number: NSD 1133 of 2019 Judge: STEWART J Date of judgment: 22 July 2019 Date of publication of reasons: 25 July 2019 Catchwords: CORPORATIONS – application by administrators for extension of the convening period for the second meeting of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth) – time required to prepare report to meeting – complex administration – possible proposal of deed of company arrangement – whether to extend convening period by three months – application allowed Legislation: Corporations Act 2001 (Cth) ss 439A and 447A
Insolvency Practice Rules (Corporations) 2016 (made under s 105-1 of Schedule 2 of the Corporations Act 2001 (Cth) r 75-225
Cases cited: Re Diamond Press Australia Proprietary Limited [2001] NSWSC 313
Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; 72 ACSR 352
Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636
Date of hearing: 22 July 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 22 Counsel for the Plaintiff: D Sulan Solicitor for the Plaintiff: W Advisers ORDERS
NSD 1133 of 2019 IN THE MATTER OF AUSTRALIAN MUTUAL HOLDINGS PTY LTD
BETWEEN: PETER PAUL KREJCI AS VOLUNTARY ADMINISTRATOR OF AUSTRALIAN MUTUAL HOLDINGS PTY LTD ACN 115 182 137
Plaintiff
JUDGE:
STEWART J
DATE OF ORDER:
22 JULY 2019
THE COURT ORDERS THAT:
Extension of the convening period
1.An order pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (Act) that the period in which the Plaintiff must convene the second meeting of creditors of Australian Mutual Holdings Pty Ltd (Company) be extended to and including 17 October 2019.
2.An order pursuant to section 447A(1) of the Act that Pt 5.3A is to operate such that the second meeting may be held at any time during, or within 5 business days after the end of, the convening period as extended by paragraph 1 above, notwithstanding the provisions of s 439A(2) of the Act.
Services and notices
3.An order pursuant to s 447A(1) of the Act, that Pt 5.3A is to operate such that the requirement on the Plaintiff to issue notices under Rule 75-255 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be modified so that notice of the second meeting will be validly given to any creditors by, not less than five business days prior to the date of the proposed second meeting, giving notice:
(a)where the Plaintiff has an email address for a creditor, notifying each creditor of the relevant matter by email;
(b)where the Plaintiff does not have an email address for a creditor but does have a postal address for that creditor, notifying each such creditor in writing of the relevant matter by post;
(c)publishing the notice on the “Current matters” section of the website maintained by the Applicant’s firm, BRI Ferrier, at
order pursuant to s 447A(1) of the Act that if pursuant to Pt 5.3A of the Act or Pt 5.3A of the Corporations Regulations 2001 (Cth), the Insolvency Practice Schedule to the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth) the Plaintiff is required to provide any other notification to creditors of the Company during the administration period, the applicable notice requirements will be satisfied if the Plaintiff gives notice in accordance with order 3.
5.The Plaintiff, within seven (7) business days after the making of these orders is to notify the Company’s creditors in accordance with order 3.
Interested persons have liberty to apply
6.Any person who can demonstrate sufficient interest for the purpose of modifying or discharging orders 1 and 2 have liberty to apply on giving all interested parties not less than three (3) business days’ written notice.
7.The Plaintiff have liberty to apply in respect of these orders on giving all interested parties not less than three (3) business days’ notice, including (without limitation) for the purpose of seeking a further extension of the convening period as extended by order 1.
8.Costs reserved.
9.The matter be listed for case management at 9:30am on 31 October 2019.
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 is an application brought by the administrator of the company Australian Mutual Holdings Proprietary Limited ACN 115 182 137 (Company) for orders pursuant to s 439A(6) of the Corporations Act2001 (Cth) that the period in which the plaintiff must convene the second meeting of creditors of the company be extended to and including 17 October 2019. In addition, the plaintiff seeks an order pursuant to s 447A(1) of the Act that part 5.3A operate such that the second meeting may be held at any time during or within five business days after the end of the convening period as extended by the first order, notwithstanding the provisions of s 439A(2). The plaintiff also seeks further orders related to those principal orders of extension.
The convening period for the second meeting of creditors would otherwise expire on 26 July 2019. The plaintiff has given notice by email to known creditors of the hearing today, as well as to ASIC, but no creditor or representative for ASIC has appeared at the hearing.
The plaintiff is a registered liquidator and the principal of BRI Ferrier, a corporate advisory and insolvency firm which specialises in, amongst other things, the administration of companies.
The plaintiff was appointed on 28 June 2019 as administrator of the Company, pursuant to resolutions of the Board of Directors under s 436A of the Act. The Company’s principal business has been to act as the responsible entity of a number of registered management investment schemes, the most important of those for present purposes being the Trident Global Growth Fund. I will come back to that fund, save to say at this stage that it has around 400 unit holders and assets of approximately $19,000,000.
The other funds of which the company is the responsible entity are the Grange Capital Management Growth Fund, the Australian Pink Diamond Fund and the Accelerated Trend Hedge Fund. Each of those three funds has been the subject of winding up commencing prior to the plaintiff’s appointment as administrator of the company. The winding up of those schemes has not yet been completed.
Since the audited financial report and the auditor’s report for each of the schemes remains to be finalised, the position of the Trident Global Growth Fund, which I will refer to as the Trident Fund, is slightly different. The Company was appointed manager of that fund under an investment management agreement dated 4 July 2013. The plaintiff has determined that the company as responsible entity of the Trident Fund should exercise its right under s 601NA of the Act and the provisions of the constitution of the fund to wind it up. He notified unit holders of the fund of the decision to wind up the fund.
The decision to wind up the fund was also reported to the first creditors’ meeting. Under the fund’s constitution, following the decision to wind up the fund the Company must realise the assets of the fund. It must also arrange for an independent audit of the financial statements of the fund by a registered company auditor. Based on his enquiries to date and his experience in similar administrations, the plaintiff estimates that that process will take between four to 12 weeks. The net proceeds of realisation of the fund after retentions must be distributed to members on a pro rata basis.
In addition to acting as responsible entity of the schemes that I have referred to, the company also carried on a small retail brokerage business. Following the cancellation of the company’s Australian Financial Services License that business ceased to be able to operate. It has not operated since the appointment of the plaintiff as administrator. Based on his investigations he believes that there are no saleable assets relating to the business, or any real prospect of realising any funds from that business. The employment of all employees of the Company had been terminated prior to the appointment of the plaintiff as administrator.
On 2 July 2019, the plaintiff circulated his first report to creditors of the company as required under s 436E of the Act. That report also attached a notice convening the first meeting of creditors to be held on 10 July 2019. The meeting was held on that date. Various creditors were admitted to vote at the meeting, and a committee of inspection was established and members from amongst the creditors were elected to that committee.
The plaintiff reports that he has received notifications of proofs of debt from creditors totalling approximately $430,000 from 11 creditors. The largest of those are Halifax Investment Services Pty Ltd which claims approximately $200,000, Macquarie Bank Limited which claims approximately $70,000 and the ATO which claims approximately $44,000. The plaintiff’s investigations to date have indicated that a number of transactions require further investigation, which may enlarge the number of creditors of the company and the value of claims of creditors.
Included in the matters the plaintiff has commenced investigating are transactions between the company on the one hand in various capacities, and entities forming part of the Halifax Group of companies, which are now in liquidation. They are associated with the director, Mr Jeffrey Worboy and with former director Mr Andrew Baxter.
Returning to the Trident Fund, the plaintiff’s investigations into the assets of the fund have established that the overwhelming majority of the assets comprise listed US equities. The plaintiff is in the process of seeking advice from brokers as to the timing, costs and process for disposing of the Trident Fund assets. On the basis of initial indications, the listed US equities could be disposed of in a matter of days, but as a trustee the plaintiff takes the view that the company is bound to seek to give effect to the terms of its scheme constitution, which contemplates the disposal of the assets of the scheme in an orderly manner. He is in the process of seeking advice from brokers on the proposed timing of disposal of each asset comprised in the scheme.
The company may also have claims, including against current or former officers, arising from transactions involving the Halifax entities. At this stage, the plaintiff is unable to form a view on the existence, merits or potential quantum of those claims. The plaintiff’s investigations to date have established that the books and records of the company are materially incomplete.
In the circumstances, the plaintiff explains that he has been unable to prepare a satisfactory report to creditors of the company, and any notice of meeting convened under s 439A of the Act. He is at this stage unable to form a recommendation to creditors by the end of the current convening period in respect of their vote under s 439C of the Act. He considers that in order to form such a recommendation he needs further information and time to investigate the historic dealings.
The plaintiff notes that he has received an email from the company’s director Mr Worboy giving notice of his intention to propose a deed of company arrangement (DOCA). The plaintiff says that he does not have sufficient information in relation to the proposed DOCA to be able to express any view on it, and even if the proposed DOCA terms were presented to him prior to the end of the convening period, he would have great difficulty in forming a recommendation on it in the absence of having a better view of claims that may be pursued by the company in liquidation.
The plaintiff says that his efforts to date in progressing a report to creditors and investigating the historic transactions involving Halifax entities have been impacted by the poor state of the books and records of the company and by various intervening issues. The plaintiff considers that with the benefit of the additional time that is sought in the application he will be able to form a view on the transactions engaged in regarding other Halifax entities, and whether those transactions are likely to have triggered claims which would or may be likely to enlarge the number of creditors of the company and the value of claims of creditors of the company.
The plaintiff states that he believes that in the course of winding up the Trident Fund he will have the opportunity to form an informed view in relation to the non-listed assets comprising investments and exposures to Halifax entities, and claims that may be brought by or against the company relating to those dealings. At this stage, the plaintiff’s best estimate is that the winding up of the Trident Fund could occur within the space of three months.
With regard to the applicable principles, Mr Sulan of counsel who appears for the plaintiff before me has referred to Re RivieraGroup Proprietary Limited (administrators appointed) (receivers and managers appointed) [2009] NSWSC 585; 72 ACSR 352, a judgment of Austin J. His Honour at [13] identifies various reasons that have been given and accepted in a number of cases for an extension of time and groups them in various broad categories. They include such matters as the size and scope of the business, the complexity of transactions entered into by the company, the lack of access to corporate financial records, the time needed to execute an orderly process of disposal of assets, the time needed for thorough assessment of a proposal for a DOCA and, more generally, where additional time was likely to enhance the return for unsecured creditors. His Honour then concluded that a balancing test is to be applied, referring to Re Diamond Press Australia Proprietary Limited [2001] NSWSC 313 at [10], a judgment of Barrett J. The court is to balance the expectation of speedy administration against the risk of prejudice. In Re Riviera Group at [16] it is said that the cases suggest that where the administrator proves a substantial ground in any of the categories for an extension and there is no specific evidence of prejudice, an extension commensurate with the administrator’s task will be granted, notwithstanding suggestions that extensions would not be granted frequently.
In Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636, Lindgren J at [18] sets out overlapping considerations affecting the exercise of the discretion whether to extend the convening period. Those include that the function of the court is to strike an appropriate balance between the legislature’s expectation that the administration will be a relatively swift and summary procedure and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders. His Honour also identified that the application for an extension of time is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements and, in particular, to arrive at the opinion (then) referred to in s 439A(4) in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation.
Moving on to consider the factors in this case, it is perhaps the last point mentioned above that is most significant. In that regard I am satisfied that acting reasonably the plaintiff is not in a position at present to prepare and furnish the required opinion now referred to in r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (made under s 105-1 of Schedule 2 of the Corporations Act 2001 (Cth)) and requires more time to do so. Further, the administration is not without its complexity, particularly with regard to winding up the Trident fund. That will take some time which has been adequately explained. There are no known proceedings against the company other than a possible proceeding by one of the former directors, Mr Baxter, whom I have mentioned, but little is known about it at this time.
Moreover, the minutes of the first meeting of creditors reveals that it was reported to those present that it was intended that an application for an extension of time would be made. Mr Baxter is recorded as having attended that meeting. No queries or objections in relation to the proposed extension of time are recorded as having been raised at that meeting. There are no employees who might be prejudiced by the extension of time. There is a DOCA proposal that needs to be investigated for the purpose of reporting to creditors. It is likely to be in the interests of creditors that this be done so that they can properly consider their position when called upon to vote on the proposal.
There is no identified tangible prejudice to creditors in the extension. As I have indicated, no creditors in attendance at the first meeting raised any objection or query, and none has appeared before me today, in any event. The orders that are sought provide for any affected creditors to apply to vacate or vary the extension orders that I propose to make. That will allow them to bring any prejudice forward and on that basis vary the orders if justified. Overall, I am satisfied that the need for the extension has been adequately explained and that on balancing the various considerations and interests, it is in the best interests of the proper administration of the company for the extension to be granted, and for those reasons I make the orders in the draft short minutes of order which include costs reserved for consideration on a further occasion after the administrator has conducted further enquiries.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart. Associate:
Dated: 25 July 2019
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