MARTIN BRUCE JONES as joint and several administrator of NUHEARA LIMITED
[2024] WASC 326
•9 SEPTEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MARTIN BRUCE JONES as joint and several administrator of NUHEARA LIMITED [2024] WASC 326
CORAM: HILL J
HEARD: 30 AUGUST 2024
DELIVERED : 30 AUGUST 2024
PUBLISHED : 9 SEPTEMBER 2024
FILE NO/S: COR 137 of 2024
EX PARTE
MARTIN BRUCE JONES as joint and several administrator of NUHEARA LIMITED
CLINT PETER JOSEPH as joint and several administrator of NUHEARA LIMITED
MATTHEW DAVID WOODS as joint and several administrator of NUHEARA LIMITED
First Plaintiffs
MARTIN BRUCE JONES as joint and several administrator of NUHEARA IP PTY LTD
CLINT PETER JOSEPH as joint and several administrator of NUHEARA IP PTY LTD
MATTHEW DAVID WOODS as joint and several administrator of NUHEARA IP PTY LTD
Second Plaintiffs
MARTIN BRUCE JONES as joint and several administrator of TERRACE GOLD PTY LTD
CLINT PETER JOSEPH as joint and several administrator of TERRACE GOLD PTY LTD
MATTHEW DAVID WOODS as joint and several administrator of TERRACE GOLD PTY LTD
Third Plaintiffs
Catchwords:
Corporations - Insolvency - External administration - Application to extend convening period for second creditors' meeting - Whether extension in the interests of creditors as a whole - Whether interests of any persons prejudiced by modification are protected by terms of orders - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 439A, s 447A
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiffs | : | JE Scovell |
| Second Plaintiffs | : | JE Scovell |
| Third Plaintiffs | : | JE Scovell |
Solicitors:
| First Plaintiffs | : | Thomson Geer - Perth |
| Second Plaintiffs | : | Thomson Geer - Perth |
| Third Plaintiffs | : | Thomson Geer - Perth |
Cases referred to in decision:
Diamond Press Australia Limited [2001] NSWSC 313
Mighty River International Limited v Hughes [2018] HCA 38
Re Daisytek Australia Pty Ltd (Administrators Appointed) [2003] FCA 768
Re Harrisons Pharmacy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458
Shaw and Albarran (Joint and Several Administrators of Home Art Building Group Pty Ltd) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274
Tucker (Administrator) v Bolten (Trustee), in the matter of Quintis Leasing Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 46
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript to include references, headings and to correct matters of grammar and expression.)
By originating process filed on 26 August 2024, the plaintiffs seek orders to extend the convening period of the second creditors' meeting in relation to three companies (Nuheara Ltd, Nuheara IP Pty Ltd and Terrace Gold Pty Ltd (Companies)). The extension is sought until midnight on 11 December 2024. Unless an extension is granted by the court, the meeting is required to be convened by 5 September 2024.
The plaintiffs were appointed as joint and several administrations of the Companies on 7 August 2024, pursuant to s 436A of the Corporations Act 2001 (Cth) (Act).
At the hearing before me this morning, the plaintiffs relied on two affidavits of the first named plaintiff, Martin Jones, which were filed on 26 August 2024 and 29 August 2024. I have also had the significant assistance of an outline of submissions that has been filed by the plaintiffs.
Factual background
The factual background to the application can be briefly summarised as follows.
The Companies are part of a corporate group who are in the business of developing and selling medical earbuds. Nuheara Ltd, which is the parent company, is listed on the Australian Stock Exchange, and owns all of the shares in Nuheara IP Proprietary Ltd and 80% of the shares in Terrace Gold Pty Ltd.
Based on the investigations that have been done by the administrators to date, their preliminary understanding of the consolidated creditor position of the Companies is as follows.[1]
(a)there are two secured creditors, although the security position of one of them (Realtek Semiconductor Corporation) is unclear;
(b)there are 44 known unsecured creditors, who appear to be owed a total of $3.5 million; and
(c)there are approximately 23 employees, owed collectively approximately $0.5 million.
[1] Affidavit of Martin Bruce Jones filed 26 August 2024 [15] - [22], [13.2], [13.3].
At this stage, the administrators have not called for the formal proofs of debt, nor have they adjudicated on any proofs of debt or the claims. Based on their investigations to date, the plaintiffs believe that each of the companies is insolvent. The basis for that belief is set out in Mr Jones' affidavits.[2]
[2] Affidavit of Martin Bruce Jones filed 26 August 2024 [26], [27.4], [28.5].
Mr Jones' evidence is that the administrators are in the early stages of undertaking a 'go to market' process for the restructure or sale of the companies' business and/or assets.[3] They have already engaged sale agents to assist in the process, who have contacted prospective buyers to ascertain their interest in a restructure via a deed of company arrangement (DOCA), or from purchase of either the Companies or the shares.[4] At this stage, they believe the sale process will take approximately two to three months, and on this basis seek an extension of the convening period until 11 December 2024.[5]
[3] Affidavit of Martin Bruce Jones filed 26 August 2024 [33].
[4] Affidavit of Martin Bruce Jones filed 26 August 2024 [33], [36].
[5] Affidavit of Martin Bruce Jones filed 26 August 2024 [37].
Should an extension of time to convene the second creditors' meeting be granted?
Pursuant to s 439A(6) of the Act, the court may extend the convening period on an application made during or after the period referred to in s 439A(5)(a) or s 439A(5)(b), as the case requires.
In determining the application, it is necessary for the court to consider the objects and scheme of pt 5.3A of the Act. These objects are set out in s 435A of the Act, which are to maximise the chances of the company or as much as possible of its business continuing in existence, or, if this is not possible, for the administration to be done in a way as to result in a better return for the company's creditors and members than would result from an immediate winding up of the company.
In reaching its decision, the court must maintain an appropriate balance between the expectation that an administration will be undertaken in a relatively speedy and summary manner with a need to ensure that the administration is not concluded without consideration of sensible and constructive options directed towards maximising the returns for creditors and any return that is possible for shareholders.[6]
[6] Tucker (Administrator) v Bolten (Trustee), in the matter of Quintis Leasing Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 46 [54], citing Barrett J in Diamond Press Australia Limited [2001] NSWSC 313 [10].
The court must also take into account the detriment to third parties (if any), including the suspension of rights and remedies of secured creditors, lessors and others.[7] In this regard, I note that creditors' interests can be prejudiced not only by delay, but by convening meetings prematurely. Instances where creditors have been prejudiced include where an administrator has been unable to obtain adequate information for the preparation of an administrator's report in a form which enables creditors to make an informed decision.[8]
[7] Shaw and Albarran (Joint and Several Administrators of Home Art Building Group Pty Ltd) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18].
[8] Re Harrisons Pharmacy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 [13].
In Mighty River International Limited v Hughes, Nettle and Gordon JJ stated that the court will generally exercise its discretion to extend the convening period where one or more of the established categories are raised, where there is no evidence of material prejudice to those affected by the extension of time, and the court is satisfied that the administrator's estimate of time required has a reasonable basis.[9]
[9] Mighty River International Limited v Hughes [2018] HCA 38 [73].
The relevant established categories include:
(a)whether the convening period allows enough time for the administrator to produce a satisfactory report;
(b)where there is a need to extend the administration period to facilitate the sale of the business of the company as a going concern or to progress and assess a DOCA proposal;
(c)the complexity of the administration;
(d)whether creditors support the extension;
(e)the administrator's own opinion as to the need for an extension, particularly where the administration is complex; and
(f)more generally, where additional time is likely to enhance the return for unsecured creditors.
The evidence of Mr Jones is that further time is needed to facilitate the sale of the business of the Companies as a going concern, or to progress proposals for a DOCA. His evidence is that a 'go to market' process will maximise the chances of achieving a restructure of sale of the Companies' business or assets.[10] Based on the 'go to market' strategy the plaintiffs intend to adopt, his opinion is that there is insufficient time at present to prepare a creditors' report before the end of the convening period.
[10] Affidavit of Martin Bruce Jones filed 26 August 2024 [34.2].
Mr Jones' opinion is that a restructure or sale process is likely to produce a better outcome for creditors than liquidation, and that an extension of approximately 90 days is required.[11]
[11] Affidavit of Martin Bruce Jones filed 26 August 2024 [34].
The plaintiffs have given notice to creditors of their intention to seek orders for the extension of the convening period, and no one has objected to the proposed extension or appeared at the hearing today to oppose the application.
For the following reasons, I am satisfied that the application for an extension of the convening period should be granted, and that orders should be made in terms of the originating process, including for the provision of a proposed Daisytek order.[12]
[12] Re Daisytek Australia Pty Ltd (Administrators Appointed) [2003] FCA 768.
First, Mr Jones' evidence, which I accept, is that further time is required to prepare a report to creditors which contains a considered recommendation to creditors.
I accept that without the extension, the plaintiffs will not be in a position to provide such an informed recommendation, given the proposed sale process has not yet started.
Second, I accept that the convening period is required to be extended in order to facilitate the sale of the Companies or their assets, or to enable a DOCA to be proposed and negotiated. Both of these matters are consistent with the purposes of pt 5.3A of the Act.
Third, the opinion of the administrators is that an extension of time is required for a period of approximately 90 days. On the basis of the evidence before me, particularly in relation to the proposed sale process, I am satisfied there is a reasonable basis for this estimate.
Finally, no creditor has raised any opposition to the proposed extension. I am satisfied on all of the evidence before me that the return to creditors is likely to be significantly enhanced through the granting of an extension and enabling the sale process proposed by the plaintiffs to occur. In my view, the potential benefit of the extension will outweigh any prejudice to creditors, and is in the best interests of creditors of the Companies as a whole.
Conclusion
For these reasons, at the conclusion of the hearing, I made orders in terms of Annexure 'A'.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
9 SEPTEMBER 2024
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