Preston, in the matter of Toys 'R' Us (Australia) Pty Ltd (Administrators Appointed)
[2018] FCA 940
•14 June 2018
FEDERAL COURT OF AUSTRALIA
Preston, in the matter of Toys 'R' Us (Australia) Pty Ltd (Administrators Appointed) [2018] FCA 940
File number: NSD 1014 of 2018 Judge: YATES J Date of judgment: 14 June 2018 Catchwords: CORPORATIONS – application for extension of time to convene second meeting of creditors – where extension sought to allow completion of sale of company’s business and proper investigation of its affairs – application granted Legislation: Corporations Act 2001 (Cth) ss 439A, 447A
Federal Court of Australia Act 1976 (Cth) s 37AF
Cases cited: In the matter of Henry Walker Eltin Group Ltd (Administrators Appointed) [2005] FCA 316
Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs. apptd) (ACN 102 298 279) and Others [2009] NSWSC 585
Date of hearing: 14 June 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 23 Counsel for the Plaintiffs: Mr F Assaf Solicitor for the Plaintiffs Gilbert+Tobin ORDERS
NSD 1014 of 2018 IN THE MATTER OF TOYS "R" US (AUSTRALIA) PTY LTD (Administrators Appointed) ACN 057 455 026 and BABIES "R" US (AUSTRALIA) PTY LTD (Administrators Appointed) ACN 073 394
JASON PRESTON & ORS IN THEIR CAPACITY AS JOINT & SEVERAL ADMINISTRATORS OF TOYS 'R' US (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 057 455 026 & BABIES 'R' US (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 073 394 117
First Plaintiff
TOYS 'R' US (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 057 455 026
Second Plaintiff
BABIES 'R' US (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 073 394 117
Third Plaintiff
JUDGE:
YATES J
DATE OF ORDER:
14 JUNE 2018
THE COURT ORDERS THAT:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening periods by which the first plaintiffs are required by s 439A of the Act to convene the second meeting of creditors of Toys “R” Us (Australia) Pty Ltd (Administrators Appointed) ACN 057 455 026 and the second meeting of creditors of Babies “R” Us (Australia) Pty Ltd (Administrators Appointed) ACN 073 394 117 (jointly, the Companies) be extended up to and including 19 October 2018.
2.Pursuant to s 447A(1) of the Act, that Part 5.3A of the Act operate in relation to the Companies such that, notwithstanding s 439A(2) of the Act, the second meetings be convened at any time during, or within 5 business days after the end of, each convening period as extended by the Court provided that the first plaintiffs:
(a)give notice of the meetings in accordance with the Act; and
(b)cause such notice to be published in The Insolvency Notices website located at: 3 business days of these orders being entered, the first plaintiffs cause notice of the orders to be given to creditors of the Companies, by:
(a)means of a circular sent by post or email to all known creditors of the Companies (including persons claiming to be creditors) for whom or which the first plaintiffs have a current email or postal address;
(b)placing a sealed copy of these orders on the website of the first plaintiffs and
(c)causing such notice to be published in The Insolvency Notices website located at: to apply be granted to any person, including any creditor of the Companies or the Australian Securities and Investments Commission, who can demonstrate sufficient interest to set aside or vary Orders 1 and 2 above on the giving of 48 hours’ notice to the plaintiffs and to the Court.
5.The plaintiffs have leave to apply for any further extension of the convening period referred to in Order 1 or in relation to any other matter arising in the administration of the Companies generally.
6.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), and on the ground that it is necessary to do so to prevent prejudice to the proper administration of justice:
(a)the information contained in paragraph 57 and paragraph 58, with the exception of the first sentence of paragraph 58, of the affidavit of Jason Preston dated 13 June 2018 be suppressed and remain confidential up to and including 19 October 2018; and
(b)the information contained in sub-paragraphs 4(a) and 4(b) of the affidavit of Vicki Elizabeth Bell dated 14 June 2018 be suppressed and remain confidential up to and including 19 October 2018.
7.The costs of this application be costs and expenses in the administration of the Companies and be paid out of their assets.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from transcript)YATES J:
This is an application brought pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act) for an order extending the convening periods for the second meetings of creditors of the second plaintiff, Toys “R” Us (Australia) Pty Ltd (Administrators Appointed) (TRUA) and the third plaintiff, Babies “R” Us (Australia) Pty Ltd (Administrators Appointed) (BRUA) (together, the companies) and for consequential relief under s 447A of the Act.
Unless extended, the convening period for each meeting will expire on 19 June 2018. A
four-month extension is sought in each case.
The first plaintiffs, Jason Preston, Keith Alexander Crawford and Barry Frederick Kogan (the administrators) were appointed as joint and several administrators of the companies on
21 May 2018.
The present application is supported by affidavits made by Mr Preston on 13 June 2018 and by Vicki Elizabeth Bell made on 14 June 2018. Ms Bell is the solicitor having the day-to-day conduct of the proceeding on behalf of the plaintiffs.
The companies are part of an international group. BRUA has never traded and, according to Mr Preston, has no significant assets. It is a wholly-owned subsidiary of TRUA, which in turn is a wholly-owned subsidiary of TRU Australia Holdings, LLC. The latter is an entity registered in the United States of America (the United States). The ultimate holding company of the group is Toys “R” Us, Inc., which is also registered in the United States.
TRUA operates 44 toy stores in Australia and employs over 2,000 employees (including casual employees). The stores are situated in Victoria, New South Wales, Queensland, South Australia, the Australian Capital Territory and Western Australia.
TRU Australia Holdings, LLC, Toys “R” Us, Inc. and other United States-based entities in the group filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code (the Code) on 18 September 2017. Those proceedings have since converted to a liquidation proceeding under Chapter 7 of the Code.
In his affidavit, Mr Preston has deposed to the financial position of the companies, the holding of the first meetings of creditors, and the work undertaken by the administrators to date. It is not necessary for me to go into further detail on these matters, other than to note that the liabilities of the companies are substantial and plainly exceed by a significant amount the realisable value of TRUA’s assets. As I have noted, BRUA has no substantial assets. Among these liabilities are guarantees and indemnities given by the companies in support of obligations owed by other entities in the group. These liabilities exceed $1 billion and are supported by a general security interest over all the present and after-acquired property of each company. These interests have been registered on the Personal Property Securities Register. The administrators believe these liabilities are actual rather than contingent, but that matter needs to be further investigated.
On 24 May 2018, the administrators commenced a sale process in relation to the sale of TRUA’s business as a going concern. Evidence has been given of the developments in that process.
Mr Preston has given evidence that the process is complex. It involves a portfolio of 44 stores, the premises of which are leased by numerous parties, as well as a distribution centre and head office. Plainly, the sale of the business as a going concern will involve the need to come to acceptable arrangements with at least a number of these parties.
Further, the intellectual property in the names Toys “R” Us and Babies “R” Us is owned by Geoffrey, LLC, another group entity that is registered in the United States. It is also the subject of Chapter 11 proceedings. Once again, the sale of the business as a going concern will involve the need to come to an acceptable arrangement in respect of the ongoing licensing in Australia of the intellectual property.
The principal basis advanced for the extensions is the need to progress the sale process with a view to maximising the chance of the business continuing to operate in whole or in part.
Mr Preston has deposed that time will be required to not only obtain binding offers but also, if such offers are made, to negotiate lease assignments and terms with the landlords of any stores the subject of an offer, negotiate ongoing supply with existing suppliers, and, as I have already foreshadowed, enter into and consummate negotiations with Geoffrey, LLC in relation to the ongoing licensing of the intellectual property in the two business names.
As I have said, the business has a substantial staff of approximately 2,000 employees. A successful sale of the business holds the prospect that employment will be retained by at least a number of these individuals.
The administrators also wish to continue their investigations into other avenues for realising TRUA’s assets, as well as conducting further investigations into the affairs of the companies so as to provide an informed choice to creditors of the options available to them.
In exercising the power to extend a convening period, the Court must balance the interests of creditors in a speedy administration and the need to allow sufficient time for the administrator to carry out his or her function properly and maximise the benefit to creditors through a proper administration.
I have been provided with detailed written submissions on the applicable legal principles. My attention has been drawn to a numbers of cases. I refer in particular to Austin J’s decision in Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs. apptd) (ACN 102 298 279) and Others [2009] NSWSC 585, at [13] and [16] to [18].
I note that at the first meeting of creditors, the administrators raised the likelihood that an extension of the convening period would be sought. At that time, the creditors were informed that an application to extend the convening periods would allow time for the sale campaign to be completed and sufficient time for interested parties to submit any deed of company arrangement proposal. They were also informed that, alternatively, an extension of the convening periods would allow sufficient time to maximise the value that might be achieved from a liquidation of stock.
I also note that at a subsequent meeting of the committee of inspection held on 12 June 2018, the committee was informed that a four-month extension would be sought.
Mr Preston has deposed that no creditor at those times (and I include in that reference landlord creditors) raised opposition to the convening periods being extended. I accept that this is a relevant consideration when considering whether an extension should be granted: In the matter of Henry Walker Eltin Group Ltd (Administrators Appointed) [2005] FCA 316 at [2].
An extension of four months is a significant period. However, I accept that there is much work to be done in the sale process and that that process will be complex, particularly if it should mature into a binding offer which the administrators accept. I am persuaded that the extensions as sought should be granted.
I am also persuaded that relief pursuant to s 447A(1) of the Act should be granted to provide that notwithstanding s 439A(2) of the Act, the second meeting of creditors of each company may be convened at any time during or within 5 business days after the end of the convening period as extended by the Court.
I also propose to make orders of a procedural nature that will provide creditors with notice of the extensions that have been granted and providing liberty to any person with a sufficient interest to apply to set aside or vary the orders I make.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 14 June 2018
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