Re 2 Mornings Pty Ltd
[2023] VSC 283
•1 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 02201
IN THE MATTER of 2 MORNINGS PTY LTD ATF DOYLE FAMILY TRUST (ADMINISTRATORS APPOINTED) (ACN 104 316 770)
BETWEEN:
| STEPHEN ROBERT DIXON and AHMED BISE as joint and several voluntary administrators of 2 MORNINGS PTY LTD ATF DOYLE FAMILY TRUST (ADMINISTRATORS APPOINTED) (ACN 104 316 770) | Plaintiffs |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 May 2023 |
DATE OF JUDGMENT: | 1 June 2023 |
CASE MAY BE CITED AS: | Re 2 Mornings Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 283 |
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CORPORATIONS — External administration — Application for extension of convening period of second meeting of creditors of company in voluntary administration pursuant to s 439A of the Corporations Act 2001 (Cth) (‘Act’) — Administrators seeking extension to enable completion of investigations into affairs of the company required under Pt 5.3A of the Act and to enable conclusion of sale of the business conducted by the company — Extension sought for 30 days — Administration of a single corporate enterprise with relatively few creditors and employees — No significant prejudice to those affected by moratorium by grant of extension — Orders made for extension of convening period together with ancillary orders.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Koroneos, solicitor | Capstone Koroneos Legal |
HIS HONOUR:
By an originating process filed on 24 May 2023, the plaintiffs (‘administrators’), who are the joint and several voluntary administrators of 2 Mornings Pty Ltd (ACN 104 316 770) (‘Company’), make application under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) (‘Act’) for an extension of the convening period for the second meeting of creditors of the Company required to be held by s 439A(1) of the Act (‘application’).
Unless extended, the convening period will expire at midnight on 25 May 2023. The administrators seek an extension pursuant to s 439A(6) of the Act for 30 days until 26 June 2023.[1] They also seek an order now often described as a Daisytek order,[2] allowing the administrators to hold the second creditors’ meeting any time during, or within five business days after, the end of the period as extended, notwithstanding the operation of s 439A(2) of the Act.
[1]In the course of discussion at the hearing of this application, it was determined that the extension should be until 10 July 2023 to enable completion of the sale process to which reference is made below.
[2]See Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446, 448 [10]–[14] (Lindgren J) (‘Daisytek’).
In addition, the originating process seeks orders that the creditors of the Company be informed by the several means specified of the making of the orders sought, together with liberty to apply and costs.
The application is supported by an affidavit of one of the administrators, Stephen Robert Dixon, sworn 24 May 2023. That affidavit has been supplemented by two affidavits of the administrators’ solicitor, Mark Koroneos, both sworn 25 May 2023.
Mr Dixon and Mr Ahmed Bise were appointed as the joint and several administrators of the Company pursuant to s 436A of the Act on 27 April 2023 (‘appointment date’).
The first meeting of creditors of the Company required by s 436E of the Act was held on 9 May 2023.
Mr Dixon calculates that in accordance with ss 439A(1) and 439A(5) of the Act, the second meeting of creditors is required to be convened by 25 May 2023 and s 439A(2) requires the meeting to be held by 1 June 2023. In addition, the report to creditors about the Company’s affairs required by r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (‘Insolvency Rules’) is required to be provided to creditors by 25 May 2023.
Mr Dixon deposes that he does not expect to be in a position to make the required recommendations necessary for inclusion in the report to creditors or convene a second meeting of creditors by the dates stipulated by the Act because: (a) his investigations into the Company’s affairs and the business it operates are ongoing; and (b) the sales campaign in relation to the potential sale of the business and assets of the Company (‘sales campaign’) has not yet been completed.
The Company trades as ‘Doyles Premium Ice Creams’ and is a wholesale ice-cream manufacturer supplying a number of ice cream retailers, including Cold Rock franchises (‘business’). As is evident from the title to the proceeding, the Company is trustee for the Doyle Family Trust, apparently a discretionary trust. At the hearing of the application, I flagged with Mr Koroneos, who appeared as solicitor for the administrators, whether there would need to be an application for orders that the administrators be appointed as receivers of the Company’s assets, none which are apparently beneficially held by it, to satisfy the claims of creditors.
The Australian Securities and Investments Commission (‘ASIC’) extract for the Company records its incorporation on 4 April 2003. Mark Reginald Doyle is the sole director of the Company and has been since 8 July 2022, when his co-director, Maree Linda Doyle, resigned. Mr Doyle has also been the Company’s secretary since its incorporation. Mr Doyle and Maree Linda Doyle are currently the only shareholders of the Company.
A security interest is registered on the Personal Property Securities Register (‘PPSR’) over the Company and is expressed as being over ‘all present and after-acquired property’. The PPSR certificate records that the secured party is Redcom Pty Ltd, the directors of which are Pamela Kaye Doyle and Robert Edward Doyle.
In Mr Koroneos’ second affidavit, he deposes upon instructions that the Company operates from leased premises at 9/65 Barry Street, Bayswater, Victoria. The landlords for the premises are Bersar Pty Ltd, D Colaneri Pty Ltd, and Colaneri Developments Pty Ltd. The Company is not the lessee and the tenant is a related entity, R M Doyle Pty Ltd. Mr Koreneos is informed there is no sub-lease or licence between the Company and R M Doyle Pty Ltd. The landlords are therefore not constrained by the moratorium provisions.
Mr Dixon describes the preliminary investigations that have been conducted into the affairs of the Company by reference to its financial records since the appointment date. These investigations reveal that:
(a)a balance sheet for the Company as at 27 April 2023 indicates a negative net asset position of $61,530.66;
(b)a profit and loss statement for the Company for the year ended 30 June 2022 records a net loss of $1,966.75;
(c)an Aged Payables Summary for the Company as at 27 April 2023 reveals a total aged payables of $139,912.58; and
(d)an Aged Receivables Summary for the Company as at 27 April 2023 indicates a total aged receivables of $52,422.07.
Mr Dixon deposes that he has obtained an independent valuation of the Company’s assets to assist in the sales campaign for the business.
Since his appointment, Mr Dixon has also caused work to be undertaken to update the financial records of the Company, which include:
(a)accessing the Company’s management accounts in Xero;
(b)liaising with the director, Mr Doyle, the Company’s staff, bookkeeper, and accountant in relation to obtaining relevant financial information and understanding the Company’s financial position; and
(c)undertaken an urgent review of the Company’s financial position and requesting information from Mr Doyle, staff, external bookkeeper, external accountant, and related parties. To the date of the swearing of his affidavit, he has received only limited information from these parties and is still awaiting the balance of the requested information.
The form 507 Report on Company Activities and Property (‘ROCAP’) was said by Mr Doyle to have been completed and posted to Mr Dixon’s office on 19 May 2023, but as of the time of swearing of Mr Dixon’s affidavit, it had not yet been received.
As at 27 April 2023, the Company had five employees with entitlements of $6,405 owing. A list of the known creditors of the Company prepared by Mr Dixon’s assistants reveals a total of $480,184.23 in creditors. The major creditors are the Australian Taxation Office for $331,362 and a supplier, Bulla, for $127,835.
In a letter to creditors of 17 May 2023 from Mr Dixon to the creditors of the Company, he notified them of the proposed application for the extension of the convening period. He has caused the notice to be emailed to those creditors and posted on the creditors’ portal for the administration of the Company on his firm’s website. As at the time of swearing his affidavit, he had not received any responses to his letter informing creditors of the proposed application.
Mr Dixon states since the appointment date, the administrators have continued to trade the business to preserve its value and the value of the assets of the Company. He says the purpose of that is to obtain the best possible value for the business and assets via the sales campaign to achieve the best possible return to creditors. Based on his experience, he believes that if the Company was placed into liquidation, it would have a detrimental effect on the potential realisable value of the business and other assets of the Company.
Mr Dixon states that the business is currently cashflow positive and there is no prejudice to creditors if it continues to trade. He expects that position to continue in the event the Court grants the requested extension of the convening period.
A sales campaign to effect sale of the Company’s business is underway. On 10 and 13 May 2023, an advertisement seeking urgent expressions of interest was placed in The Age newspaper. At the time of swearing his affidavit, Mr Dixon has received two expressions of interest and is currently awaiting receipt of signed copies of the Deed of Confidentiality from the interested parties. Once the Deeds of Confidentiality have been received, an information memorandum will be provided to the interested parties to progress the sales campaign. Mr Dixon expects the sales campaign to be completed by 16 June 2023.
In one of Mr Koroneos’ affidavits of 25 May 2023, he indicates that since Mr Dixon’s affidavit of the previous day, he has been instructed by Mr Dixon that:
(a) the administrators have received a written offer from one of the parties that submitted an expression of interest as referred to in Mr Dixon’s affidavit;
(b) the offer is made on the basis that it is a going concern sale;
(c) the offer has not been accepted by the administrators and the sales campaign is continuing; and
(d) even if the offer was accepted by the administrators and proceeded to contract, the return to unsecured creditors would having regard to the independent valuation obtained by the administrators and referred to in Mr Dixon’s affidavit would be better than the return to creditors if the assets were sold in a liquidation scenario.
Mr Dixon states his belief that the proposed extension is in the best interests of creditors as it would enable the sales campaign to be finalised and allow him to continue his investigations into the Company’s affairs to determine the reasons for its failure. He states the proposed extension will not cause any substantial prejudice to creditors, in relation to the ongoing trading costs or otherwise. He says that it will avoid the need to adjourn the second meeting of creditors, which would result in additional costs to the administration. Additionally, Mr Dixon says the extension will potentially avoid the prospect of the Company being placed into liquidation and enable him to prepare a report that complies with the requirements of r 75-253(b) of the Insolvency Rules and provide the opinion contemplated by s 438A of the Act as to whether it would be in the best interests of the Company’s creditors to finalise the sales campaign and find a new purchaser for the Company, for the administration to end, or for the Company to be wound up.
Mr Dixon states his belief that the extension period sought in the application would enable the above steps to be undertaken in an orderly and cost-effective manner.
Relevant legal principles
The relevant principles for application when considering whether an extension of convening period is warranted have been the subject of consideration in numerous authorities of state Supreme Courts and the Federal Court of Australia. They are referred to in the decision of Strawbridge, Re Virgin Australia Holdings Ltd (admins apptd) (No 2),[3] where Middleton J collected and considered the principles and authorities governing an application to extend a convening period of a second meeting of creditors required to be held under Part 5.3A of the Act. His Honour stated:
[3](2020) 144 ACSR 347.
The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).
The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Limited [2019] FCA 11 at [3]-[8], where his Honour endorsed the comments of Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs. apptd) [2009] NSWSC 585 (‘Re Riviera’) at [13] as to the categories of cases in which an extension is granted including, relevantly:
(1)where the size and scope of the business in administration is substantial (citing Lombe, in the matter of Babcock & Brown Limited (Administrators Appointed) [2009] FCA 349; Worrell; In the matter of Storm Financial Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70; and ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947);
(2)where the extension will allow sale of the business as a going concern, citing Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, in the matter of Kleins Franchising Pty Ltd (administrators appointed) (ACN 007 348 236) [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, in the matter of Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619 [2006] FCA 1423; and
(3)more generally, where additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, In the matter of Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; in the matter of Marrickville Bowling & Recreation Club Ltd (under Administration) [2008] FCA 622.
An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 (Jacobson J); Re Riviera (Austin J); Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 (Lindgren J) (‘Re Austcorp’); and In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 (Black J).
In Mighty River International Ltd v Hughes (as deed administrators of Mesa Minerals Ltd) (2018) 359 ALR 181 at 201-202, [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded:
… Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. 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 had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. …
Finally, the administrator’s own opinion as to the need for an extension will be given weight in an application of this kind: Owen and Others in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (ACN 116 665 304) (admins apptd) (recs and mgrs. Apptd)) v Madden (No 4) (2012) 92 ACSR 255 at [26] (Logan J); In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J).[4]
[4]Ibid 370–1 [64]–[68].
In Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (‘Re Riviera’), Austin J further noted as follows:
The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category), the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator’s estimate of time has a reasonable basis.[5]
[5](2009) 72 ACSR 352, 355 [14].
It seems that the primary reason for Mr Dixon seeking the extension is to enable an orderly sale of the assets and undertaking of the Company. The authorities dealing with extensions reveal that this is a proper purpose for the grant of an extension. In some circumstances, convening periods have been extended for several months to enable businesses owned by the company to be sold.[6]
[6]See, eg, Algeri, Re WBHO Australia Pty Ltd (admins apptd) (No 2) [2022] FCA 234 (Beach J).
It does not seem that the administration of the Company is a particularly complex one. It is a singular corporate enterprise with relatively few employees and creditors. Nonetheless, Mr Dixon, who is an experienced liquidator, is of the opinion that an extension is warranted to enable the sale of the business to be conducted in an orderly and cost-effective manner. An extension will also enable him to prepare a comprehensive report to creditors to the standard required by the Insolvency Rules.
Some of the examples provided by Austin J in Re Rivera are apposite in the present case, particularly in relation to the:
(a) likelihood that an extension would enhance the prospects of the business and assets being sold as a going concern and further time is required to facilitate an orderly process of their disposal; and
(b) likelihood that the additional time may enhance the return to creditors by allowing further time to investigate the affairs of the Company and facilitate the proposed sale of the business and assets on a going concern basis.
It is a comparatively modest extension and it is somewhat unlikely that there will be any prejudice to creditors. On an application of the criteria collected in Strawbridge, I consider that there is a clear and compelling case for the grant of an extension of the convening period. The most prominent of these is to enable the sale process to continue under the umbrella of the administration. The administrators are of the opinion that this will achieve the best return for the creditors. The authorities indicate that the opinion of the administrators in this context should be given considerable weight. It will also enable a comprehensive report to be prepared for the information of creditors. There is no obvious prejudice to persons constrained by the moratorium provisions of Part 5.3A.
As has become commonplace in these types of application, Mr Dixon seeks a Daisytek order[7] pursuant to s 447A of the Act to enable flexibility as to the date on which the meeting of creditors is required to be convened and I consider that is an appropriate order to be made in these circumstances.
[7]Daisytek (n 2).
If I were not to grant the extension, it would be necessary for Mr Dixon to convene the second meeting of creditors and then adjourn it. I see no sensible purpose in requiring him to take such a course with all the attendant costs to the administration.
In the circumstances, I will make the orders that are sought and will recite them as follows:
(1)The Court orders under s 42E(1) of the Evidence (Miscellaneous Provisions) Act 1958 (Vic) that all persons shall appear, give evidence and make submissions in this proceeding on 25 May 2023 by audio-visual link.
(2)Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (‘Act’), the period within which the plaintiffs must convene the second meeting of creditors of 2 Mornings Pty Ltd (ACN 104 316 770) (‘Company’) is extended up to, and including, 10 July 2023.
(3)Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company such that the second meeting of creditors required by s 439A(1) of the Act may be held at any time during, or within five business days after, the end of the convening period as extended by order 2 of this Order, notwithstanding the operation of s 439A(2) of the Act.
(4)The plaintiffs are to inform all known creditors of the Company (including persons claiming to be creditors) of this Order by 4:00pm on 26 May 2023 by means of:
(a)a circular posted on any website maintained by the plaintiffs;
(b)sending such information electronically to the email addresses of the creditors for whom the plaintiffs have an email address; and
(c) sending such information to the postal address or facsimile number or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to creditors in respect of whom the plaintiffs do not have an email address.
(5) Liberty to apply is granted to:
(a) the plaintiffs apply to the Court; and
(b)any creditor who can demonstrate sufficient interest to make an application to vary or discharge these orders no later than three business days prior to the last day of the convening period as extended by order 2 of this Order.
(6)The costs of and incidental to the application be costs and expenses in the administration and be paid out of the assets of the Company.
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