Re Australian Business Colleges Pty Ltd
[2010] VSC 47
•2 March 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. 1047 of 2010
IN THE MATTER of SECTION 443(1) OF THE CORPORATIONS ACT 2001
AND
IN THE MATTER OF AUSTRALIAN BUSINESS COLLEGES PTY LTD (ADMINISTRATORS APPOINTED) ACN 050 235 384
EX PARTE: CRAIG DAVID CROSBIE AND RODNEY JAMES SLATTERY
IN THEIR CAPACITY AS ADMINISTRATORS OF
AUSTRALIAN BUSINESS COLLEGES PTY LTD ACN 050 235 384
(ADMINISTRATORS APPOINTED)
| Plaintiffs |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 March 2010 | |
DATE OF JUDGMENT: | 2 March 2010 | |
CASE MAY BE CITED AS: | Re Australian Business Colleges Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 47 | |
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CORPORATIONS – Administrators – Personal liability of administrators for borrowed funds – Application by administrators for order as to operation of Pt 5.3A of the Corporations Act 2001 (Cth) – Orders sought to relieve administrators of liability under s 443A of the Corporations Act 2001 (Cth) – Administrators able to incur obligations without personal liability to facilitate company in administration to continue as a going concern so as to benefit creditors – Administrators to use borrowed funds for administration debts and administrators’ remuneration – Ss 443A, 447A Corporations Act 2001 (Cth).
NOTICE – Administrators decision to delay notifying creditors of orders sought – Best interest of creditors.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. J Evans | Cornwall Stodart |
| For MEGT Australia Ltd | Mr. S Maiden | Mills Oakley |
| For Spiro Lalios, Bassett 2 Pty Ltd and Basset Enterprises Pty Ltd | Mr. M Lhuede | Piper Alderman |
HER HONOUR:
The plaintiffs (“the administrators”), who are the administrators of Australian Business Colleges Pty Ltd (“ABC”), have applied to the Court for an order under section 447A of the Corporations Act 2001 (Cth) (“the Act”) for the modification of section 443A of the Act so that the administrators will not be personally liable for the repayment of moneys borrowed by ABC from a third party (“MEGT”) under the terms of a deed (“the Funding Deed”), made on 23 February 2010,to provide funding to meet the payment of administration debts and the administrators’ remuneration.
The application was not opposed by those who were represented at the hearing, but the application was not made on notice to ABC’s creditors because of urgency on the part of the administrators to obtain the order. The administrators propose that the form of orders include an order for notice to be given to the creditors and for the grant of liberty to apply any person who can “demonstrate sufficient interest” to modify or discharge the order. The urgency for the application without notice to the creditors was explained as the need for the administrators to make a decision about whether they should cease operating ABC’s business, as on their present estimate of the financial position of ABC, the administrators have a potential exposure to personal liability in the range of $122,116 to $875,000 for the operating costs and liabilities they would need to incur to continue conducting the business. I have concluded that the order sought should be made but on an interim basis only, to provide creditors with the opportunity to put submissions before the Court against the making of a final order.
The circumstances giving rise to the application are as follows. ABC conducts a business providing education courses to overseas students. It carries on business under the name “Hales Institute” as a provider of vocational programs offering certificate, diploma and advanced diploma courses, such as hospitality, hairdressing, information technology and business to overseas students. It also offers English language courses. ABC is registered under the Australian Quality Training Framework as a registered training organisation with the Victorian Registration and Qualification Authority (“VRQA”) and is on the Commonwealth Register of Institution and Courses for Overseas Students. That means that ABC is licensed to act as an education provider and conduct its educational programs.
At a meeting of the director of ABC convened on 23 February 2010, the director resolved in accordance with section 436A of the Act that in the director’s opinion, ABC was likely to become insolvent at some future time and an administrator of the company should be appointed. The administrators were nominated as the administrators. The first meeting of creditors has been convened for Thursday, 5March 2010.
ABC’s revenue is derived from student’s prepayment of course fees. At the date of the appointment of the administrators, ABC had an enrolment of approximately 1000 students from around 80 countries, the majority of whom are from India. Those students who are currently enrolled typically pay monthly in advance, although new students are required to pay 6 monthly in advance. ABC also receives prepayment of fees from students who have made application for enrolment.
ABC employs teaching and administrative staff totalling 93, consisting of 40 full time staff, 35 contractors and 18 part time staff.
ABC operates Hales Institute from leasehold premises in the Melbourne CBD and South Melbourne.
The book value of the assets of ABC are estimated to be approximately $4.3 million comprised of trade debtors, a loan account and plant and equipment. It appears there is a dispute about the value of the loan account and the administrators have not yet formed a view as to whether the trade debtors are realisable and if so to what extent. Liabilities are estimated at $7.5 million.
It is the administrators’ view that if ABC’s business is to close down, it is likely that its registration with VRQA, which is not transferable, will be revoked. The cancellation of its licence would cause almost 100 employees to be retrenched and over 950 students on student visas to be displaced. Based on their preliminary investigations, the administrators consider that it is unlikely that unsecured creditors would receive a dividend if the company was wound up. If the business is to be continued, there will be expenses and outgoings which the administrators expect will exceed the revenue from student fees.
MEGT has expressed interest in purchasing ABC as a going concern. MEGT is a not-for-profit organisation and has operated in the market place of employment, education and training apprenticeships and traineeships since 1982. Together with the director of ABC, MEGT has formulated a Deed of a Company Arrangement (“DOCA”) proposal to seek to maximise the chances of ABC’s business continuing in existence. In order to ensure that ABC continues to operate during the administration period, MEGT has offered to advance to ABC the sum of $1 million with an initial draw down of $250,000 and further draw downs being made upon notice. The provision of the funding is part of the DOCA proposal.
The funds are to be made available to the administrators for the sole and express purpose of meeting the administration costs and expenses, including the administrators’ remuneration.[1] The terms of the Funding Deed relevantly contain covenants on the part of MEGT not to sue ABC or the administrators for recovery of the funds provided, waiving their rights against the administrators for payment by the administrators of those monies and, if the administrators require it, providing a release and discharge to the administrators. The Deed also provides for limited non recourse on the part of ABC to repay the funds provided. It is a term that ABC only becomes liable to make repayment if the company’s available assets are sufficient to meet payment in full of the administration debts and the administrators’ remuneration. The Funding Deed further provides that the facility will automatically terminate in the event that the creditors of ABC do not within 25 business days of the appointment of the administrators resolve that ABC execute the proposed Deed of Company Arrangement.[2]
[1]Funding Deed made 23 February 2010 item 7 and cl 3.
[2]Funding Deed made 23 February 2010 cl 2.3.
The VRQA supports the restructure process.
The administrators are of the view that the Funding Deed is in the creditor’s best interests as it allows for the continued operation of ABC while the administrators:
(a)complete their investigations into the company’s business, property, affairs and financial circumstances as required under section 438A of the Act;
(b)evaluate the merits of the proposed DOCA;
(c)assess any other DOCA proposals or other plans which may be forthcoming to restructure ABC or to purchase its assets.
It is also the view of the administrators that ABC’s creditors will not be disadvantaged or prejudiced by the orders they seek in this application because if the business has to be closed down, the likely result is that the company will be wound up and there will be no dividend payable to unsecured creditors.
The Court’s power to make the orders sought under section 447A of the Act has been recognised in a number of authorities.[3]
[3]Re Ansett Australia Limited & Others (all administrators appointed) v Mentha & Anor (as administrator) (2001) 188 ALR 165, 175 [42]; Re View Gold Pty Ltd [2008] WASC 241 [16] – [18]; Re Great Southern Infrastructure Pty Ltd; Ex parte Jones [2009] WASC 161.
In my opinion, the administrators have made a case for Court making the order sought.
The material question for the Court to consider is whether the order would be to the detriment or disadvantage of the company’s creditors.
The evidence showed that the administrators have turned their minds to whether would be to the detriment or disadvantage of the company’s creditors and have formed the view that it would not.
I am satisfied that their view is properly formed.
The investigations of the administrators to date disclose that unsecured creditors are unlikely to receive any dividend in the event that the company is wound up. It would appear that the winding up of the company would be the inevitable consequence of the cessation of business. The funding arrangement would facilitate the continued operation of the business but the administrators are exposed under section 443A of the Act as there would appear to be a substantial risk that the company may have inadequate property out of which the administrators would be indemnified for the debts for which they are liable and for their remuneration.[4] Under the terms of the Funding Agreement that risk passes to MEGT who will be in no better position than the administrators with respect to recourse to the company’s property out of which to meet the repayment of the funds it will advance to the administrators for the purpose of meeting the payment of the administration debts and the administrators’ remuneration. Unsecured creditors thus would be in no worse position than if the administrators were willing to take on the personal risk of continuing the business without the benefits offered by the Funding Deed.
[4]Section 443D of the Act.
In the circumstance, an interim order will be made.
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