FEDERAL COURT OF AUSTRALIA
Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167
File number(s): NSD 109 of 2021 Judgment of: FARRELL J Date of judgment: 26 February 2021 Date of publication of reasons: 3 March 2021 Catchwords: CORPORATIONS – application for extension of the convening period for the second meeting of creditors under s 439A(6) of the Corporations Act 2001 (Cth) – application granted
CORPORATIONS – application for modification of operation of s 443A under s 447A of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations) to limit the liability of administrators under a proposed funding agreement – where funding may be necessary to ensure that the company may pay debts as they fall due during the extended convening period – where administrators not willing to incur personal liability for repayment of debts or satisfaction of liabilities arising under the proposed funding agreement to the extent that the property of the company in administration is insufficient to satisfy those debts and liabilities – application granted
CORPORATIONS – application for directions under s 90‑15 of the Insolvency Practice Schedule (Corporations) as to whether the administrators would be justified in entering into the proposed funding agreement – where proposed funder is sole shareholder and possibly is secured creditor and security would apply to advances under the funding agreement – application granted
Legislation: Corporations Act 2001 (Cth) ss 435A, 439A, 443A, 443D, 447A
Corporations Act 2001 (Cth) Sch 2, Insolvency Practice Schedule (Corporations) s 90-15
Federal Court of Australia Act 1976 (Cth) s 37AF
Cases cited: GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
Diamond Press Australia Pty Limited [2001] NSWSC 313
In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458
In the matter ofHawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355
In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556
In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002
In the matter of Riviera Group Pty Ltd (admins apptd) (recs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352
Re Unlockd Ltd (administrators appointed) [2018] VSC 345
Mighty River International Limited v Hughes [2018] HCA 38; (2018) 265 CLR 480
Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; (2020) 144 ACSR 347
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 54 Date of hearing: 25 February 2021 Counsel for the Plaintiffs: Ms T Jonker Solicitor for the Plaintiffs: Hamilton Locke ORDERS
NSD 109 of 2021 IN THE MATTER OF AUTOCARE SERVICES PTY LTD ACN 004 497 607 (ADMINISTRATORS…
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- AGLC
- Re Autocare Services [2021] FCA 167
- Case
- [2021] FCA 167
- Decision Date
CaseChat Overview and Summary
The court considered the legal issues, including whether the proposed arrangements were in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act. The court also examined whether the creditors were not prejudiced or disadvantaged by the types of orders sought and stood to benefit from the administrators entering into the arrangement. The court noted that notice had been given to those who may be affected by the order.
The court found that the proposed arrangements were in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act. The court also found that the creditors were not prejudiced or disadvantaged by the types of orders sought and stood to benefit from the administrators entering into the arrangement. The court granted the application for the extension of the convening period, modification of the operation of certain sections of the Corporations Act, and directions on whether the administrators would be justified in entering into the proposed funding agreement.
In conclusion, the Federal Court of Australia granted the administrators' application for an extension of the convening period, modification of the operation of certain sections of the Corporations Act, and directions on whether they would be justified in entering into the proposed funding agreement. The court found that the proposed arrangements were in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act. The court also found that the creditors were not prejudiced or disadvantaged by the types of orders sought and stood to benefit from the administrators entering into the arrangement.
Orders
Orders of the court
1. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice the following documents are to be marked “confidential” on the electronic court file and are not to be published or accessed, except pursuant to an order of the Court or the written agreement of the plaintiffs until 5 pm on Tuesday, 1 June 2021 or further order:
(a) paragraph 27 and Tab 4 of exhibit CCH-1 to the affidavit of Christopher Clarke Hill sworn on 24 February 2021;
(b) exhibit CCH-2 to the affidavit of Christopher Clarke Hill sworn on 24 February 2021; and
(c) exhibit CCH-3 to the affidavit of Christopher Clarke Hill sworn 25 February 2021.
2. The first plaintiffs (administrators) must file versions of the affidavit and exhibit referred to in Order 1(a) redacted to omit paragraph 27 and Tab 4 by 4 pm on Tuesday, 2 March 2021.
3. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening period, as defined by s 439A(5) of the Act, with respect to Autocare Services Pty Ltd ACN 004 497 607 (Administrators Appointed) (the Company) be extended up to and including 24 May 2021.
4. 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 meeting of creditors required by s 439A(1) of that Act, be held at any time during the period as extended under Order 3 above, and the period of five (5) business days thereafter, notwithstanding the provisions of s 439A(2) of the Act.
5. Pursuant to s 447A(1) of the Act, and s 90-15 of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act (IPSC), Part 5.3A of the Act is to operate in relation to the plaintiffs as if s 443A(1) of the Act provides that:
(a) the liabilities of the administrators (in their capacity as administrators of the Company) incurred with respect to any obligations arising out of, or in connection with any funding agreement substantially in accordance with confidential exhibit CCH-3 to the affidavit of Christopher Clarke Hill sworn 25 February 2021 (Funding Agreement), between the Company, LINX Cargo Care Group Pty Ltd ACN 123 683 885 (LINX) and the administrators are in the nature of debts incurred by the administrators in the performance and exercise of their functions as joint and several administrators of the Company; and
(b) notwithstanding that the liabilities referred to in Order 5(a) are debts incurred by the administrators in the performance and exercise of their functions as joint and several administrators of the Company, the administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the property of the Company is insufficient to satisfy the debts and liabilities incurred by the administrators arising out of, or in connection with, the Funding Agreement.
6. Pursuant to s 90-15 of the IPSC, the administrators (in their capacities as administrators of the Company) are justified in causing the Company to borrow monies not exceeding the sum of $6 million pursuant to the Funding Agreement.
7. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the Company such that notice of the second meeting of the creditors of the Company will be validly given to creditors of the Company by:
(a) causing notice to be published on the published notices website of the Australian Securities and Investments Commission (ASIC) at https://insolvencynotices.asic.gov.au;
(b) sending a hyperlink to the notices published on the ASIC published notices website by email to the email address of each creditor at such email address as is recorded in the books and records of the Company;
(c) where an email address is not recorded in the books and records of the Company but a postal address is recorded, sending the notice by posting it to the postal address of each creditor as is recorded in the books and records of the Company; and
(d) where the administrators do not have an email or postal address by publishing the notice on the website maintained by FTI Consulting Australia Pty Ltd (FTI) at https://www.fticonsulting-asia.com/creditors/autocare-services-pty-ltd.
8. The administrators take all reasonable steps to cause notice of these orders to be given, within two (2) business days of making these orders to:
(a) the creditors (including persons claiming to be creditors) of the Company in the following manner:
(i) where the administrators have an email address for a creditor, by notifying each such creditor, via email, of the making of the orders;
(ii) where the administrators do not have an email address for a creditor, but have a postal address for that creditor, by notifying each such creditor, by post, of the making of the orders; and
(iii) where the administrators do not have an email or postal address, by publishing the notice on the website maintained by FTI.
(b) ASIC, by its street address or email address.
9. Liberty to apply be granted to any person, including any creditor of the Company or ASIC, who can demonstrate sufficient interest to vary Orders 3, 4, 7 and/or 8 on the giving of two (2) business days’ notice to the plaintiffs, and to the Court.
10. The administrators’ costs and expenses of and incidental to the originating process are to be treated as costs in the administrations of the Company.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Section 90-15 of the IPSC relevantly provides:90-15 Court may make orders in relation to external administrationCourt may make orders(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.Orders on own initiative or on application(2) The Court may exercise the power under subsection (1):(a) on its own initiative, during proceedings before the Court; or(b) on application under section 90-20.Examples of orders that may be made(3)Without limiting subsection (1), those orders may include any one or more of the following:(a)an order determining any question arising in the external administration of the company;…Section does not limit Court’s powers(7)This section does not limit the Court’s powers under any other provision of this Act, or under any other law. Section 5-20(a) of the IPSC includes an administrator in the definition of “external administrator”. An external administrator has a “financial interest” in the external administration of a company under s 5-30(a)(iii). Section 90-20(1)(a) authorises a person with a financial interest in the external administration of a company to make an application for orders under s 90-15. While it is now settled that the Court has wide powers to modify the operation of Part 5.3A in relation to a particular company under s 447A of the Corporations Act and s 90-15 of the IPSC, such orders must be made in pursuit of the objects of Part 5.3A as set out in s 435A as follows:435A Object of PartThe object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or(b)if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.Note: Schedule 2 contains additional rules about companies under external administration.and where there is recourse to the IPSC, regard should also be had to its objects set out in s 1‑1 of the IPSC which relevantly provide as follows:1-1 Object of this Schedule…(2) The object of this Schedule is also:(a)to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and(b)to regulate the external administration of companies to give greater control to creditors. The considerations and case law relevant to an application under s 447A for modification of the application of s 443A were summarised by Sloss J in Re Unlockd Limited (administrators appointed) [2018] VSC 345 (Unlockd Limited) at [60]-[64]:[60]In the leading case of Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493 (Secatore), Gordon J stated (at [23]):Section 447A(1) of the Act empowers the Court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Orders in similar terms have frequently been made in circumstances where the Court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company’s business to continue to trade for the benefit of the company’s creditors: see, for example, Re Ansett Australia Ltd (No 1) at [49]; Re Spyglass Management Group Pty Ltd (admin apptd) (2004) 51 ACSR 432 at [6]; Sims; Re Huon Corporation Pty Ltd (admins apptd) (2006) 58 ACSR 620 at [12]; Re Malanos [2007] NSWSC 865 at [13].[61]In such circumstances, courts have held that it is not to be expected that the voluntary administrators should expose themselves to substantial personal liabilities: see e.g. Re Renex Holdings (Dandenong) 1 Pty Ltd [2015] NSWSC 2003, [13] (Black J); Preston, in the matter of Hughes Drilling Limited [2016] FCA 1175 (Hughes Drilling), [18] (Yates J). See also Korda, in the matter of Ten Network Holdings Ltd [2017] FCA 1144, [43]-[44] (Markovic J).[62]In Secatore, Gordon J also observed (at [29]) that if orders are made relieving administrators from personal liability in respect of borrowings, it will permit them to make commercial decisions about the ongoing operations by focussing on what is in the best interests of the creditors ‘uninfluenced by concerns of personal liability.’[63]In Re Great Southern Infrastructure Pty Ltd [2009] WASC 161 (Great Southern) at [13], Sanderson M observed that:The material consideration on such an application is whether the proposed arrangements are in the interests of the company’s creditors and consistent with the objectives of Pt 5.3A of the Act. To put that proposition positively — the question is whether the court is satisfied the proposed arrangements are for the benefit of the company’s creditors. To put it negatively — the question is whether the court is satisfied the company’s creditors are not disadvantaged or prejudiced by the proposed arrangement. These principles have been confirmed in a large number of cases.[64]In Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (admins apptd) (2010) 82 ACSR 142; [2010] FCA 1469, Gilmour J summarized the principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A as follows (at [30]):(a)the proposed arrangements are in the interests of the company’s creditors and consistent with the objectives of Part 5.3A of the Corporations Act: Re Great Southern at [13].(b)typically the arrangements proposed are to enable the company’s business to continue to trade for the benefit of the company’s creditors: Re Malanos at [9] and Re View at [17].(c)the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement: Re View at [18], and also Re Application of Fincorp Group Holdings Pty Ltd [2007] NSWSC 628 at [17].(d)notice has been given to those who may be affected by the order: Re Great Southern at [12].