Re Blockchain Global Limited (Admins Apptd)
[2021] VSC 762
•19 November 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 04212
IN THE MATTER of BLOCKCHAIN GLOBAL LIMITED (ADMINS APPTD)
(ACN 601 628 497)
APPLICATION BY:
| ANDREW REGINALD YEO and INNIS ANTHONY CULL in their capacity as joint and several administrators of BLOCKCHAIN GLOBAL LIMITED (ADMINS APPTD) (ACN 601 628 497) | First Plaintiffs |
| - and - | |
| BLOCKCHAIN GLOBAL LIMITED (ADMINS APPTD) (ACN 601 628 497) | Second Plaintiff |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 November 2021 | |
DATE OF JUDGMENT: | 19 November 2021 | |
CASE MAY BE CITED AS: | Re Blockchain Global Limited (Admins Apptd) | |
MEDIUM NEUTRAL CITATION: | [2021] VSC 762 | (First revision: 24 November 2021) |
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Corporations Act 2001 (Cth) – Part 5.3A – Application by administrators to company involved in cryptocurrency trading for extension of convening period for second meeting of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth) – Affairs of company complex – Directors resident overseas – Company involved in several legal proceedings – Additional time needed to gain an understanding of the company’s business and to continue discussions – Time needed for thorough assessment of proposal for deed of company arrangement – Additional time needed to continue discussions with proponent for deed of company arrangement – Re Riviera Group Limited (2009) 72 ACSR 352 – Mighty River International Limited v Hughes (2018) 265 CLR 480 – Extension of three months granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Silver of counsel | SBA Legal Pty Ltd |
HIS HONOUR:
On 16 October 2021, the first plaintiffs, Andrew Yeo and Innis Cull (together, ‘the Administrators’), were appointed as joint and several voluntary administrators of the second plaintiff, Blockchain Global Limited (ACN 601 628 497) (‘the Company’), pursuant to s 436A of the Corporations Act 2001 (Cth) (‘the Act’).
By originating process filed 11 November 2021, the Administrators and the second plaintiff applied for an order under s 439A(6) of the Act for an extension of the period within which the Administrators are required to convene the second meeting of creditors of the Company to 18 February 2022, an extension of approximately three months.
In addition, the plaintiffs applied for an order pursuant to s 447A of the Act so that the meeting of creditors of the Company may be convened under s 439A of the Act at any time during the convening period as extended by the previous order, or within five business days thereafter. As discussed below, this type of order is often described as a Daisytek order, one of the first authorities in which such an order was made.[1]
[1]Re Daisytek Pty Ltd (admin apptd) (2003) 45 ACSR 446 (‘Daisytek’).
Unless extended, the convening period for the second meeting of creditors for the Company would end on 17 November 2021 and would have required the second meeting to be held within five business days before or after the end of the convening period.[2]
[2]Section 439A(5) of the Act.
On 15 November 2021, I made orders extending the convening period to 18 February 2022. I indicated on that occasion after delivering short reasons that I would provide more detailed reasons at a later date.
In support of this application, the plaintiffs relied on affidavits of one of the Administrators, Andrew Yeo, sworn on 11 November 2021. Mr Yeo makes the application on behalf of both the Administrators.
Mr Yeo states that the Company is a company associated with a cryptocurrency exchange called “ACX” which enabled investors to buy, sell and store cryptocurrencies. It is his understanding that a cryptocurrency exchange operates in a similar manner to an online share trading platform. Mr Yeo understands that Blockchain also provided management consulting services and investment opportunities to cryptocurrency related businesses. In addition, Mr Yeo’s investigations reveal that the Company holds various types of cryptocurrencies including bitcoin, Ethereum Classic, Ethereum, MobileGo and XEM. He deposes that the Company is not currently trading.
Cryptocurrency overview
An employee of Pitcher Partners, George Walch, who is familiar with how cryptocurrency operates has informed Mr Yeo of the following information relating to the storage and security of cryptocurrency.
Cryptocurrencies are held in a “wallet” or on an exchange. There are two types of wallets: the first is a “cold wallet”, which is usually a piece of hardware, such as an external hard drive or USB device, but it can be in paper form. A cold wallet is not connected to the internet and is therefore regarded as more secure against attacks. The second type of wallet, called a “hot wallet”, consists of an account that is linked to the internet, where cryptocurrency is held which is more freely accessible and less secure.
Mr Walch informed Mr Yeo of two features of cryptocurrency wallets:
(a) First, a wallet, and therefore the cryptocurrency it contains, can only be accessed and controlled by using a private key or seed phrase. A private key or seed phrase are analogous to a password. A wallet cannot be accessed if the private key or seed phrase is unknown. There is no way to change or retrieve a private key or seed phrase and so, if they are lost, then access to the wallet, and therefore to the cryptocurrency it contains, is also lost.
(b) A public address, or public key, is a unique string of letters and numbers which identifies the wallet. This address is publicly available and can be used by third parties to locate a wallet and view, but not access, the cryptocurrency holdings of that wallet. In this way, the public address operates in a similar fashion to a bank account number. A wallet may have multiple public addresses. The public address is what is provided to external parties who wish to transfer cryptocurrency to a wallet.
Court proceedings
Mr Yeo deposes that the Company is a party to four ongoing court proceedings. The first, proceeding QUD 295/2021, is a proceeding filed in the Queensland Registry of the Federal Court of Australia seeking the winding up of the Company in insolvency. That application first went before the Federal Court on 22 October 2021 and Mr Yeo sought, and was granted, a four week adjournment of the application in order to enable him to conduct further investigations into the Company’s business, property and affairs and to explore the potential for a proposal for a Deed of Company Arrangement (‘DOCA’) with the directors of the Company. The winding up application was adjourned to 19 November 2021.
The second, proceeding S ECI 2020 03554, is a proceeding in this Court concerning a claim brought against the Company by a former employee, Jin Chen, (‘Chen proceeding’). A dispute arose between the Company and Mr Chen who claimed that he was owed an amount of bitcoin for having developed software for Blockchain’s cryptocurrency exchange. The proceeding also involves a dispute as to the right to use or own that software. The proceeding was compromised between the parties and approximately 117 bitcoin were set aside in a cold wallet, pending completion of the settlement deed. Mr Yeo understands that because a further dispute emerged in respect of compliance with the settlement deed, the 117 bitcoin which were earmarked under the terms of the settlement were not paid out and remained in the security wallet. In the Chen Proceeding, the Company filed a counterclaim which contended that intellectual property that was to be provided by Mr Chen to the Company was not accessible and therefore Mr Chen was in breach of his obligations under the settlement deed. Mr Yeo understands that there is a dispute concerning the control and operation of the ACX cryptocurrency platform.
The third proceeding is proceeding S ECI 2021 03329 in this Court and is a group proceeding brought by various individuals who alleged they invested in cryptocurrency through the ACX cryptocurrency platform maintained by the Company, or the second defendant to that proceeding, ACX Tech Pty Ltd (‘ACX Tech’). The claims in that proceeding have a collective value of approximately $13,000,000 and include allegations that significant sums of cryptocurrency are unaccounted for (‘Group Proceeding’).
The plaintiffs in the Group Proceeding sought a mandatory injunction on 13 September 2021. Justice Riordan granted a freezing order over Mr Chen, the Company and the other defendants in the Group Proceeding from dealing with the 117 bitcoin held by the Company and Mr Chen. It is Mr Yeo’s understanding that the freezing order remains in force.
The plaintiffs in the Group Proceeding are currently seeking default judgment for debt against ACX Tech in the sum of $10,344,904.30 and costs. Mr Yeo states that at the time of making his affidavit, no hearing has been listed or orders made in respect of that application. The Chen Proceeding and the Group Proceeding are to be managed by Attiwill J in the Commercial Court and are returnable on 19 November 2021 for directions.
Mr Yeo states that he has communicated with Attiwill J’s chambers in relation to the Group Proceeding and notified the chambers of the Administrators’ appointment. On 21 October 2021, Mr Yeo wrote to the Commercial Court Registry in relation to the Chen Proceeding and informed it of the Administrator’s appointment. Mr Yeo is not aware of any application under s 440D of the Act for leave to proceed with the Chen Proceeding or the Group Proceeding.
The fourth proceeding is an application for leave to appeal by the Company in proceeding S EAPCI 2021 0089 in the Court of Appeal of the Supreme Court of Victoria. That leave is sought in respect of the decision of Judge Macnamara of the County Court of Victoria. The proceeding the subject for application of leave to appeal was brought by Ms Cai Liu, who is the ex‑spouse of a former director of the Company, Mr Liang (Allan) Guo, against the Company in relation to a capital raising undertaken by the Company for the purpose of investing cryptocurrency in the United States. A court in the United States ruled that the capital raising was invalid and 75% of the investment monies were returned to the Company. Ms Liu sought a return of 75% of her holdings and was successful in obtaining such an order, pursuant to which she was awarded approximately $330,000 exclusive of interest and costs.
On 21 October 2021, Mr Yeo wrote to the Registrar of the Court of Appeal informing them of the Administrators’ appointment and was not at that time informed of any upcoming listing of the application for leave to appeal.
Mr Yeo states that he has sought legal advice in connection with, inter alia, the merits of continuing with the Chen Proceeding, the Group Proceeding and the application for leave to appeal. He is also continuing to be involved in the winding up application. He says that because of his ongoing investigations into the Company and its activities and the complexities of the claims made in those proceedings, it will take some time to receive this advice.
The Report on Company Activities and Property in the administration of the Company, dated 24 October 2021 (‘ROCAP’), discloses eight unsecured creditors of a total value of $20,921,396.15. The ROCAP also indicates that a former employee of the Company, who is a priority creditor, is owed $18,237.23.
The ROCAP did not disclose any secured creditors, however Fuji Xerox was later identified by the Administrators as a secured creditor pursuant to the Personal Property Securities Act 2009 (Cth). Mr Yeo states that he has issued a notice of intention not to exercise property rights in relation to the property the subject of the security.
Mr Yeo states that, to date, 89 proofs of debt have been lodged with total claims of $29,472,004.41 but is not adjudicated on or admitted any of those claims.
First meeting of creditors
Mr Yeo states that the first meeting of creditors was conducted on 29 October 2021. He acted as the chairperson of the meeting and tabled a notice to the meeting; a declaration of independence and relevant relationships and indemnities and the ROCAP. There were no nominations made for an alternative administrator at the first meeting. Mr Yeo states that, during this meeting, it was foreshadowed that an application for extension of the convening period would be made and that there was no objection raised by the creditors. The creditors resolved to form a committee of inspection. The members of the committee are all plaintiffs in the Group Proceeding.
Cryptocurrency assets
By reference to the ROCAP, Mr Yeo identifies the following types of cryptocurrencies:
Cryptocurrency type
Control held by
Estimated realisable value as at the date of ROCAP (AUD)
Bitcoin
Mr Sam Lee
29.8960 bitcoins3,208,926.00
Mr Allan Guo
23.11 bitcoinsEthereum
Mr Allan Guo
2,225,041.53
MobileGo
Mr Allan Guo
5,103.56
XEM
Mr Allan Guo
290,104.43
Mr Yeo states that these holdings are reflected in the Company’s balance sheet, which also identifies a holding of Ethereum Classic (‘ETC’), valued at $1,043,131 as at 31 October 2021. Mr Yeo says it is unclear whether the ETC holding was included in the ROCAP as part of the ‘Ethereum’ category or whether the directors made an omission in the ROCAP in this regard.
Mr Yeo states that on 20 October 2021, with the assistance of his staff, he accessed a public address provided to the Administrators to view the security wallet the subject of the freezing order made by Riordan J. This revealed that the wallet contained a little over 117 bitcoin and, as at 10 November 2021, the bitcoin was still in the security wallet. Out of an abundance of caution, he has redacted the public address of the wallet in his affidavit to keep it secure and he has also redacted the transaction hashes for the same reason as they appear to be a unique set of numbers which identify the transaction by which cryptocurrency is received and transferred.
On 20 October 2021, My Yeo used the public address identified in the ROCAP to view the “hot wallet” said to contain the bitcoin controlled by Mr Sam Lee. This revealed that the wallet had previously held approximately 74 bitcoin but was now empty and has been empty since August 2020. Mr Yeo has also redacted the public address for that wallet for security reasons. It is Mr Yeo’s understanding that Mr Lee, a former director of the Company and a defendant in the Group Proceeding, resides outside of Australia. He has been provided with an email and WeChat address (a Chinese instant messaging application) for Mr Lee, but Mr Lee has not been responsive.
Mr Guo, a former director and defendant in the Chen and Group proceedings, resides in Victoria and has lodged a proof of debt for $8,329,583. This amount is said to relate to 100 bitcoin that he purportedly loaned to the Company while he was a director. The Company’s balance sheet as at 31 October 2021 identified a current liability to Mr Guo in relation to a loan of the value of $551,231.
On 26 October 2021, one of Mr Yeo’s staff received a telephone call from Mr Guo. Mr Guo confirmed that he had previously had access to the wallet that contained the cryptocurrency displayed in the Company’s balance sheet. He informed Mr Yeo’s staff that before the onset of the COVID pandemic, in late 2019, he was in China and his belongings were stolen. Amongst the stolen items was his laptop which contained the credentials for accessing the wallet and therefore the cryptocurrency it held.
Mr Guo informed Mr Yeo’s staff that he did not currently have access to the Company’s cryptocurrency and he was the only person who had the access credentials for it which were contained on the laptop which he said had been stolen. Mr Yeo’s staff requested Mr Guo to provide evidence in respect of the alleged theft of the laptop. Mr Guo said he would provide a police report but this report has not been received.
Mr Yeo states that the Company’s existing directors currently reside overseas and he has difficulty contacting them. His office has been dealing principally with Ms Jenny Qin, who was involved with the Company in the years prior to the Administrators’ appointment, as well as with other companies that are associated with the Company. Ms Qin is acting as the main point of contact between the Administrators and the directors.
On 26 October 2021, another member of Mr Yeo’s staff spoke to Ms Qin. Ms Qin confirmed that Mr Guo had previously made representations to her that his laptop, containing the aforementioned credentials, was stolen. However, the Company was never provided with a police report.
Ms Qin also confirmed that Mr Lee holds “close to 30 bitcoin” but Mr Yeo notes that the public address for the wallet, said to be controlled by Mr Lee, appeared in the ROCAP and his review of that wallet indicates that it has a nil balance. No private key or seed phrase has been provided for this wallet.
Mr Yeo states that Zijing Xu, one of the current directors of the Company, has indicated that the directors collectively wish to explore a proposal for a DOCA and this has been confirmed by Mr Xu in writing to Mr Yeo. On 8 November 2021, Mr Yeo wrote to the directors inviting them to discuss a potential DOCA with him. Mr Yeo says that the Administrators intend to continue those DOCA proposal discussions.
Work undertaken since appointment
Mr Yeo states that the Administrators and their staff have undertaken the following tasks since the Administrators’ appointment:
(a) written to the Company’s directors about their intention to submit a proposal for a deed of company arrangement;
(b) attended on the Company’s former solicitors about various legal proceedings to which the Company is a party;
(c) communicated with the solicitors for the other parties in those legal proceedings about the proceedings;
(d) prepared and sent correspondence to the courts in which those legal proceedings are on foot, giving notice of the appointment of Administrators to the Company;
(e) engaged and briefed solicitors about the administration and legal proceedings. [Mr Yeo is] continuing to provide instructions to them;
(f) prepared and lodged with ASIC the statutory documents required under the Corporations Act 2001 (Cth), including but not limited to:
(i) notices of appointment;
(ii) an advertisement for the first meeting of the Company’s creditors; and
(iii) a declaration of relevant relationships and indemnities;
(g) attended on the landlords of the premises that the Company occupied under leases and notified them that the Administrators did not intend to exercise certain property rights pertaining to the premises and leasehold;
(h) arranged attendances on those premises to secure and remove the Company’s assets and its books and records, which included disconnecting and repossessing computer servers located on the premises and recovering all physical assets of commercial value held by the Company;
(i) corresponded with a landlord in relation to a bank guarantee of $534,173.55 in its favour;
(j) liaised with the Company’s banker and secured $496,981.06 held by the Company as cash at bank;
(k) prepared and sent letters to the Company’s former solicitors, accountants and auditors, seeking the delivery of the Company’s books and records held by them;
(l) formally terminated the Company’s remaining workforce;
(m) holding key discussions with the Company’s sole former employee and the Australian representative of the Company’s directors to obtain information and documentation about the Company’s affairs;
(n) interviewing the Company’s bookkeeper to obtain information and documentation about its financial affairs;
(o) communicating with the directors’ Australian liaison;
(p) preparing and sending documents to creditors with security interests registered on the Personal Property and Securities Register, notifying them of the Administrators’ appointment;
(q) notifying the Australian Taxation Office of the Administrators’ appointment;
(r) notifying other key stakeholders of the appointment, including:
(i) VicRoads;
(ii) the State Revenue Office;
(iii) the Sheriff’s Office;
(iv) WorkSafe Victoria; and
(v) the Department of Human Services;
(s) preparing and sending a freedom of information request to the Australian Taxation Office, seeking historical financial and taxation information about the Company;
(t) sending a request to Xero for access to the Company’s electronic accounts;
(u) preparing and sending documents to the general body of creditors, notifying them of the Administrators’ appointment and of the first meeting of creditors;
(v) finalising and sending an initial report to creditors regarding the administration;
(w)receiving and responding to numerous creditor enquiries regarding the administration of the Company;
(x) reviewing proofs of debt and proxy forms;
(y) conducted the first meeting of creditors;
(z) undertaken a preliminary review of books and records of the Company provided by a former employee;
(aa) initiated enquiries with regard to the parties alleged to be in control of the cryptocurrency disclosed in the Company’s balance sheet. These enquiries remain in their initial stages; and
(bb) prepared and issued a comprehensive response to a letter for information from the appointed Committee of Inspection.
Reasons for seeking adjournment
Mr Yeo seeks an extension of three months of the convening period in the administration of the Company because extensive and complicated investigations are required to be conducted to obtain accurate information on the Company’s financial position. He states that the administration is a complex one and will involve investigations which concern individuals located overseas. For this reason, Mr Yeo seeks the additional time in order to provide a considered and detailed report to creditors.
In particular, Mr Yeo deposes that the extension is in the interests of the Company’s creditors as it will enable the Administrators to:
(a) engage specialised assistance regarding the tracing of the Company’s cryptocurrency, which is a substantial asset of the Company;
(b) continue investigations into the directors’ and former directors’ dealings with the Company’s cryptocurrency;
(c) obtain advice as to the prospects of recovery of the Company’s cryptocurrency and other recovery proceedings;
(d) obtain the necessary legal advice regarding the ongoing legal proceedings and assess further steps, if any, to be taken;
(e) confirm the realisable value of debtors of the Company;
(f) confirm the realisable value of shares held by the Company in listed and unlisted entities; and
(g) explore the possibility of a DOCA with the directors of the Company and undertake a thorough assessment of any such DOCA proposal.
In the originating process filed on his behalf, Mr Yeo also seeks an order that the meeting may be convened at any time during the convening period as extended or within five business days afterwards.
Legal principles to be applied
Since the introduction of Part 5.3A of the Act, applications for extensions of convening periods for the second meetings of creditors have often been made, particularly in administrations involving large corporate groups whose affairs are complex. In such administrations, the time period prescribed by s 439A(5) will often not be sufficient to enable administrators to perform the tasks required before the second meeting. On occasion, courts have extended the convening period for up to several months to enable administrators to conduct the necessary enquiries and negotiations.[3]
[3]See the authorities referred to by Nettle and Gordon JJ in Mighty River International Limited v Hughes (2018) 265 CLR 480 (‘Mighty River’); Re Brash Holdings Ltd (Administrators Appointed) (1994) 13 ACSR 793, 794-795; Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409, 431-432 [78]; Re Lift Capital Partners Pty Ltd (Administrators Appointed) [2008] NSWSC 446, [23]-[33]; Re Octaviar Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2008] QSC 272; Re Lehman Bros Australia Ltd [2008] NSWSC 1132, [20]; Re Worrell, Storm Financial Ltd (Receivers and Managers Appointed) (2009) 69 ACSR 584, 594 [43]-[44]; (2009) 71 ACSR 560, 565-566 [26]-[28], [32]; Re Lombe, Babcock & Brown Ltd (Administrators Appointed) [2009] FCA 349, [30]-[31], [33]; Re Silvia, FEA Plantations Ltd (Administrators Appointed) [2010] FCA 468, [19]-[25]. See also Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352, 355 [13].
The power given to the Court to grant an extension should be exercised with the overriding objectives of Part 5.3A of the Act (as stated in s 435A) firmly in view; that is, to maximise the chances of the Company’s continuing existence, or alternatively, terminating its existence in the most appropriate way.
In the decision of the High Court in Mighty River,[4] Nettle and Gordon JJ (who were in dissent but not on the issue under consideration here) made general observations concerning extensions of convening periods of companies in administration. They stated:
The period fixed by s 439A(5) for the convening of the meeting of the company’s creditors is designedly brief. As the Full Court of the Federal Court of Australia observed in Federal Commissioner of Taxation v Comcorp Australia Ltd, it may be gathered from the terms of the legislation and the words of the Explanatory Memorandum and the Second Reading Speech that the emphasis of Pt 5.3A is on informality and flexibility and on speed of action. The procedure is not designed to allow for the kind of indefinite administrations which can occur under the United States’ Ch 11 approach to corporate insolvency.
It is, however, recognised that it is not always practicable for an administrator to gather sufficient information within the convening period to form the requisite opinions under s 438A and communicate them in the notice given to creditors in accordance with ss 439A(3) and 439A(4). Accordingly, the courts are given specific power under s 439A(6), and also general power of varied application under s 447A(1), to extend the convening period. Consistent with the legislative intention of Pt 5.3A that the administration of a company be brought to an end within a short period of time, there is a presumptive expectation that extensions will be brief. But over time the courts have come to recognise that significant extra time may be required, and should be allowed, in complex cases. 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. As Barrett J rightly observed in Diamond Press Australia Pty Ltd:
“The function of the Court on an application [for an extension under s 439A(6)] is ... to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.”
[4]Mighty River (n 3) 511-512 (citations omitted).
One authority which is often referred to in applications to extend the period in which meetings of creditors are to be convened and which provides a convenient collection of the principles and authorities is the decision of Austin J in Re Riviera Group Pty Ltd.[5] Riviera Group was referred to with approval in Mighty River.[6] After considering the authorities outlining the principles to be applied, Austin J recited a number of circumstances in which extensions of the convening period have been granted.[7]
[5](2009) 72 ACSR 352 (‘Riviera Group’).
[6]Mighty River (n 3) 511 fn 51.
[7]Riviera Group (n 5) 355-357.
In Riviera Group, Austin J grouped the reasons given for extensions into the following categories:
(a) the size and scope of the business;
(b) substantial offshore activities;
(c) large number of employees with complex entitlements;
(d) complex corporate group structure and intercompany loans;
(e) complex transactions entered into by the Company;
(f) complex prospects of recovery proceedings;
(g) lack of access to corporate financial records;
(h) the time needed to execute an orderly process for disposal of assets;
(i) the time needed for a thorough assessment of a proposal for a deed of company arrangement;
(j) whether the extension will allow the sale of the business as a going concern; and
(k) generally, whether additional time is likely to enhance the return for unsecured creditors.[8]
[8]Riviera Group (n 5) 355.
Austin J observed that the authorities indicate that the Court tends to exercise its discretion to extend the convening period where there is a substantial issue in relation to any one of those categories.[9] The consent of the creditors to an extension is a relevant factor in the Court’s discretion. The Administrators’ own opinion as to the need for an extension will also be given weight.[10] The interests of those whose claims are affected by the statutory moratorium are relevant, though not decisive. In Virgin (No 2)[11] Middleton J observed (citations omitted):
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…
[9]Ibid.
[10]See Re Virgin Australia Holdings Ltd (No 2) (2020) 144 ACSR 347, 371 [68] and the cases there cited.
[11]Ibid 370.
In Daisytek,[12] in addition to making orders extending the convening period under s 439A, Lindgren J made orders under s 447A of the Act providing that the second creditors’ meeting may be held at any time within the extended convening period or the period of five business days thereafter, notwithstanding the effect of s 439A(2). Daisytek orders are now considered to be almost routine and provide administrators with flexibility to enable them to convene the meetings earlier if circumstances indicate it is appropriate.
[12]Ibid (n 1).
Plaintiffs’ submissions
Mr Silver, counsel for the plaintiffs, referred to what he contended were relevant considerations as to why the application should be granted. They are as follows:
(a) the Company appears to have been operating a highly technical business;
(b) the principal assets of Blockchain are highly technical in nature, as is the ability to properly ascertain the rights and access to, and the value of, the assets;
(c) the directors of the Company are in China and liaising with the Administrators primarily through an intermediary (Ms Qin);
(d) the ownership of the assets disclosed in the Company’s books and records is unclear (i.e. to what extent the assets available to be recovered are assets of the Company or otherwise assets of third parties to which the Company may be bailee);
(e) there are multiple complex proceedings on foot in respect to the Company and the ownership of its assets and the proceedings include claims against third parties;
(f) the Company appears to have had business dealings both in Australia and overseas;
(g) the Company appears to have had a significant number of directors and secretaries over the past five to six years;
(h) the quantum of creditors that have submitted proofs is significant (circa $29,472,004.41);
(i) to the extent that creditor claims relate to proprietary rights in cryptocurrency, the value of the claims is necessarily highly volatile; and
(j) the technology used by the Company is not immediately understandable.
The Administrators contend that, in addition, the following matters also support the making of the orders sought:
(a) an extension application was foreshadowed at the first meeting of creditors and no concerns were raised by creditors;
(b) COVID-19 restrictions have delayed the Administrators’ investigations;
(c) the Administrators have identified several areas of the Company’s affairs which will require further investigation; and
(d) the Administrators are of the opinion that such investigations are necessary to accurately determine the Company’s financial position.
The Administrators observe that the period of extension sought will extend over the Court’s summer recess period and during a time where the ability to conduct investigations may be delayed. The trial division proceedings before Attiwill J are at an early case management stage. Further, the Administrators submit that as there is a freezing order in the Group Proceeding in respect of 117 bitcoin in respect of the Chen Proceeding that any extension to the convening period would be of limited prejudice.
The Administrators also submit that the difficulties in liaising with directors and ascertaining the whereabouts of Company’s assets ought not give rise to an inference (as can sometimes be drawn) that the directors are uncooperative and that liquidation without a fuller investigation would be in the creditors’ interests. The directors have lodged the ROCAP and are liaising with the Administrators, albeit primarily through Ms Qin as an intermediary.
Mr Yeo’s evidence is that there are early indications that the Administrators will receive a proposal for a deed of company arrangement (‘DOCA’) and this will require time for a thorough assessment of the proposal. The Administrators submit that the position in this regard is complicated by the commencement of the administration during the COVID-19 pandemic and the effect of lockdowns and related restrictions. Counsel submitted that the extension of the convening period will, among other things, allow the Administrators to liaise further with the directors of the Company, review the proposal for any deed of company arrangement and consider whether it is in the interests of creditors to support the proposal.
In this regard, it was contended that the Administrators require more time to provide an accurate update of the Company’s financial position and clarify the benefits of any DOCA proposal for the benefit of creditors generally. The Administrators submitted that if the extension was not granted, there is a concern that they would not be in a position to provide adequate information to creditors in relation to the proposal prior to the second meeting as they obliged to do under s 439A of the Act.
Counsel for the Administrators submitted that the principal assets of the Company appear to consist of a cryptocurrency exchange and holdings of cryptocurrency, the assets are complex in nature. The assets are complex in nature and it has been difficult for the Administrators to properly ascertain who holds the rights and access to them. This difficulty is exacerbated by reason that it has not been possible to gain an appreciation of the manner in which the technology used by the Company operates and, the problems associated with the valuation of the cryptocurrency assets.
Consideration
I consider the convening period for the second meeting of creditors should be extended. I am of the opinion that there are a number of substantial grounds to support the extension sought.
First, the size and scope of the business carried on by the Company which is under administration is both substantial and complex in nature. The description by Mr Yeo of the tasks undertaken to date by the Administrators and their staff reveals the complexity of the administration and that they have been diligently applying themselves to the tasks they are required to perform. The ROCAP for the Company records liabilities estimated to be of the order of $29 million; that document also indicates there are significant related party debtors which will require further investigation by the Administrators.
Secondly, the Administrators will also need to become involved in the court proceedings which are described above and obtain advice concerning them.
Thirdly, it seems clear that an extension is justified for the purpose of negotiating the proposal for a DOCA and the intervention of the summer vacation period will result in an interruption to that process. The extension of the convening period will enable the Administrators to negotiate with the directors of the Company, analyse any proposal which is put and consider whether it is in the interest of creditors to support the DOCA proposal and compare it to the scenario of a liquidation of the Company. The affairs of the Company are obviously quite elaborate and the Administrators will need to be involved in communications with parties who are resident overseas. To my mind, this warrants a considerably longer period than that fixed by s 439A of the Act for the Administrators to carry out their responsibilities and obtain the best result for the creditors, which is the overarching and dominant consideration.
Fourthly, the Administrators, who are experienced insolvency practitioners, are of the opinion that it is in the best interests of creditors that the convening period be extended for the period sought.
Fifthly, if the convening period is not extended, the Administrators will need to convene the meeting and adjourn it, at significant additional cost, for no good reason or purpose because they will not be in a position to properly inform the creditors as to the financial position of the Company or provide sufficient detail to enable the creditors to make the decision as to which course they should take in regard to the Company.
Sixthly, it was foreshadowed to the creditors present during the first meeting of creditors on 29 October 2021 that the Administrators intended to seek an extension of the convening period. Mr Yeo deposes that none of the creditors raised any concerns with, or dissented in, such a course being taken. I note that evidence was filed on the day of the hearing of the application in respect of provision of notice to those creditors who are known to the Administrators of this application being made today.[13]
[13]Affidavit of service of Brett Andrew Hayhow dated 15 November 2021, 120.
Seventhly, I am satisfied that the Administrators have taken into account the potential impact on stakeholders consequent to the grant of the extension. The position as to persons affected by the orders is protected by the usual provision of liberty being granted to any person who can demonstrate sufficient interest to discharge or modify the orders for an extension being able to approach the Court on the giving of three business days’ written notice to the Administrators and the Court. Counsel for the Administrators indicated at the hearing of this application that the Administrators have issued notice to the lessor of the premises which the Company leased that they will not be continuing to occupy the premises. I also note that the extension sought is a relatively modest one compared to those ordered in other administrations which have been the subject of these types of applications.[14]
[14]See the authorities referred to by Middleton J in Virgin No 2 (n 14) 372 [76].
I also consider that it is appropriate to make a Daisytek order enabling the Administrators to convene the period in accordance with paragraph 2 of the orders made below:
THE COURT DIRECTS THAT:
All persons shall appear, give evidence and make submissions in this proceeding this day by video link.
The Administrators take all reasonable steps to cause notice of the Court’s orders to be published on the website maintained for the purposes of the administration of Blockchain Global Ltd (Administrators Appointed) (ACN 601 628 497), within one (1) business day after the making of these orders.
AND THE COURT ORDERS THAT:
Pursuant to s 436A(6) of the Corporations Act 2001 (Cth) (the ‘Act’), the period within which the First and Second Plaintiffs (‘Administrators’) are required to convene the second meeting of creditors of Blockchain Global Ltd (Administrators Appointed) (ACN 601 628 497) (‘Blockchain’) under s 439A(1) of the Act be extended to 18 February 2022.
Pursuant to s 447A of the Act, s 439A of the Act is to operate in relation to the administration of Blockchain so that the meeting of creditors of Blockchain convened under s 439A of the Act may be convened at any time during the convening period as extended by paragraph 1, or within five business days thereafter.
Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify these orders on three business days’ notice to the Plaintiffs and to the Registry of the Commercial Court.
Liberty be granted to the Plaintiffs to apply on one business day’s written notice to the Court in relation to any variation or discharge of the Court’s orders.
Costs of this application be costs in the administration of Blockchain.
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