Re Bragu Pty Ltd (Administrators Apptd) - [2023] WASC 388

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE BRAGU PTY LTD (ADMINISTRATORS APPTD) [2023] WASC 388
CORAM:   LUNDBERG J
HEARD:   5 OCTOBER 2023
DELIVERED          :   5 OCTOBER 2023
PUBLISHED           :   9 OCTOBER 2023
FILE NO/S:   COR 155 of 2023
BETWEEN:   GREGORY MATHEW PROUT as joint and several administrators of BRAGU PTY LTD
First Plaintiff
JIMMY TRPCEVSKI as joint and several administrators of BRAGU PTY LTD
Second Plaintiff
BRAGU PTY LTD
Third Plaintiff

Catchwords:

Corporations law - Voluntary administrators - Ex parte application to extend time for convening the second creditors' meeting and associated orders - Extension of three months sought - Whether supporting affidavit material adequate - Whether shorter extension appropriate with any further extension requiring fresh application - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 439A and s 447A

Result:

Extension to the convening period of 45 days and associated orders made

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr S D Ayres
Second Plaintiff	:	Mr S D Ayres
Third Plaintiff	:	Mr S D Ayres

Solicitors:

First Plaintiff	:	Hale Legal
Second Plaintiff	:	Hale Legal
Third Plaintiff	:	Hale Legal

Case(s) referred to in decision(s):

Mighty River International Limited v Hughes [2018] HCA 38; (2018) 265 CLR 480
Re ABC Learning Centres Ltd (No 8) [2009] FCA 994; (2009) 73 ACSR 478
Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446
Re Harrisons Pharmacy Pty Ltd (admin apptd) (recs and mgrs apptd) [2013] FCA 458
Re Hayes; Estate Property Group Ltd [2007] FCA 935
Re Mallee Resources Limited (admins apptd) (recs mgrs apptd) [2023] WASC 379
Re Riviera Group Pty Ltd (admin apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352
Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2) [2020] FCA 717; (2020) 144 ACSR 347

Table of Contents

A. Introduction

B. Summary of the evidence

C. Legislative framework and relevant principles

D. Disposition

E. Orders

ATTACHMENT A

LUNDBERG J:

(This decision was delivered ex temporaneously on 5 October 2023 and has been edited from the transcript to correct matters of grammar, add headings, and include complete references.)

A. Introduction

I have before me an application brought by way of originating process dated 3 October 2023, pursuant to s 439A(6) and s 447A of the Corporations Act 2001 (Cth).[1] The application was brought on at short notice to be heard this morning, supported by a certificate of urgency, dated 3 October 2023, which was signed by the solicitors for the plaintiffs.
[1] All references in these reasons to statutory provisions are references to the Corporations Act 2001 (Cth) unless otherwise stated.
The first and second plaintiffs are the Administrators of the third plaintiff, Bragu Pty Ltd (the Company). Mr Prout and Mr Trpcevski are the appointed administrators of the Company, having been jointly and severally appointed on 6 September 2023. The Administrators are in effect seeking an extension to the convening period for the second meeting of creditors of the Company. The extension which is sought is for three months, which is a relatively lengthy period for what appears to be a modest administration of a single site company.
The specific orders which are sought in the application are:
(a)Pursuant to s 439A(6) and s 447A and section 90‑15 of the Insolvency Practice Schedule (Corporations), the period within which the first and second plaintiffs must convene the second meeting of creditors of the third plaintiff be extended up to and including 5 January 2024.
(b)Pursuant to s 447A(1), the meetings of creditors of the third plaintiff required by s 439A may be held at any time during the period composed of the convening period as extended by Order 1 above and the period of five business days thereafter, notwithstanding the provisions of s 439A(2).[2]
[2] The second order is often referred to as a Daisytek order: see Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446.
For the purposes of the application, the evidentiary materials before the court are the affidavits of Gregory Mathew Prout sworn on 3 October 2023 (First Prout Affidavit) and 4 October 2023 (Second Prout Affidavit).
The Second Prout Affidavit was filed following an indication to the solicitors for the plaintiff from my chambers (by email on 4 October 2023) in the following terms:
His Honour has asked me to note that, his provisional view upon a review of the supporting affidavit and subject to hearing any submissions from counsel tomorrow, is that the affidavit material is conclusionary and may be inadequate to support the exercise of the discretion which is sought in the application.
I have also received a brief set of submissions in support of the orders which are sought, dated 4 October 2023.

B. Summary of the evidence

I indicated to counsel during the course of the hearing today that the two affidavits which are relied upon provide very little by way of granular detail as to the nature of the business which is operated by the Company, or as to the course of the administration to date. The evidence is far less than one would expect to justify a three‑month extension and was not substantially improved by the second affidavit notwithstanding the terms of the communication sent on 4 October 2023.
The evidence at least indicates that the Company trades as 'Sound Brewing Co' and operates a brewery, taphouse and restaurant in Rockingham. I have been provided with a statement of the current financial position of the company. Certain information in that statement has been redacted on the basis that the material is commercially sensitive whilst the sale process is underway.
The evidence reveals, albeit in very general terms, that the Administrators have begun work to seek expressions of interest from parties interested in acquiring the business operations of the Company. It appears that some 16 expressions of interest have been received to purchase the business operations and the Administrators have indicated they need additional time to gather in all offers, evaluate those offers, and negotiate with interested parties. The due diligence process, I am told from the bar table, is not yet complete and site attendances have not yet been undertaken.
Mr Prout has deposed on behalf of the Administrators that they are not in a position to release any further information to creditors in relation to the potential purchase of business operations at this early stage, and further work is required to deal with the interested parties to consider any offers and, if necessary, finalise the sale.
The evidence reveals that the Administrators have sought legal advice regarding an issue concerning the lease of the Company's premises. The second affidavit sworn by Mr Prout provides some additional information about that aspect of the matter but, again, the detail is sparse. It is not possible for me to form any view at this stage as to the significance of that issue in the context of the overall administration, given the limited information provided to me.
I have a sworn statement from Mr Prout that the Administrators are not yet in a position to advise creditors of any likely outcome of the efforts to sell the business operations of the Company. Mr Prout has sworn that it is likely that allowing further time to negotiate and arrange the sale of the business as a going concern will allow for a 'maximal outcome to be achieved which enhances the return to creditors'. Mr Prout deposes that the Administrators do not presently have sufficient information to prepare a compliant report to creditors as required by rule 75‑225(3) of the Insolvency Practice Rules (Corporations), and thereby provide the creditors with an informed basis on which to decide on how to deal with the Company.
Ultimately, Mr Prout deposes that the collection of issues to which I have referred cannot be addressed prior to a second creditors' meeting, which would be called within the ordinary convening period, which, in effect, expires today.
For all of those reasons, the Administrators believe that an extension of three months is warranted to allow, amongst other things, a fulsome and accurate report to creditors to be prepared, to enable the Administrators to seek to conclude the sale of the business as a going concern, and to permit the business to continue to trade, which will assist with the potential sale of the business or assets to maximise the return to creditors.
On applications of this nature, the court typically gives weight to the opinion of the appointed administrators. However, the opinion of the administrators must be supported by sufficient factual information which explains the course of the administration and which justifies the further time which is sought. The evidence adduced by the Administrators on the current application provides the court with very limited information about the administration to date, and other than conclusionary statements, does not adequately explain in the necessary detail why a further three months is required to hold the second creditors' meeting.
Unfortunately, the affidavit material was silent as to the substance of the first creditors' meeting, and silent as to whether notice had been given to creditors of the present application. I was informed by counsel from the bar table that the first meeting had taken place on 18 September 2023 and that the major creditor (the ATO) was present at that meeting and was given an update by the Administrators as to the status of the sale process being undertaken.

C. Legislative framework and relevant principles

In terms of the legislative framework, I will start by extracting the salient provisions which are relied upon to seek the orders in the originating process:
439AAdministrator to convene meeting and inform creditors
(1)The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6).
(2)The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period.
(5)The convening period is:
(a)if the day after the administration begins is in December, or is less than 25 business days before Good Friday - the period of 25 business days beginning on:
(i)that day; or
(ii)if that day is not a business day - the next business day; or
(b)otherwise - the period of 20 business days beginning on:
(i)the day after the administration begins; or
(ii)if that day is not a business day - the next business day.
(6)The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires.
…
447AGeneral power to make orders
(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2)For example, if the Court is satisfied that the administration of a company should end:
(a)because the company is solvent; or
(b)because provisions of this Part are being abused; or
(c)for some other reason;
the Court may order under subsection (1) that the administration is to end.
(3)An order may be made subject to conditions.
(4)An order may be made on the application of:
(a)the company; or
(b)a creditor of the company; or
(c)in the case of a company under administration - the administrator of the company; or
(d)in the case of a company that has executed a deed of company arrangement - the deed's administrator; or
(e)ASIC; or
(f)any other interested person.
The following principles are drawn from the summary of relevant principles which I recently collated in Re Mallee Resources Limited.[3]
[3] Re Mallee Resources Limited (admins apptd) (recs mgrs apptd) [2023] WASC 379.
The second order which is sought by the Administrators on the present application is an order under s 447A to the effect 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). Orders of this nature are now considered to be almost routine and essentially provide administrators with the flexibility to enable them to convene second creditors meetings earlier if the circumstances indicate it is appropriate.
The first order which is sought is an extension to the convening period under s 439A. Applications under s 439A to extend convening periods, particularly in large administrations or those involving corporate groups with significant trading operations, have become more commonplace. It is recognised that the time period prescribed by s 439A(5) will often not be sufficient to enable the administrators to perform the necessary tasks required before the second meeting of creditors is required to be held.
I refer to the reasons for decision of Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2)[4] and the following passages in particular:
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.
The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Ltd (admin apptd) [2019] FCA 11 at [3] ‑ [8], where his Honour endorsed the comments of Austin J in Re Riviera Group Pty Ltd (admins apptd) (recrs and mgrs apptd) (2009) 72 ACSR 352; [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;
(2)where the extension will allow sale of the business as a going concern;
(3)more generally, where additional time is likely to enhance the return for unsecured creditors. (citations omitted)
[4] Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2) [2020] FCA 717; (2020) 144 ACSR 347 [64] ‑ [68].
Further, Middleton J observed that:[5]
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. (citations omitted)
[5] Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2) [66].
Middleton J made reference to the decision of the High Court in Mighty River International Limited v Hughes,[6] and in particular the observations of Nettle and Gordon JJ that:[7]
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.
[6] Mighty River International Limited v Hughes [2018] HCA 38; (2018) 265 CLR 480.
[7] Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2) [67].
Additionally, Middleton J noted that the administrator's own opinion as to the need for an extension should be given weight in an application of this kind.
Further, I refer to the decision of Re Harrisons Pharmacy Pty Ltd (admin apptd) (recs and mgrs apptd)[8] in which the court was asked to grant an extension for the convening period of six months. The court reviewed a number of the authorities in relation to the lengths of extension for convening periods and, in particular, referred to the decision in Re ABC Learning Centres Ltd (No 8),[9] in which the convening period was extended in total in the order of approximately 18 months. Farrell J also referred to several authorities in which extensions of six months were granted. Farrell J (at [45]) noted the statement of Austin J in Re Riviera Group Pty Ltd[10] to the effect that the longer the extension that is sought, the more important it is for the court to be given a clear and complete explanation of the state of the administration, the grounds for the extension, and any potential prejudice that would flow from granting it.
[8] Re Harrisons Pharmacy Pty Ltd (admin apptd) (recs and mgrs apptd) [2013] FCA 458.
[9] Re ABC Learning Centres Ltd (No 8) [2009] FCA 994; (2009) 73 ACSR 478.
[10] Re Riviera Group Pty Ltd (admin apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352.
Further, Farrell J noted that, while it is true that the discretion to be exercised by the court 'should not have a predisposition in favour of speedy administration that would skew the balancing process, the issue of the extent to which the court should maintain a supervisory role remains relevant to the period for which any extension requires consideration'.[11] This is so, according to Farrell J, even though the number of reported cases in which six‑month extensions have been granted are growing.
[11] Re Harrisons Pharmacy Pty Ltd [46].
An alternative approach to the granting of an extension was adopted by Gyles J in Re Hayes; Estate Property Group Ltd,[12] in which the court granted an extension of only one month, with leave for reconsideration of a further period thereafter. During the course of the hearing today, I provided counsel with a copy of that decision and invited him to take instructions in relation thereto. In that case, Gyles J commented that he had a particular concern that the extension of a period of months which was sought in that case was a 'substantial stretch of the statutory provisions'. His Honour recognised that extensions of more than 60 days had been granted in cases before that point in time, which was in 2007. As I noted in Re Mallee Resources Limited, there have now been a number of cases in which extensions in complex administrations have been granted for upwards of six months for the convening of the second creditors' meeting.
[12] Re Hayes; Estate Property Group Ltd [2007] FCA 935.
Ultimately, in the case before him, Gyles J considered it appropriate to adopt an alternative course instead of granting a multiple‑month extension, namely to grant an extension of only one month with leave for reconsideration of a further period thereafter. I did not favour that approach in Re Mallee Resources Limited given that matter concerned an administration of around seven to nine entities who were operating an established underground mine and its associated mining infrastructure in Tasmania. The administration in that case was complex and the administrators filed substantial evidence to explain the administration process and to justify the lengthy extension.

D. Disposition

The current administration, of a single site brewery and restaurant in Rockingham, is a far cry from the businesses under consideration in Re Mallee Resources Limited. The circumstances before me on the current application, including the limited nature of the business operations of the Company and the dearth of material which has been adduced, justify a close consideration being given to the extension which is sought and encourages the court to reflect on the desirability of the alternative approach favoured by Gyles J.
In my view, the limited affidavit material which has been adduced by the plaintiffs does not justify an extension of the convening period under s 439A for a period of three months. The affidavit material is conclusionary and overly general. It must be understood that requests for extensions of the convening period under s 439A are not simply available for the asking. Administrators are required to justify the request for an extension and must adduce sufficiently detailed factual information in this regard, to ensure the court has a thorough understanding of the administration and the work which has been undertaken, as well as the future work which is proposed to be undertaken (and why it is needed). This is unquestionably important in the context of an ex parte application such as the present.
I am prepared to grant an extension to the convening period for 45 days from today, which will be until 20 November 2023.
In granting the extension, I recognise the need for the Administrators to have sufficient time to further progress the administration to complete the sale process, and I accept this is in the interests of the creditors as a whole. However, the balancing exercise simply does not justify a three‑month extension. The balancing exercise is between an expectation that the administration will be relatively speedy and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors. I consider it appropriate to grant a shorter extension than the one sought, and to reserve for further consideration any application to further extend the convening period for the second meeting of creditors required to be held under s 439A.

E. Orders

I will therefore make orders to extend the convening period for the second creditors' meeting, through until 20 November 2023.
The originating process did not include the usual orders which require the Administrators to give notice of the orders to the creditors of the Company, or to allow interested persons to challenge these orders. I will make orders in the usual form in this respect, given the complete absence of any notice to creditors of this application and the importance on an ex parte application of allowing interested parties to apply to vary or discharge these orders on good grounds.
The final orders made on 5 October 2023 are set out in Attachment A to these reasons.

ATTACHMENT A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IHN
Associate to the Honourable Justice Lundberg
9 OCTOBER 2023