Re Colortv Ltd
[2022] WASC 328
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE COLORTV LTD; ex parte Bryan Kevin HUGHES and Daniel Johannes BREDENKAMP in their capacity as administrator of COLORTV LTD (ADMINISTRATORS APPOINTED) [2022] WASC 328
CORAM: SMITH J
HEARD: 27 SEPTEMBER 2022
DELIVERED : 28 SEPTEMBER 2022
FILE NO/S: COR 172 of 2022
MATTER: IN THE MATTER OF COLORTV LTD
EX PARTE
BRYAN KEVIN HUGHES as joint and several administrator of COLORTV LIMITED (ADMINISTRATORS APPOINTED)
First Plaintiff
DANIEL JOHANNES BREDENKAMP as joint and several administrator of COLORTV LIMITED (ADMINISTRATORS APPOINTED)
Second Plaintiff
Catchwords:
Corporations Law - Ex parte application by administrators to extend convening period for the second meeting of creditors and ancillary orders pursuant to s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth) s 439A(2), s 439A(5), s 439A(6), s 447A(1)
Insolvency Practice Rules (Corporations) 2016 (Cth) s 75-225, s 75-40
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | Ms M De Toni |
| Second Plaintiff | : | Ms M De Toni |
Solicitors:
| First Plaintiff | : | Blackwall Legal LLP |
| Second Plaintiff | : | Blackwall Legal LLP |
Cases referred to in decision:
Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Ltd (Administrators Appointed) [2020] FCA 422
Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274
Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401
In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543
In the matter of Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585
Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382
Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611
Owen, in the matter of RiverCity Motorway Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255
Re Diamond Press Australia Pty Ltd [2001] NSWSC 313
Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347
Re Sneakerboy Pty Ltd [2022] VSC 502
Sylvia, in the Matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636
SMITH J:
1.0 The application
The plaintiffs are joint and several administrators of ColorTV Limited (Administrators Appointed) (ACN 621 160 585) (the Company). The Company is a public company limited by shares and listed on the Australian Securities Exchange with a ticker code of CTV, having first listed in December 2017.
The plaintiffs apply for orders set out in an interlocutory process filed on 21 September 2022. The application was listed for hearing ex parte on an urgent basis.
The plaintiffs seek orders pursuant to s 439A(6) and s 447A(1) of the Corporations Act 2001 (Cth) to extend the period within which the second meeting of creditors must be convened under s 439A of the Corporations Act, and to allow the meeting to be held at any time between the date of the orders of the court and the end of the extended period, if the circumstances allow it.
The plaintiffs also seek ancillary orders, among other orders, for the giving of notice of the orders to the Company's known creditors, liberty to apply for a further extension, and as to costs.
The application is supported by a certificate of urgency and by an affidavit of one of the plaintiffs, Bryan Kevin Hughes, sworn on 21 September 2022. Mr Hughes is a registered liquidator and Chairman of Pitcher Partners.
After hearing counsel for the plaintiffs, the application was granted. These are the reasons why the application was granted and the orders sought by the plaintiffs were made.
2.0 Background - First meeting of creditors leading to the replacement of the voluntary administrators by the plaintiffs
The affidavit of Mr Hughes discloses the following relevant facts.
On 31 August 2022, the Company went into voluntary administration. Messrs Glenn Franklin and Jason Stone, of PKF Melbourne Pty Ltd, were initially appointed as voluntary administrators.
On 12 September 2022, the initial administrators convened a first meeting of creditors required under s 436E of the Corporations Act.
Prior to the first meeting, Mr Hughes had been asked by David Wheeler of Pathways Corporate, a creditor of the Company, to nominate himself as a potential replacement administrator of the Company.
In advance of the meeting of creditors on Monday 12 September 2022, Mr Hughes sent to the initial administrators a copy of:
(a)a consent to act signed by each of the plaintiffs;
(b)a declaration of independence, relevant relationships and indemnities in respect of the Company; and
(c)an initial remuneration advice prepared by Mr Hughes,
as required by item 6.3 of the Code of Professional Practice published by the Australian Restructuring Insolvency and Turnaround Association.
After receiving the documents from Mr Hughes on Friday 9 September 2022, the initial administrators circulated the documents to creditors.
Mr Hughes attended the first meeting of creditors on Monday 12 September 2022 together with the second plaintiff, Daniel Johannes Bredenkamp.
At the first meeting of creditors, the chair of the meeting, Mr Franklin, provided creditors with an update on the administration and the tasks undertaken by the administrators as to date.
Mr Franklin referred to the documents received from Mr Hughes. Mr Franklin then informed the creditors present at the meeting that:
(a)on Sunday 11 September 2022, he had received notice by email from one of the Company's directors of claims from several key management personnel and claims against the Company by its subsidiaries; and
(b)as a result he had sought urgent legal advice and had formed the opinion that the administrators needed to investigate, obtain further information, and obtain further legal advice about these claims before making a final determination on the claims, including their value and the ability of those making the claims to vote at a meeting of creditors.
As a consequence, Mr Franklin adjourned the first meeting of creditors to 21 September 2022.[1]
[1] Affidavit of Bryan Kevin Hughes sworn 21 September 2022, 94 ‑ 95.
Mr Franklin then sent a notice to creditors dated 12 September 2022, giving notice that the adjourned meeting of creditors would be held on 21 September 2022, and stating the reasons why the first meeting was adjourned.[2] The creditors were also sent a second notice dated 12 September 2022 signed by Mr Franklin which stated as follows:[3]
[2] Hughes affidavit, 100.
[3] Hughes affidavit, Attachment BKH7, 102.
NOTICE OF ADJOURNED MEETING OF CREDITORS
COLORTV LTD.
(ADMINISTRATORS APPOINTED) ACN: 621 160 585 ('THE COMPANY')
FORMERLY KNOWN AS ENGAGE: BDR LTD.NOTICE is hereby given that the adjourned meeting of creditors of the company will be held on Wednesday, 21st September 2022 at 10.00 a.m. AEST. The meeting of creditors will be held by telephone conference. Details of the telephone conference will be provided to those creditors who submit a written request to attend and to those who attended the meeting on 12th September 2022.
1.The purpose of the meeting is to determine:
a.whether to appoint a committee of inspection; and
b.if so, who are to be the committee's members.
2.At the meeting, creditors may also, by resolution:
a.remove the Joint & Several Administrators from office; and
b.appoint someone else as administrator of the company.
3.Attendance at this meeting is not compulsory. Creditors may attend and vote in person, by proxy or by attorney. The appointment of a proxy must be in the approved form.
A special proxy can be lodged showing approval or rejection of each resolution. Proxy forms must be given to us as Joint and Several Administrators or the person named as convening the meeting. An attorney of the creditor must show the instrument by which he or she is appointed to the Chairperson of the meeting, prior to the commencement of the meeting.
DATED this 12th day of September 2022.
G.J. FRANKLIN
Joint & Several Administrator
PKF Melbourne
Level 12, 440 Collins Street
Melbourne VIC 3000
Telephone: (03) 9679 2222On Wednesday 21 September 2022, the adjourned first meeting of creditors was reconvened. Mr Hughes and Mr Bredenkamp were present at the reconvened meeting together with their lawyer, Mr Chris Pearce.
At the reconvened first meeting, the creditors of the Company voted to remove the initial administrators and the plaintiffs were each appointed in their place as voluntary administrators of the Company.
Mr Hughes deposes that after the appointment of the plaintiffs as administrators at the meeting, Mr Pearce informed the creditors present at the meeting that there was likely to be an application to extend the convening period for a second meeting. No queries or objections were raised by any creditor.
3.0 Reasons why order is sought to extend time for convening second meeting
Pursuant to s 439A(5)(b) of the Corporations Act, the plaintiffs have 20 business days commencing on the day after the commencement of the administration of the Company to convene a second meeting of creditors for the purposes of div 5 of pt 5.3A of the Corporations Act (for the creditors to decide the Company's future).
When regard is had to the definition of 'business day' in s 9 of the Corporations Act, and that Thursday 22 September 2022 and Monday 26 September 2022 in Western Australia are public holidays, if an order is not made extending time for convening a second meeting of creditors, s 439A(5) requires that the meeting must be convened by 30 September 2022, and held by 7 October 2022.
Taking account of the two public holidays in Western Australia, absent an order, the plaintiffs will only have five business days from the date of their appointment to convene a second meeting of creditors.
The plaintiffs apply for orders that the convening period for a second meeting of creditors be extended to 21 October 2022 to enable the plaintiffs to have sufficient time to properly investigate the Company's affairs to ascertain whether the Company is truly insolvent and whether the Company and its business can be restructured, or whether it would be in the creditors' interests for the Company to be wound up.
Pursuant to s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth), the plaintiffs must convene a meeting by giving written notice of the meeting, setting out prescribed information to as many of the Company's creditors as reasonably practical at least 5 business days before the meeting. Pursuant to s 75-225(3) of the Insolvency Practice Rules, the notice must be accompanied by a copy of:
(a) a report by the external administrator about the company's business, property, affairs and financial circumstances; and
(b)a statement setting out the following:
(i)whether, in the administrator's opinion, it would be in the creditors' interests for the company to execute a deed of company arrangement;
(ii)whether, in the administrator's opinion, it would be in the creditors' interests for the administration to end;
(iii)whether, in the administrator's opinion, it would be in the creditors' interests for the company to be wound up;
(iv)the reasons for the opinions referred to in subparagraphs (i) to (iii);
(v)such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii);
(vi)whether there are any transactions that appear to the administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part 5.7B of the Act;
(vii)if a deed of company arrangement is proposed ‑ details of the proposed deed.
Mr Hughes also deposes that because he and Mr Bredenkamp were each only appointed as administrators on 21 September 2022, they are 'not comfortable' that they will be in a position to properly form an opinion as to the available options to creditors by 30 September 2022.
Mr Hughes deposes that because his appointment did not occur until 21 September 2022, he has a limited understanding of the financial position of the Company. However, he understands from the presentation given by Mr Franklin at the first meeting of creditors that the Company owned subsidiaries in the United States of America.
Of relevance to the financial position of the company, Mr Hughes has been provided with the following documents which indicate there may be some prospects of a restructure that would justify considering alternative options to liquidation of the Company:
(a)a letter to the Company's Board of Directors dated 30 August 2022 from the Company's Finance Committee who investigated the Company's financial information and formed the view that the Company is not currently, and is unlikely in the immediate future, to become insolvent; and
(b)correspondence from two separate capital raising companies which indicate that they are each interested in exploring solutions to enable the Company to come out of administration.
Mr Hughes deposes that, on the basis of the information he gathered as at the date of his affidavit, he considers it would be in the best interests of the Company and its creditors for an extension of the convening period to be granted to the 21 October 2022, with the intention of convening a second meeting of creditors before that date if possible. If such an extension is granted, this would provide the administrators with an additional 15 business days, and he and Mr Bredenkamp would have 20 business days from their appointment until the second meeting is required to be convened. A period of 20 business days is the period that would have applied if the plaintiffs had been appointed administrators on the date that the Company went into voluntary administration.
Mr Hughes is of the opinion if the extension is granted he will be able to:
(a)conduct a complete review of the Company's financial position and operations, finalise discussions with all parties to ascertain if there is a prospect of returning the Company to its directors or implementing a deed of company arrangement proposal; and
(b)if necessary, make arrangements for the realisation of the business under a deed of company arrangement proposal or otherwise.
Mr Hughes points out that if the extension of time is not granted, creditors may not have an opportunity to consider any restructuring options available to the Company and will be forced to vote to liquidate the Company, resulting in the prospects of recapitalisation of the Company effectively falling away. If this occurs the value of the Company's assets may be materially reduced.
4.0 Legal principles
The object of pt 5.3A of the Corporations Act is to maximise the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, to achieve a better return for the company's creditors and members than would result from immediate winding up of the company.[4]
[4] Corporations Act 2001 (Cth), s 435A.
The function of the court in considering whether to extend a convening period is to strike an appropriate balance between the legislature's expectation that administration will be a relatively speedy and summary procedure, and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising returns for creditors and any returns for shareholders.[5]
[5] Sylvia, in the Matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 [18] (Lindgren J); Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 [10] (Barrett J).
In Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed), Beech J summarised the following principles that are to be applied when considering an application to extend a convening period:[6]
(1)The short time frames are an element of the scheme of the Act, the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible.
(2)However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under s 439A(6) involves a balancing of these considerations.
(3)In considering an application for an extension, the court must take into account the detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors and others.
(4)An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed of company arrangement, for the administration to end, or for the company to be wound-up.
(5)Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, wind up the company or end the administration.
[6] Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18] (Beech J); recently applied in Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347 [31] (Strk J).
There are 11 broad categories of cases in which an extension is usually granted.[7] Relevant to this application those categories include, the time needed for thorough assessment of a proposal for a deed of company arrangement, lack of access to corporate financial records, or that additional time is likely to enhance the return for unsecured creditors.
[7] In the matter of Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585 [13] (Austin J).
In addition, the administrator's own opinion as to the need for an extension is to be given weight in an application of this kind.[8]
[8] Owen, in the matter of RiverCity Motorway Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 [26] (Logan J); In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Ltd (Administrators Appointed) [2020] FCA 422 [32] (Gleeson J); Re Sneakerboy Pty Ltd [2022] VSC 502 (Gardiner AsJ).
Courts will exercise their discretion to extend the convening period where one or more of the established categories are raised, there is no evidence of material prejudice to those affected by the extension of time, and the court is satisfied that the administrator's estimate of time has a reasonable basis.[9]
[9] In the matter of Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585 [14] (Austin J); Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347 [32] (Strk J).
5.0 Disposition
I am satisfied that the convening period should be extended, and the orders sought by the plaintiffs made.
First, in light of the fact that the plaintiffs, who are experienced insolvency practitioners, have only been appointed as administrators for a very short period of time it is obvious that an extension is necessary to enable the plaintiffs to carry out the statutory tasks that are required of them pursuant to s 75-225 and s 75-40 of the Insolvency Practice Rules. The plaintiffs indicate that they are not currently able to prepare and circulate a meaningful report to creditors so as to comply with their statutory obligations.
Second, once adequate enquiries and information is obtained, there is a prospect that the Company could either come out of administration if it is not insolvent, or the business of the Company could be recapitalised through a deed of company arrangement. If either is achieved, these outcomes would be of more benefit to the creditors than an immediate winding up of the Company. If an extension of time is not granted, it is likely that no opportunity for a return to solvency nor any restructure could be achieved and the Company's business would have to be shut down immediately.
Third, the period of extension sought is very short and there is no evidence of any prejudice to creditors from the proposed extended period. To the contrary, if the extension is not granted and the Company's business has to be shut down immediately, this would prejudice the interests of the Company's creditors resulting in the loss of opportunity for creditors to derive any value that might be achieved by the continuation of trading, or the sale if necessary of the Company's business as a going concern.
Fourth, I am satisfied that the order sought pursuant to s 447A of the Corporations Act to provide flexibility as to the date on which the second meeting of creditors is convened should be made. In particular, it is appropriate to order that the second meeting may be held at any time within the extended convening period and the period of five business days thereafter.
Fifth, I am also satisfied that the plaintiffs should have liberty to apply for a further extension of the period to convene a meeting of creditors should the circumstances require. It is well established that a further extension may be granted under s 447A(1) of the Corporations Act.[10]
[10] Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 [33] (Gleeson J); referred to in Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347 [33] (Strk J).
Sixth, it is appropriate that the orders sought are to require that all known creditors of the Company be given notice of the orders, and that any interested party have liberty to apply to modify or discharge the orders.
For these reasons, after hearing counsel for the plaintiffs, on 27 September 2022, I made the following orders:
1.Pursuant to ss 439A(6) and 447A(1) of the Act, it is ordered that:
(a)the period within which the meeting of creditors of the Company pursuant to s 439A(1) of the Act must be convened is extended until 21 October 2022;
(b)the Plaintiffs have liberty to apply for a further extension of the period referred to in order 1(a) should the circumstances require; and
(c)notwithstanding s 439A(2) of the Act, the Plaintiffs may hold the meeting more than 5 business days before the conclusion of the period referred to in order 1(a) of this order, provided that at least 5 business days’ notice of such meeting is given, in accordance with ss 75-225 and 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth).
2.The Plaintiffs are to give notice of these orders to the Company's known creditors by means of a circular, to be provided by post or email no later than 7 days after the date of these orders.
3.Any interested person is at liberty to apply within 21 days from the date of these orders to modify or discharge these orders.
4.The Plaintiffs' costs of this application be costs and expenses in the administration of the Company and be paid from the assets of the Company.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TS
Associate to the Honourable Justice Smith
28 SEPTEMBER 2022
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