Re Foodora Australia Pty Ltd (Administrators Appointed)

[2018] NSWSC 1426

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426
Hearing dates:	11 September 2018
Decision date:	11 September 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Orders made validating appointment of administrator and extending the convening period for the second meeting of the company’s creditors.
Catchwords:	CORPORATIONS – voluntary administration – administrator – whether order validating appointment of administrator should be made under s 447A of the Corporations Act 2001 (Cth). CORPORATIONS – voluntary administration – administrator – meeting of creditors – whether order to extend convening period for second meeting of creditors should be made under s 439A of Corporations Act 2001 (Cth).
Legislation Cited:	Corporations Act 2001 (Cth), ss 128, 129, 435A, 436, 439A, 447A, Pt 5.3A
Cases Cited:	- Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2004] FCA 130; (2004) 49 ACSR 1 - Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 - Calabretta v Redpen Developments Pty Ltd (in liq) (recs and mgrs apptd) [2010] FCA 81; (2010) 183 FCR 47 - Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 - Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310 - Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 - National Australia Bank Limited v Horne [2011] VSCA 280; (2011) 83 ACSR 639 - Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 - Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2002 - Re Riviera Group Pty Ltd (admins apptd) [2009] NSWSC 585; (2009) 72 ACSR 352
Category:	Principal judgment
Parties:	Simon Cathro and Ivan Glavas in their capacity as joint and several administrators of Foodora Australia Pty Ltd (ACN 605 948 052) (Administrators Appointed) (First Plaintiff) Foodora Australia Pty Ltd (ACN 605 948 052) (Administrators Appointed) (Second Plaintiff)
Representation:	Counsel: C H Withers (Plaintiffs)   Solicitors: Mills Oakley (Plaintiffs)
File Number(s):	2018/278087

Judgment – ex tempore (revised 13 september 2018)

1. By Originating Process filed today, 11 September 2018, by leave, the First Plaintiffs, Mr Simon Cathro and Mr Ivan Glavas in their capacity as joint and several administrators (“Administrators”) of the Second Plaintiff, Foodora Australia Pty Ltd (admins apptd) ("Company"), seek an order under s 439A(6) of the Corporations Act 2001 (Cth) that the time for them to convene the second meeting of creditors of the Company be extended up to and including 9 November 2018 and consequential orders. I will return to the circumstances in which that order is sought below.

Whether the Administrators were validly appointed

2. Before turning to that order, I should note that a preliminary issue arose at the hearing today and, by oral application, Mr Withers, who appears for the Plaintiffs, made a further application for an order under s 447A of the Corporations Act that Part 5.3A of the Act is to operate in relation to the Company such that the Administrators be appointed as its voluntary administrators with effect from 17 August 2018.

3. On that date, two directors of the Company, Ms Bushnell and Mr Angele, resolved that the Company was insolvent and that voluntary administrators be appointed to administer its affairs under Part 5.3A of the Act, and that the Company's directors execute a letter appointing Messrs Cathro and Glavas as joint and several administrators of the Company. That resolution was plainly intended to invoke the power in s 436A of the Corporations Act for a company, by writing, to appoint an administrator if its board has resolved to the effect that, in the opinion of the directors voting for the resolution, the company is insolvent or is likely to become insolvent at some future time and an administrator of the company should be appointed. It appears to have been understood by those directors, by the Administrators and by the Company’s intermediate holding company (“FDH”), until last Friday, 7 September 2018, that that appointment was effective.

4. However, on 7 September 2018, the solicitors acting for FDH advised Mr Cathro that it had come to their attention that two resolutions had been passed in 2015 appointing three persons as additional directors of the Company. The solicitors noted that those appointments were not notified to the Australian Securities and Investments Commission (“ASIC”) and that it appeared that those persons either did not think that their appointment had taken effect or thought that that appointment had ceased in 2015, and that those persons did not appear to have taken any active steps in the conduct of the Company's business. The solicitors for FDH recognised that the possibility that the Company had additional defects may have consequences with respect to the resolution passed on 17 August 2018 by which the Administrators were appointed as voluntary administrators to the Company.

5. A company search of the Company is in evidence and it confirms that, at least so far as the records maintained by ASIC are concerned, the Company's directors were Ms Bushnell and Mr Angele, the persons who had purported to appoint the Administrators to the Company. The Company's constitution is also in evidence and it provides, in cl 6.9, that a quorum consists of, relevantly, two directors, so it appears that the quorum requirement was satisfied in respect of the Administrators' appointment. However, cl 6.8 of the Company's constitution requires notice of a meeting to be given to each person who is, at the time of giving the notice, a director. That provision identifies certain circumstances in which a failure to give notice of a meeting to such a person will not invalidate any act, matter or thing done or resolution passed at the meeting, including circumstances where the failure occurred by accident or error. It is possible, or perhaps probable, that that provision would apply in the present facts, since it might be thought that there could be no more fundamental error as to the giving of notice of a meeting of directors than a misunderstanding as to whether three directors had previously been appointed to the Company. Having said that, it is not possible to conclude, as a matter of fact, on the evidence as it stands, how that failure occurred, or whether the relevant persons had in fact initially been appointed as directors, and it would be inappropriate to reach such a conclusion, at a factual level, where those persons and other potentially interested persons had not been joined as parties to the application.

6. In these circumstances, there is, at least on the evidence as it stands, an uncertainty as to whether the Administrators were validly appointed to the Company. It may be that, in these circumstances, the Administrators could call upon the assumptions that they are entitled to make in dealing with the Company under ss 128 and 129 of the Corporations Act, which were considered, for example, in respect of the validity of the appointment of voluntary administrators in Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310.

7. However, it seems to me to be sufficient, for present purposes, to have regard to s 447A of the Act, on which the Administrators rely, which provides, inter alia, that the Court may make such order as it thinks appropriate about how Part 5.3A of the Corporations Act is to operate in relation to a particular company. That section confers wide discretionary powers on the Court, including to do what it thinks is just in all the circumstances having regard to the rights of those affected by an administration, and including making orders that would alter what would otherwise be the operation of Part 5.3A of the Act: Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 611; Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 at 280-281. The overriding requirement for an order under that section is that any order made and any directions given must be designed to achieve the objective of Part 5.3A as expressed in s 435A of the Corporations Act, and such an order must have a nexus with how Part 5.3A is to operate in relation to the particular company: Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2004] FCA 130; (2004) 49 ACSR 1 at 15; Correa v Whittingham above at [4]. That section is available to cure defects in the appointment of an administrator, including where the administrator has been appointed by directors of a company: see, for example, Calabretta v Redpen Developments Pty Ltd (in liq) (recs & mgrs apptd) [2010] FCA 81; (2010) 183 FCR 47; National Australia Bank v Horne [2011] VSCA 280; (2011) 85 ACSR 869.

8. It seems to me that the objects of Part 5.3A will be promoted by validating the Administrators’ appointment in this case. The two persons who were the active directors of the Company had formed the view that it was, in terms of the resolution, not merely likely to become insolvent, but in fact insolvent, at the time of the Administrators’ appointment. The evidence to which I will refer below, in respect of the investigation since undertaken by the Administrators, raises the prospect that the number of the Company's creditors and the amount of the debts that are owed by the Company would be significantly increased if persons who provided delivery services to it were employees and not independent contractors, and if associated tax obligations arise in respect of that position.

9. Any invalidity in the appointment of the Administrators would be detrimental to the Company’s creditors, so far as it would take the Company out of independent hands, where the Administrators’ investigations as to these matters are now well advanced, and it would make it more difficult to realise the objectives of the Act, including promoting a better return to creditors than may otherwise be available in a liquidation. Additionally, on one view, the validity of the voluntary administration is necessary to an order extending the time for the second meeting of creditors, and that is also appropriate in the present circumstances for the reasons I will indicate below.

10. For these reasons, I am satisfied, notwithstanding that there is limited factual material before the Court, that an order under Part 5.3A of the Act can and should be made to validate the Administrators’ appointment.

Application for extension of convening period

11. Turning now to the application to extend the time for the second meeting of creditors, the circumstances in which such an order may be made are well established. In determining whether to extend the time for a second meeting of creditors under s 439A or s 447A of the Act, the Court must reach an appropriate balance between the expectation that an 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 maximizing a return for creditors. Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; Re Riviera Group Pty Ltd (admins apptd) [2009] NSWSC 585; (2009) 72 ACSR 352; Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2002. The case law has also recognised the significance of an administrator's view in an application of this kind, particularly where the administrator is dealing with a complex administration, and another relevant factor is the need for information to be provided to creditors at a second meeting, in a way that would allow them to exercise their decision at the second meeting as to whether the company should be returned to its directors, a deed of company arrangement should be executed if proposed, or the company should be allowed to pass into voluntary liquidation.

12. Here, the Administrators rely on a comprehensive affidavit of Mr Cathro dated 7 September 2018, which sets out the history of his appointment, the events leading to the appointment, his assessment of the Company's financial position, and significant matters which impact its present position. In particular, he refers to an open question as to whether delivery riders used by the Company were employees, rather than independent contractors as the Company's business model had assumed. He notes that the Fair Work Ombudsman had formed the view that the relationship between the Company and its delivery riders was that of an employer and employee, and had commenced proceedings against the Company in respect of that matter, although those proceedings are not continuing where the Company has been placed in voluntary administration. He notes that an application has been filed in the Fair Work Commission by the Transport Workers Union, on behalf of a delivery rider, which seeks a declaration that that delivery rider was unfairly dismissed, on the premise that he or she was an employee of the Company. The Administrators have consented to the continuance of those proceedings against the Company, and they are listed for hearing shortly, on 13 and 14 September 2018. He also refers to an audit by the Australian Taxation Office and an investigation by Revenue NSW, which have resulted in the issue of claims against the Company in respect of income tax and payroll tax respectively, also on the basis that the relevant delivery riders were employees of the Company.

13. Mr Cathro points, not surprisingly, to the fact that the resolution of that issue, which is the subject of continuing investigations on his part, is of considerable significance to the Company, both because employees themselves may be potential creditors in an administration or liquidation for their statutory entitlements, and because a characterisation of those persons as employees will have income tax and payroll tax implications for the Company. Mr Cathro also identifies a further issue, in respect of a letter described as a "comfort letter" provided by another entity to the Company, although he notes that there are issues as to the proper characterisation and legal effect of that letter which are the subject of the continued investigation on his part, and which are also significant to the future conduct of a voluntary administration, deed of company arrangement or liquidation.

14. In these circumstances, Mr Cathro has formed the view that, while there have been some discussions as to the possibility of execution of a deed of company arrangement, involving the Company’s ultimate holding company, it is likely to be necessary to resolve the question whether delivery riders are employees or contractors and the status of the "comfort letter" in order to assess any proposal for a deed of company arrangement. Mr Cathro identifies a number of matters, including the complexity of those issues, which he considers would prevent the Administrators from completing their investigations into the affairs and activities of the Company prior to the end of the convening period for the second meeting. He expresses the view, which I accept, that the Administrators would not be able to provide a proper opinion to creditors at the second meeting, if it were held on or before 21 September 2018, when it is presently due to be held, when these issues are open, and the Administrators could not express any fully informed view about them.

15. I note, for completeness, that the Administrators have given notice of this application to ASIC, although it is not clear whether ASIC has expressed a view. Notice of the application has also been given to the committee of inspection of the Company, and there is no suggestion that any member of that committee has objected to the application, and FDH and the Australian Taxation Office have each advised that they do not oppose the application.

16. Mr Withers has drawn attention to these matters in oral submissions, and has referred to the familiar authorities as to these matters, to which I have referred above. I am satisfied, having regard to the matters to which I have referred, that the interests of creditors are likely to be promoted by their being better informed, at the time that a second meeting of creditors is held. In these circumstances, and given the complexity of the issues to which the Administrators have referred, the extension of the convening period sought is appropriate.

17. For these reasons, I make orders in accordance with the Short Minutes of Order initialled by me and placed in the file. These include an order that the costs of the application be paid out of the Company's assets, where the application was plainly necessary and appropriate to progress the voluntary administration, and orders that these orders be entered forthwith and that the exhibits be returned.

**********

Decision last updated: 21 September 2018