Re Grocon Pty Ltd (admins apptd) (No 1)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2020 04517

IN THE MATTER of Grocon Pty Ltd (Administrators Appointed) (ACN 006 772 238) & ors in the attached schedule

APPLICATION BY

CRAIG SHEPARD AND MARK KORDA in their capacity as joint and several voluntary administrators of the THIRD PLAINTIFF (as set out in the attached schedule)	First plaintiffs
CRAIG SHEPARD AND ANDREW KNIGHT in their capacity as joint and several voluntary administrators of the FOURTH to FORTY-FIRST PLAINTIFFS (as set out in the attached schedule)	Second plaintiffs

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	10 December 2020
DATE OF JUDGMENT:	10 December 2020
DATE OF REASONS:	17 December 2020
CASE MAY BE CITED AS:	Re Grocon Pty Ltd (admins apptd) (No 1)
MEDIUM NEUTRAL CITATION:	[2020] VSC 833

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CORPORATIONS – Application by administrators to modify the operation of Division 65 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act 2001 (Cth) concerning the handling of funds in the administrations – Single company operated treasury bank account for the group of companies prior to administration – ss 65-45 and 90-15 of the Insolvency Practice Schedule (Corporations) – Re Ten Networking Holdings (admins apptd) (recs and mgrs apptd) [2017] FCA 1144.

CORPORATIONS – Application by administrators to modify the operation of s 75-35 of the Insolvency Practice Rules (Corporations) 2016 (Cth) to allow notification of creditors’ meetings by email and the provision of documents in electronic form – s 90-15 of the Insolvency Practice Schedule (Corporations) – Re Virgin Australia Holdings Ltd (admins apptd) (No 2) (2020) 144 ACSR 347.

CORPORATIONS – Application by administrators to extend time period under s 70-1(2)(a) of the Insolvency Practice Rules (Corporations) 2016 (Cth) to respond to requests for information and documents to 10 business days – Application granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr P Fary SC	Norton Rose Fulbright

HIS HONOUR:

This proceeding concerns the voluntary administration of the third to forty-first plaintiffs (Grocon Companies). The first plaintiffs, Mark Korda and Craig Shepard (Grocon Administrators), were appointed as joint and several voluntary administrators to the third plaintiff, Grocon Pty Ltd (Grocon), pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act) on 27 November 2020. The second plaintiffs, Craig Shepard and Andrew Knight (Companies’ Administrators), were appointed as joint and several administrators to the fourth to forty-first plaintiffs (Companies) on the same date. The Grocon Administrators and Companies’ Administrators are collectively referred to as ‘the Administrators’ in these reasons.

The administrations of the Grocon Companies are at an early stage. The concurrent first meetings of creditors for the Grocon Companies were held virtually on 9 December 2020 (First Creditors’ Meetings). There were no resolutions proposed at the First Creditors’ Meetings to appoint committees of inspection nor to replace the Administrators.

On 10 December 2020 I made directions and orders in the proceeding. These are my reasons for doing so.

By originating process filed 8 December 2020 the plaintiffs made application under ss 90-15 and 65-45(1) of the Insolvency Practice Schedule (Corporations) at Schedule 2 of the Corporations Act 2001 (Cth) (the IPSC) and further or alternatively, s 447A(1) of the Act. The Administrators and Grocon Companies sought the following orders and directions

(a) directions under one or more of ss 65-45(1) or 90-15 of the IPSC or s 447A of the Act relieving the Administrators from the requirement of strict compliance with Division 65 of the IPSC which would otherwise require the Administrators to open and maintain separate administration accounts for each of the Grocon Companies;

(b) directions under one or more of s 90-15 of the IPSC or s 447A(1) of the Act to facilitate the electronic dissemination and collection of information to/from creditors by the Administrators, and which enable the Administrators to convene, and manage the conduct of, concurrent virtual meetings of creditors of the Grocon Companies;

(c) a direction under one or more of s 90-15 of the IPSC or s 447A(1) of the Act extending the time within which the Administrators must respond to information requests from creditors.

In the course of the hearing Mr Fary, senior counsel for the plaintiffs, accepted that there was adequate power contained within the IPSC to grant the relief sought and, as the application was not one which sought to modify how Part 5.3A was to operate in relation to these administrations, recourse to s 447A of the Act was not necessary. Accordingly, the directions and orders made were pursuant to ss 65-45(1) and 90-15 of the IPSC.

Section 90-15 of the IPSC confers wide power to make orders modifying the operation of the IPSC and the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR) and to give directions to external administrators. In this regard, I refer to the succinct survey of the case law in the decision of Middleton J in Re Virgin Australia Holdings Ltd (admins apptd) (No 6)[1] dealing with this specific provision. In the case of Hutson (liquidator), in the matter of WDS Limited (in liq) (Receivers and Managers Appointed)[2] Markovic J described the Court’s power to make orders under s 90-15(1) of the IPSC as being unconstrained and adopted the expressions of the Court in Re Octaviar Ltd (in liq)[3] that the provision contained ‘no express words of limitation’ and was ‘intended to facilitate the performance of a liquidator’s functions’.
[1][2020] FCA 1172, [24]-[27].
[2][2020] FCA 299, [66].
[3][2019] QSC 235, [10].

The plaintiffs rely on the affidavits of Craig Peter Shepard sworn 7 December 2020 (‘First Shepard affidavit’) and 10 December 2020 (‘Second Shepard affidavit’) and the affidavit of Stephanie Trajcevska sworn 9 December 2020. Ms Trajcevksa’s affidavit concerned the service of the application on ASIC. ASIC indicated that they did not intend to participate in the application.

At the hearing on 10 December 2020 the plaintiffs sought and were granted leave to amend their originating process to seek an extension of the convening period for the second meeting of creditors under s 439A(2) of the Act and the application in respect of that part of the relief was adjourned to 14 December 2020.

Background

The Grocon Companies are each incorporated in Australia and the sole director of each of them is Daniel Grollo. Each of the Grocon Companies is part of a corporate group (Grocon Group) comprising 96 companies which include companies incorporated and operating in Australia, the United States and the Middle East.

The Grocon Group operates a development, construction and funds management business headquartered in Melbourne. It is involved with what are described as ‘greenfield development projects’, provides building and construction services for large scale developments and holds a portfolio of real estate investments. Grocon has constructed a number of prominent buildings in the central business districts of Melbourne and Sydney.

In the First Shepard affidavit, Mr Shepard deposes that he is a partner of the firm KordaMentha, has over 25 years’ experience as an insolvency accountant and has been involved in a large number of significant insolvency administrations.

Mr Shepard has classified the Grocon Companies into several groups as follows:

(a) Grocon;

(b) Grocon Builders (Vic) Pty Ltd (Grocon Vic);

(c) 12 trading companies;

(d) six non-trading companies which Mr Shepard says may still be subject to obligations depending on further inquiries and investigation; and

(e) 19 dormant companies.

Mr Shepard deposes, based on his discussions with Angela Farbridge-Currie who is the Chief Financial Officer of the Grocon Group, that the appointment of the Administrators was occasioned by reason of losses suffered in around September 2019 by the entities within the Grocon Group in relation to a development project known as the Central Barangaroo Project in New South Wales. Ms Farbridge-Currie indicated that the losses incurred have resulted in the Grocon Group having insufficient liquidity to support the construction business which is undertaken by the Grocon Companies.

Mr Shepard indicates that the Administrators do not intend that the Grocon Companies continue to trade through the administration period, but that arrangements have been entered into with other companies in the Grocon Group such that some functions of the Grocon Companies can continue without increasing their liabilities.

In this regard, the liabilities of Grocon, Grocon Vic and Grocon Services Pty Ltd (Grocon Services) in connection with office leases, supplier trading costs, employee wages, Pay As You Go (PAYG) taxation, superannuation and workers compensation costs are being paid to those companies in advance through an agreement described as the ‘Pass Through Agreement’. The Pass Through Agreement has not been the subject of formal documentation and consists of a series of emails which are exhibited to the First Shepard affidavit. Further reference will be made to the Pass Through Agreement below. In addition, the Administrators are also investigating whether it is in the interests of creditors of the Grocon Companies for the Grocon Group companies which are not in administration to take a novation of specific contracts from the Grocon Companies.

Mr Shepard deposes that the Administrators have conducted early investigations into the number and nature of the creditors of each of the Grocon Companies. The investigations indicate that as at the time of the swearing of the First Shepard affidavit:

(a) the ATO is an unsecured creditor of each of the Grocon Companies. The total amount of the ATO's claim against the Grocon Companies is approximately $14 million;

(b) eight of the Grocon Companies have approximately 50 known third party creditors. Examples of the nature of these creditors are:

(i) professional services creditors such as legal services providers and accountants;

(ii) utilities and telecommunications providers;

(iii) government regulators and other statutory bodies such as the State Revenue Office; and

(iv) trade creditors relevant to the construction industry.

(c) there are secured creditors with registrations on the Personal Properties Securities Register, including financiers who have provided financial accommodation to some or all of the Grocon Companies. Mr Shepard understands from enquiries made of his staff that their early investigations into these registrations indicate that some of the registrations should be removed as the underlying obligations have been satisfied;

(d) 25 of the Grocon Companies have intercompany debts to other Grocon Companies. The Administrators anticipate that there are 60 claims related to these intercompany debts;

(e) 27 of the Companies have intercompany debts to other Grocon Group companies that are not in administration. The Administrators anticipate that there are 79 claims against Grocon Companies from Grocon Group companies not in administration.

Handling of funds in the administration

The plaintiffs sought directions modifying the operation of Division 65 of the IPSC which is concerned with the handling of funds by external administrators. They sought directions as follows:

1A direction, nunc pro tunc, pursuant to sections 65-45(1), and further or alternatively 90-15 of the IPSC or further or alternatively section 447A of the Act, that:
(a)subject to order 2, section 65-5(1) of the IPSC is to operate in relation to Grocon such that the Grocon Administrators must pay all money received by them on behalf of or in relation to any one of Grocon and/or the Grocon Companies into the administration account in the name of Grocon (Treasury Administration Account) described in the [First Shepard affidavit] within 5 business days after receipt;
(b)subject to order 2, section 65-15(1) of the IPSC is to operate in relation to Grocon such that the Grocon Administrators must not pay any money into an administration account for Grocon (including the Treasury Administration Account) if the moneys are not received by the Grocon Administrators:
(v)on behalf of or in relation to one or more of Grocon or the Companies; or
(vi)on behalf of or in relation to one or more of the companies in the Grocon Group, in which case order 1(c)(iii) applies.

(c)section 65-25 of the IPSC is to operate in relation to Grocon such that the Grocon Administrators must not pay any money out of the administration accounts for Grocon otherwise than:

(i) for the purposes related to the external administration of any one or more of Grocon and/or the Companies to be paid from the Treasury Administration Account;

(ii) for the purposes of the Pass Through Agreement described in the affidavit of Craig Peter Shepard sworn 7 December 2020 into the administration accounts to be paid from the Treasury Administration Account (Administration Pass Through Account No 1);

(iii) to transfer funds received into the Treasury Administration Account, on behalf of or in relation to one or more of the companies in the Grocon Group, to an account for the benefit of the company in the Grocon Group entitled to those funds;

(iv) in accordance with the Act; or

(v) in accordance with any further direction of the Court.

2A direction, nunc pro tunc, pursuant to sections 65-45(1), and further or alternatively 90-15 of the IPSC or further or alternatively section 447A of the Act, that the Grocon Administrators are justified in paying money received by them pursuant to the Pass Through Agreement into the Administration Pass Through Account No 1.
3A direction, nunc pro tunc, pursuant to sections 65-45(1), and further or alternatively 90-15 of the IPSC or further or alternatively section 447A of the Act, that:
(a)section 65-15(1) of the IPSC is to operate such that the Grocon Administrators must not pay any money into the Administration Pass Through Account No 1 if the moneys are not received by them pursuant to the Pass Through Agreement; and
(b)section 65-25(1) of the IPSC is to operate such that the Grocon Administrators must not pay any money out of the Administration Pass Through Account No 1otherwise than:
(i) in accordance with the Pass Through Agreement; or
(ii) in accordance with any further direction of the Court.

Companies
4The Companies’ Administrators not be required to maintain a separate administration account in relation to each of the Companies (as otherwise required by the operation of Division 65 of the IPSC).

Division 65 of the IPSC provides, relevantly in the present context:

65-1 Simplified outline of this Division
The external administrator of a company has duties to:
(a) promptly pay all company money into an account (called an administration account); and

(b) promptly deposit instruments such as securities with a bank; and
(c) keep the account separate and not pay any money that is not company money into the account; and

(d) only pay money out of the account if it is for a legitimate purpose.
The external administrator of a company may keep a single account for a group of related companies (called a pooled group).
People with a financial interest in the external administration of a company (such as creditors) may ask the Court to give directions to the external administrator about the way money and other property of the company is to be handled.
If the external administrator of a company does not comply with this Division, the external administrator may have to pay penalties, be paid less remuneration or be removed as external administrator.
65-5 External administrator must pay all money into an administration account
External administrator must pay money into the administration account
(1) The external administrator of a company must pay all money received by the external administrator on behalf of, or in relation to, the company into an administration account for the company within 5 business days after receipt.

Exception
(2) If the Court gives a direction that is inconsistent with subsection (1), that subsection does not apply to the extent of the inconsistency.

Offence
(3)       A person commits an offence of strict liability if:
(a)       the person is subject to a requirement under subsection (1); and
(b)       the person fails to comply with the requirement.

…
65-15 External administrator must not pay other money into the administration account
External administrator must not pay other money into the administration account
(1) The external administrator of a company must not pay any money into an administration account for the company if it is not received by the external administrator on behalf of, or in relation to:
(a) the company; or
(b) if the company is a member of a pooled group—another member of the pooled group.

Exception
(2) If the Court gives a direction that is inconsistent with subsection (1), that subsection does not apply to the extent of the inconsistency.

Offence
(3) A person commits an offence of strict liability if:
(a) the person is subject to the requirement under subsection (1); and

(b) the person fails to comply with the requirement.

…
65-25 Paying money out of administration account
Money only to be paid out of administration account in accordance with this Act etc.
(1) An external administrator of a company must not pay any money out of the administration account for the company otherwise than:
(a) for purposes related to the external administration of the company; or

(b) in accordance with this Act; or
(c) in accordance with a direction of the Court.

Offence
(2) A person commits an offence of strict liability if:
(a) the person is subject to a requirement under subsection (1); and
(b) the person fails to comply with the requirement.

…
65-45 Handling of money and securities—Court directions
(1) The Court may, on application, give directions regarding the payment, deposit or custody of:
(a) money; and
(b) negotiable instruments and other securities;
that are payable to, or held by, an external administrator of a company.
(2) The Court may, on application, give directions authorising the external administrator of a company to make payments into and out of a special bank account.

(3) Without limiting subsection (2), the Court may:
(a) authorise the payments for the time and on the terms it thinks fit; and
(b) if the Court thinks the account is no longer required—at any time order it to be closed.

(4) A copy of an order under paragraph (3)(b) must be served by the external administrator on the bank with which the special bank account was opened.

(5) An application under this section may be made by:
(a) any person with a financial interest in the external administration of the company; or

(b) an officer of the company.

(6) Paragraph (5)(b) has effect despite section 198G.

In the ordinary course, s 65-5(1) of the IPSC requires than an external administrator of a company must pay all money received by the external administrator on behalf of, or in relation to, the company into an administration account (as defined by s 60-10) for the company within five business days after receipt. Section 65-15 requires an administrator not to pay other monies into an administration account. Section 65-25 prohibits an administrator from paying money out of an administration account other than for purposes related to the administration of that company (or otherwise in accordance with the Corporations Act or an order of the Court).

The Administrators sought directions, nunc pro tunc, pursuant to one or the other of ss 65-45(1) or 90-15 of the IPSC relieving them of the requirement of strict adherence to the administration account prescriptions contained in Division 65 of the IPSC. The Administrators have been accounting for the funds in the administration in a way which did not comply with Division 65 and that such conduct was not in compliance with ss 65-5(3), 65-15(3) and 65-25(2). For this reason orders modifying the operation of Division 65 are sought nunc pro tunc. The source of power to make directions in that regard is s 65-45 of the IPSC. The application is made by the Administrators as officers of the Grocon Companies by reason of their appointment as administrators.[4]
[4]See s 65-45(5) of the IPSC. In ReTen Network Holdings Limited [2017] FCA 1144, [74] (‘Ten Network’) it was considered that an administrator was a person ‘with a financial interest in the external administration of the company’ for the purposes of s 65-45(5)(a) of the IPSC by operation of s 5-30 of the IPSC.

Intercompany financial arrangements

The Administrators’ early investigations have identified a number of intercompany loans, transfers and balances recorded in the books and records of the Grocon Companies. Mr Shepard exhibits an Excel spreadsheet of these intercompany transactions as at October 2020 (called an Intercompanies Summary). A number of the companies are identified as net debtors of the other companies and a number are net creditors. Mr Shepard deposes, by reference to the Intercompanies Summary, that Grocon was a party to a number of intercompany transactions. Significantly, in the context of the present application, Mr Shepard understands from discussions with Ms Farbridge-Currie that Grocon performed a treasury function for the Grocon Group. In its function as treasurer, Grocon would collect monies for the Grocon Group relating to its projects and investments and, on the other hand, make payments in respect of amounts owed by companies in the Grocon Group. The books of Grocon contain journal entries in its accounts, and in those of the relevant Grocon Companies that were receiving payment or incurring a liability, which reflect receipts and payments made by Grocon on behalf of other Grocon Companies. These journal entries ultimately form the basis for the recording of intercompany loans in the books and records of the Grocon Group, including the Grocon Companies.

Mr Shepard deposes that all the Grocon Companies are part of a consolidated tax group and GST group and as such have consolidated financial statements and file returns with the ATO on a consolidated basis.

Before the commencement of the administrations, two Grocon companies employed staff, Grocon and Grocon Vic. At the commencement of the administrations a number of employees of Grocon Vic were terminated and the remaining Grocon Vic employees continue to be paid pursuant to the terms of the Pass Through Agreement. Mr Shepard understands from enquiries made of his staff that early investigations of the books and records of Grocon and Grocon Vic indicate that there are likely to be 21 priority employee creditors with claims against Grocon and 10 priority employee creditors with claims against Grocon Vic.

Pursuant to the terms of the Pass Through Agreement, Grocon Projects Operations Pty Ltd (GPO) and Grocon Constructions (Vic) Pty Ltd (GCV) are paying the entitlements of staff of Grocon and Grocon Vic. However, the liability to pay the Grocon and Grocon Vic staff remains with Grocon and Grocon Vic, subject to the terms of the Pass Through Agreement.

Mr Shepard states that at the time of the Grocon Administrators’ appointment, Grocon operated a bank account as ‘group treasurer’ for the processing of receipt and payments of Grocon Group companies. At the time of the appointment the balance of this account was approximately $700,000. The only other bank accounts held by Grocon Companies at the commencement of the administration were two in the name of Grocon and two in the name of Grocon NSW[5] but these accounts had nil balances and Mr Shepard has been informed by Ms Farbridge-Currie that they were not in use.
[5]It appears that this is a reference to the sixteenth plaintiff, Grocon Developments NSW Pty Ltd.

Mr Shepard states that the administrators have, as far as practicable, not sought to vary the manner in which the Grocon Companies operated within the Grocon Group, particularly in regard to Grocon undertaking the treasury function for the other Grocon Companies. The majority of the Grocon Companies are without funds and it has been necessary to adopt the manner in which payments are receipted and made by the group for the Grocon Companies.

In this regard, Mr Shepard states that upon appointment, the Grocon Administrators established administration accounts for Grocon as follows:

(a) Treasury Administration Account – an account to receive the funds from the account operated by Grocon as group treasurer; and

(b) Administration Pass Through Account No 1 – an account to receive funds pursuant to the Pass Through Agreement to pay Grocon's employees and supplier trading costs.

The Treasury Administration Account, subject to the arrangements in place for the Pass Through Account No 1, is to hold all monies received on behalf of any of the Grocon Companies. The Grocon Administrators contemplate that:

(a) they will not intentionally receive any other monies into the Treasury Administration Account. Given the nature of the treasury function Mr Shepard states it is possible that the Grocon Administrators may inadvertently receive funds on behalf of other entities within the Grocon Group but if this occurs the Grocon Administrators intend to address this by transferring the subject funds out of the Treasury Administration Account to the appropriate company within the Grocon Group;

(b) for the purpose of the external administration of one or more of the Grocon Companies, they would only make payments from the Treasury Administration Account:

(vi) on behalf of any of the Grocon Companies, in accordance with the historical practice of Grocon acting as the treasury company for the Grocon Group; and/or

(vii) to other Grocon Companies for specific costs and expenses on request;

(c) they may be required to make payments out of the Treasury Administration Account to satisfy any funds inadvertently received for a company in the Grocon Group that is not one of the Grocon Companies;

(d) they would cause any payments made or receipts to be entered into the relevant journals of Grocon to document any such transactions. Mr Shepard accepts that it would be the responsibility of the Companies’ Administrators to make any entry in the relevant journals of the Grocon Companies that relate to a payment:

(i) received directly from the Treasury Administration Account; or

(ii) made to a third party from the Treasury Administration Account for the benefit of one of the Grocon Companies.

The Administrators have entered into the Pass Through Agreement which operates such that:

(a) the Administration Pass Through Account No 1 was opened in the name of Grocon;

(b) the sole purpose of the Administration Pass Through Account No 1 is to receipt funds under the Pass Through Agreement to pay:

(iii) costs for suppliers that have been identified as being necessary for some aspects of the business of one or more of the Grocon Companies; and

(iv) employees, PAYG and other employee costs for the seconded Grocon employees;

(Collectively the Agreed Purpose)

(c) the Grocon Administrators have undertaken not to use any monies in the Administration Pass Through Account No 1 for any purpose other than the Agreed Purpose;

(d) the Grocon Administrators will reconcile the Administration Pass Through Account No 1 on a weekly basis and provide the reconciliation to GPO;

(e) GPO and/or GCV will provide the Grocon Administrators, by payment into the Administration Pass Through Account No 1, the necessary funds to meet the Agreed Purpose costs.

In reference to the orders which are sought that the Companies’ Administrators not be required to maintain separate administration accounts for each of the Companies, Mr Shepard states that all funds received and paid by the Companies have historically been paid through Grocon as part of its treasury function. Further, 25 of 38 of the Companies are either dormant or not trading. He stated that it did not appear to the Companies’ Administrators that it was practicable to incur the costs of opening and administering 38 company administration accounts in circumstances where, save for certain specific instances, the individual administration accounts for the majority of the companies would not actually be utilised.

As such, the Companies’ Administrators consider that to open and maintain accounts for each of the Companies for the period of the administration would lead to additional costs being incurred and a possible loss of efficiency in the conduct of the administrations without necessarily improving the state of the records of the Grocon Companies or increasing returns to creditors. Mr Shepard says by reference to the short timeframe in which the Companies’ Administrators plan to complete the administration of the Companies, together with the anticipation that, at the second meetings of creditors, a deed of company arrangement on a pooled basis will be put to creditors of all the Grocon Companies, the most practical course is to open and maintain a much smaller number of administration accounts rather than opening and maintaining administration accounts for each of the Grocon Companies.

Pass Through Administration accounts were also opened for:

(a) Grocon Vic for the purposes of receiving funds pursuant to the Pass Through Agreement in order to pay Grocon Vic’s employee costs; (Administration Pass Through Account No 2); and

(b) Grocon Services for the purposes of receiving funds pursuant to the Pass Through Agreement to pay Grocon Services’ Brisbane office lease costs (Administration Pass Through Account No 3).

No orders are sought to modify the operation of Division 65 in respect of these administration accounts.

In addition, the Administrators also contemplate that administration accounts (called Specific Purpose Property administration accounts) would be opened for:

(a) Belgrave Street Developments Pty Ltd in order to receive funds paid for that company as the owner of an apartment complex in Manley, New South Wales;

(b) Grocon (Fairfield) Pty Ltd in order to receive funds paid to this company as the owner of an apartment and retail property in Fairfield, Victoria; and

(c) 61 Lt Collins Street Pty Ltd in order to receive any funds which are received by this company in its capacity as a lessor from tenants who are in arrears.

Again, no orders to effect modification of the operation of Division 65 is sought in respect of these administration accounts.

The Special Purpose Property administration accounts have been opened on the basis that the Companies’ Administrators anticipate at this point that the three companies in paragraph 33(a) to (c) above may receive funds from third parties during the period of the administrations. As such, the Companies Administrators have formed the view that it was preferable to ‘quarantine’ any funds received by these companies in specific administration accounts for the benefit of creditors for those companies until such time as a reconciliation can be undertaken to determine how such funds are to be distributed having regard to, amongst other things, the treasury function of Grocon and the state of intercompany loans amongst the Grocon Group.

The Companies’ Administrators anticipate that the Special Purpose Property administration accounts will operate in the ordinary way provided for under Division 65 of the IPSC without modification to the extent that each administration account has funds. Each of the Special Purpose Property administration accounts would only receive funds in respect of the particular company that is in administration. To the extent that such company is in funds and is required to incur cost and expenses for the purpose of the administration of that company, it will pay such costs and expenses out of funds within the specific Special Purpose Property administration account. It is envisaged that if a Special Purpose Property administration account holds insufficient funds to meet upfront costs and expenses for the purpose of the external administration of that company, it is likely that that company will receive an advance from the Treasury Administration Account or from other third party sources with appropriate arrangements to subsequently reimburse any funds advanced when funds become available.

Mr Shepard indicates in the Second Shepard affidavit that, at the time of the appointment of the Grocon Administrators, the account of Grocon was ‘swept’ by the Grocon Administrators and deposited into the Treasury Bank Account. He says that given the manner in which Grocon traditionally receipted payments on behalf of the Grocon Companies and other entities within the Grocon Group and paid expenses of companies within the Grocon Group, funds within the Treasury Bank Account were intermingled. For this reason it was not possible for there to be a demarcation between monies that were deposited into the Treasury Administration Account which were attributable to any particular company within the Grocon Group. As such, there is a difficulty conducting an allocation of the funds within the Treasury Administration Account because of the significant value, among other things, of the intercompany loans within the Grocon Group as against the amount of funds that were swept from the Treasury Bank Account of Grocon at the time of the appointment. There are also difficulties identifying which of the companies within the Grocon Group are entitled to funds swept from the account. The creditors of Grocon (comprising both companies in administration and companies which are not) total approximately $504 million.

Mr Shepard states that if the use of the Treasury Administration Account did not continue, the Administrators would be required to undertake a considerable amount of work to determine the precise assets available for the creditors of each of the Grocon Companies. This would involve reviewing and reconstructing the loan accounts for each of the Grocon Companies. He states that the Administrators consider that the costs of such reconciliation would be likely to be disproportionate to the benefit likely to flow to any of the Grocon Companies where:

(a) the costs of undertaking the exercise would likely exceed the funds available in the Treasury Administration Account; and

(b) there appears to be considerable complexity in reconciling intercompany loans, not only between the Grocon Companies but also the Grocon Companies and those companies not in administration and over which the Administrators have no control.

Mr Shepard states to the extent that Grocon is to advance any funds to one or more of the Grocon Companies for the purposes related to the administration of one or more of the Grocon Companies, it is anticipated that such an advance will not materially affect the return to creditors of Grocon. Such advances will only be made in circumstances where they are either immaterial or in respect of nominal amounts, such as a payment of a $1 nominal fee in a deed of surrender, or where a full reimbursement of the funds will be a prerequisite of the advance from Grocon and such advances will be documented in the books and records of Grocon and the relevant Grocon Companies. He states that it is likely that advances will only be made from Grocon to the Grocon Companies in circumstances where the Grocon Administrators consider that the relevant Grocon Companies will be in receipt of funds from realisations or recoveries for the benefit of creditors of one or more of the Grocon Companies. In this regard, he states that the Companies’ Administrators are conscious of the obligations imposed on administrators for debts incurred during the period of administration.

As to the potential disadvantage to creditors, Mr Shepard acknowledges that unsecured creditors may be theoretically be disadvantaged by the use of the Treasury Administration Account. He considers that such a risk is significantly outweighed by the adverse consequences to creditors if the Administrators are unable to realise assets in any of the Grocon Companies that do not have access to funds. Mr Shepard states that in assessing the risk to creditors in continuing with the ongoing use of Grocon as the treasury company the Administrators take the view that an individual creditor will only be prejudiced if each of the following occurs:

(a) Grocon owes money to a creditor and during the period of the administration it advances funds to one or more of the Grocon Companies to meet the costs and expenses of that Grocon Company;

(b) Grocon is wound up, rather than entering into a pooled deed of company arrangement for all of the Grocon Companies, and no pooling order is made;

(c) the costs in the administration of Grocon, including in reconstructing the books and records of Grocon, do not exhaust Grocon's assets that would have otherwise been available to meet the debt owed to the Grocon creditor;

(d) the Grocon Company that received the advance from Grocon is not able to repay Grocon the amount advanced, by way of reimbursement; and

(e) the dividend that is ultimately paid to the creditor of Grocon is less than the dividend that would have been paid if Grocon had not advanced the funds to the Grocon Company.

Mr Shepard states that it is the opinion of the Administrators that it is highly unlikely that all of these matters will occur. As was the case in the Virgin administrations, which will be discussed in more detail below, Mr Shepard states that any deed of company arrangement proposal (or a winding up) is likely to involve a pooling of the companies’ assets. The Administrators are maintaining records of post-administration dealings between the Grocon Companies. If this is weighed against the costs of opening and maintaining separate bank accounts for each of the Grocon Companies it would be disproportionate and, in any event, prior to the administration, it appears that the Grocon Companies did not have separate dealings with external creditors.

Consideration

There have been recent authorities of the Federal Court of Australia which have considered applications under section 65-45 of the IPSC to modify the operation of Division 65 in large insolvency administrations. At the time of the introduction of the IPSC and the IPR, Markovic J in Ten Network[6] considered the application of the provisions in an application concerning the Ten Group of companies, a large corporate group to which administrators were appointed. Prior to the appointment of administrators, the Ten Group operated 12 bank accounts, 11 of which were in the name of one member of the Group, Ten Network. Ten Network operated as Ten Group’s treasury management company and managed the Ten Group’s collection, disbursement, investment and funding activities. Upon their appointment, the administrators opened two bank accounts to manage the financial affairs of the Ten Group, both in the name of Ten Network and they continued to operate the finances of the Ten Group with Ten Network as the treasury management company. The administrators recorded payments made or received by Ten Network on behalf of other companies within the Ten Group in the financial records in the same manner in which they were recorded prior to the appointment of the administrators so that a reconciliation could occur at any time. Suppliers issued invoices to Ten Network and other entities in the Ten Group which were paid by Ten Network. Aside from Ten Network all the other companies within the Ten Group were without funds. As such, their position is very much analogous with the scenario confronting the Administrators in the Grocon administration.
[6](n 4).

Markovic J summarised the operation and the principles to be applied in determining whether directions should be made under s 65-45:

The plaintiffs further submitted that a similar power to modify the operation of statutory provisions that apply to a company under external administration is found in s 447A of the Act and that, by analogy to the case law concerning s 447A of the Act and having regard to the objectives of Div 65, the following principles should apply when determining whether directions should be made under s 65-45 of the IPSC:
(1) the power to make directions under s 65-45 is a broad power and includes the power to direct that external administrators be permitted to act in a manner that is inconsistent with the obligations set out in Div 65;
(2) the directions must be made in the interests of the company’s creditors and be consistent with the objectives of Div 65, including the maintenance of proper standards of funds handling and record keeping in relation to the company’s affairs while under external administration and the reduction of unnecessary costs and inefficiencies in the conduct of the external administration;
(3) the creditors of the company should not be prejudiced or disadvantaged by any directions that are sought; and
(4) in some instances it may be necessary to give notice to those who may be affected by the proposed directions.

Given the overall purpose of the amendments contained in the IPSC, it is apparent that Parliament’s intention was that there be particular rules for the handling of external corporate administrations, that there be increased transparency; and that there be increased confidence in the professionalism of insolvency practitioners. In the Minister’s second reading speech the Assistant Minister to the Treasurer said that “[t]he government recognises that confidence in how practitioners handle the funds of external administrations, as well as the protection from potentially negligent behaviour, is crucial to the overall confidence in Australia's insolvency laws”. There is no doubt that the consistent handling of funds by external administrators will assist in the building of confidence in the profession and in implementing a consistent approach for the benefit of all stakeholders.
…
As to the way in which the Court should approach an application for directions pursuant to s 65-45, I accept the plaintiffs’ submissions set out at [91] above that an analogy can be drawn with the making of directions pursuant to s 447A of the Act. I accept that, to the extent that it is appropriate, similar considerations should apply to the making of directions pursuant to s 65-45 as apply to the making of directions pursuant to s 447A of the Act and I accept that the matters identified by the plaintiffs are relevant matters for the Court to take into account in considering whether to make directions pursuant to s 65-45.
That being so, I accepted that this was a case where it was appropriate to make directions pursuant to s 65-45 relieving the Administrators from complying with the requirements of ss 65-5, 65-15 and 65-25. I was satisfied that it was appropriate to make the directions sought for the following reasons:
(1) the companies under administration are all part of a corporate group and one of those companies, Network Ten, has historically acted as the treasury management company for that group;
(2) the Administrators have continued to operate the Ten Group with Network Ten as the treasury management company. They keep records of all payments made or received by Network Ten on behalf of other companies in the Ten Group. The evidence clearly establishes that the Administrators are maintaining proper records such that a reconciliation can occur at any time;
(3) all of the companies in the Ten Group other than Ten Online, Ten Ventures and TESP are parties to a deed of cross guarantee in which they covenant with Ten Network Holdings, as trustee, that they will guarantee to any creditor payment in full of any debt by any of the other parties to the deed in respect of any winding up application. Those companies that are not parties to the deed of cross guarantee are dormant and have no assets. There is therefore no risk that creditors of a particular company in the Ten Group will be prejudiced by the intermingling of funds held by Network Ten in the two administration accounts;
(4) none of the companies in the Ten Group other than Network Ten has any funds. Strict compliance with the requirements of Div 65 will require separate bank accounts to be opened in the name of each company in the Ten Group; invoices to be raised and monies to be transferred into those accounts to enable payments to be made; and monies to be received by those companies. The taking of these steps would lead to additional costs being incurred in the administrations and a possible loss of efficiency in the conduct of the administrations while not necessarily improving the record keeping of the Ten Group; and
(5) the administrations of the companies in the Ten group are only likely to continue for a relatively short time, that is, until completion of the Transaction, likely to be by or in early October 2017. Thus, the need for relief from the operation of Div 65 only arises for a short period.[7]

[7]Ten Network (n 4) [91], [92], [94]-[95].

Her Honour considered that the directions sought would not prejudice any creditor of the Ten Group and that it was in the interests of creditors that the directions being sought by the administrators be made. Her Honour also considered that the directions sought were consistent with the objects of Division 65. Markovic J observed that, despite the requirements in the IPSC, there will be cases where it will be impracticable to comply with Division 65 where the need for efficiencies will require administrators to seek that the administration be conducted in a different way to that contemplated by Division 65 as far as the management of funds are concerned. She considered that it was clearly contemplated by the legislature that the position in this regard should be approached on a case by case basis.[8]
[8]Ibid [93].

In Re Virgin Australia Holdings Ltd (admins apptd) (No 2)[9], Middleton J of the Federal Court of Australia considered an application of the present kind involving the insolvency administration of the Virgin group of companies. In Virgin No 2 the administrators sought an order pursuant to ss 65-45 and 90-15 of the IPSC that they not be required to maintain separate administration accounts in relation to each of the Virgin companies as required by Division 65. There were 39 companies in the Virgin Group that were in external administration and it was considered that opening a separate bank account for each company would bring added costs and complexity to the administrations. In addition, some of the Virgin companies were dormant and did not trade prior to the appointment of the administrators. Middleton J observed that, in circumstances where journal entries were used to record the payments for each of the Virgin companies, separate bank accounts should not be required for each of the companies.
[9](2020) 144 ACSR 347 (‘Virgin No 2’).

Middleton J made reference with approval to the decision of Markovic J in Ten Network[10] and considered it appropriate to absolve the administrators of the obligation to maintain single administration accounts. Of particular application in the present context of the Grocon Administrations, Middleton J observed:

Each of the Virgin Companies forms part of the same group of companies; further, any [deed of company arrangement] proposal or a winding up of the Virgin Companies is likely to involve a pooling of the companies’ assets and an extinguishment of intercompany loans. Finally, the Administrators are maintaining records of post-administration dealings between the Virgin Companies.
In light of those matters, the cost of opening and maintaining separate bank accounts for each of the Virgin Companies would be disproportionate given that, prior to the administration, most of the Virgin Companies did not have separate dealings with external creditors in any event.[11]

[10](n 4).

[11]Virgin No 2 (n 9) [197].

In my view, it seems clear that it is appropriate to make directions of the type sought by the Administrators modifying the operation of Division 65 of the IPSC. Grocon, prior to the appointment of administrators, acted as the treasury company for the group. Since the appointment of administrators, the Administrators have continued to operate the Grocon Companies in much the same way as previously occurred.

The Grocon Companies form part of the Grocon Group and Grocon has historically acted as the treasury company prior to the appointment of administrators. Since their appointment the Administrators have continued to operate the companies in that manner. Mr Shepard indicates that the Grocon Administrtaors maintain records of all payments made and received by Grocon on behalf of the other Grocon Companies such that a reconciliation could take place if it was required at any time. In addition, aside from Grocon none of the Grocon Companies have any funds. If the provisions of Division 65 were required to be complied with, accounts would need to opened in the name of each of the Grocon Companies and in order to enable payments to other companies other than Grocon, invoices would need to be raised and money transferred to those accounts to enable those payments to be made and monies to be received by those companies. It seems clear that the requirement to take these steps would result in additional costs being incurred in the administrations without any obvious improvement in the record keeping of the administrations. Those costs would be borne by the Grocon Companies’ creditors. I agree with the Administrators’ submission that it would be impracticable to require compliance by them of Division 65 where the circumstances result in it being appropriate to administer the external administration in a different more efficient way.

The maintenance of separate accounts for each entity would result in incurring of additional costs without any obvious benefit to the record keeping of the Grocon Companies. The Administrators seek to continue the practice which existed prior to their appointment of operating a central treasury account. While it might be said that there is a theoretical disadvantage to creditors, for the reasons which have been mentioned, I agree with the Administrators’ submissions that this is significantly outweighed by the adverse consequence to creditors if the administrators are unable to realise assets in any of the Grocon Companies which do not have access to funds.

Creditors’ meetings and notices

The Administrators also seek orders in respect of the modification of the provisions of the IPR concerning the mode of provision of notice to creditors, the regime by which creditors are to provide proofs of debt and proxies and the regime to enable creditors to participate in the creditors’ meetings. More particularly, they seek orders as follows:

Creditors’ Meetings
Conduct of Meeting
5An order, nunc pro tunc, pursuant to section 90-15 of the IPSC, and further or alternatively section 447A(1) of the Act, that section 75-35(2)(b) of the Insolvency Practice Rules (Corporations) (Cth) (IPR) is to operate in relation to notices of meeting provided for the purpose of section 75-35 of the IPR as if the words in section 75-35(2)(b) were replaced and read as follows:
“(b) indicate that a person, or the proxy or attorney of a person, who wishes to participate in the meeting using such facilities must give to the convenor, not later than 24 hours before the time at which the meeting is to be held a written statement setting out:
(i)the name of the person and of the proxy or attorney (if any); and
(ii)an email address to which notices to the person, proxy or attorney may be sent; and
(iii)a method by which the person, proxy or attorney may be contacted for the purposes of the meeting.”

6An order pursuant to section 90-15 of the IPSC, and further or alternatively section 447A(1) of the Act, that to the extent not permitted specifically by the IPR and for the purpose of section 5(3)(a) of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) (Corporations COVID Determination), the creditors of Grocon and the Companies who wish to participate or vote on resolutions at the meeting of creditors convened pursuant to section 439A of the Act (Second Creditors’ Meetings), must lodge with the Grocon Administrators and the Companies’ Administrators (collectively the Administrators) by email to [email protected] by no later than 24 hours before the commencement time of the Second Meetings:
(a)a formal proof of debt or claim in accordance with section 75‑85(3)(b)(ii) of the IPR; and
(b)an instrument of appointment of proxy pursuant to section 75‑150(3) of the IPR; or
(c)an instrument evidencing the appointment of a power of attorney pursuant to section 75-155(2) of the IPR; and
(d)a notice in accordance with section 75-35(2)(b) of the IPR (as amended by order 5 of these orders) (collectively the Meeting Participation Documents)

7An order pursuant to section 90-15 of the IPSC, and further or alternatively section 447A(1) of the Act, that the IPR is to operate in relation to Grocon and the Companies such that the requirements of a person to lodge with the Administrators any of the Meeting Participation Documents in order to establish an entitlement to vote at the Second Creditors’ Meetings may only be satisfied by lodging the Meeting Participation Documents as prescribed in order 6.
8An order pursuant to section 90-15 of the IPSC, and further or alternatively section 447A(1) of the Act, that the Administrators are justified in their reasonable discretion permitting only those persons who have lodged with the Administrators the Meeting Participation Documents in the manner prescribed in order 6, to participate in the Second Creditors’ Meeting and vote by proxy or attorney at the Second Creditors’ Meetings.

Method of conducting second meetings of creditors

The companies’ registered offices and principle places of business are located in Melbourne and Melbourne would ordinarily be the appropriate place for physical meetings of creditors to be conducted. Mr Shepard states that at the current time, the administrators consider that it would be appropriate to hold meetings of creditors electronically (i.e. virtually) pursuant to clause 5(1)(a) of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Corporations COVID Determination). This view is taken in light of the advice of the Victorian government that:

(a) a person who can work from home should work from home;

(b) people should observe social distancing in a workplace environment; and

(c) for medium and large office-based organisations, up to 25% of staff may attend the office.[12]

[12]As at the time of swearing the First Shepard affidavit.

In this regard, on 30 November 2020 each of the Grocon Administrators and the Companies’ Administrators circulated combined notices of appointment and proposed first meetings of creditors in respect of Grocon and the Companies (Notices of Meeting) by, amongst other means, circulating the Circular to Creditors and Suppliers dated 2 December 2020 which included the Notices of Meeting, by publishing the Notices of Meeting on the KordaMentha website for the Grocon Companies’ administration and publishing them on the ASIC Insolvency Notices website. The Notices of Meeting provided for the First Creditors’ Meeting to be held concurrently for all companies. The meetings took place by electronic means only at 10.00am on 9 December 2020. At the time of swearing his second affidavit Mr Shepard stated that the administrators envisaged that the concurrent Second Creditors’ Meeting in respect of the companies would be conducted on 23 December 2020 however as mentioned, the Administrators have since determined that it will be necessary to seek an extension of the convening period for the Second Creditors’ Meeting.

Mr Shepard states that in his capacity as an insolvency practitioner he has previously conducted meetings of creditors where creditors who have been unable to attend the meeting in person have attended remotely by, for example, video conference or by telephone. He states that the Second Creditors’ Meeting will be conducted through Microsoft teams, a cloud based collaboration software. Microsoft Teams is capable of operating the Second Creditors’ Meeting so that messaging, calling, video meetings and file sharing will be possible and will enable all creditors and the person presiding to participate in real time across multiple locations while using different devices. Mr Shepard states that the Administrators’ staff have experience in conducting meetings with as many as 150 people attending electronically using Microsoft Teams. He states that the Administrators estimate that given there are only 50 third party creditors (excluding employees, the ATO and intercompany creditors) it is likely that no more than 50 creditors will attend the Second Creditors’ Meeting. His estimate in this regard takes into account that, in his experience, not every creditor attends the second creditors’ meeting and often creditors provide proxies.

As to the relief sought in paragraph 5 of the originating process, relating to notices of meeting, including notice of provision of proxies, Mr Shepard states that notwithstanding clause 5 of the Corporations COVID Determination that enable the Administrators to conduct the meetings of creditors electronically, there are a number of requirements that have not been modified in the IPR in relation to the conduct of meetings, communications to and from creditors in relation to participation in meetings and in respect to the provisions of notices. In this regard, prior to a creditors meeting where facilities for meetings are available for participation by electronic means, administrators are required to provide a notice to persons wishing to participate in the meeting which includes specific details about electronic facilities in compliance with s 75-35 of the IPR (Notice of Electronic Facilities for Meeting). With respect to the First Creditors’ Meeting, such a notice was provided by the Administrators as part of the circular to creditors and suppliers dated 2 December 2020. Mr Shepard states that the Administrators will cause such a notice to be issued as part of the notices to persons in relation to the Second Creditors’ Meeting. He states that the Administrators have become aware that the Notice of Electronic Facilities for Meeting dated 2 December 2020 included a timeframe not prescribed by the IPR in that the Notice of Electronic Facilities for Meeting required that, in accordance with s 75-35(2)(b) of the IPR, a person or proxy or attorney of a person who wished to participate electronically was required to give the Administrators 24 hours’ notice rather than the 48 hours prescribed by the IPR.

Mr Shepard states that the timeframe for response by those wishing to participate appearing in the Notice of Electronic Facilities for Meeting for the First Creditors’ Meeting (24 hours) was longer than that prescribed under s 75-35(2)(b) of the IPR (48 hours) but is consistent with guidance issued by ASIC to registered liquidators in relation to holding meetings of creditors in external administrations in the COVID-19 context. He states that as the period was greater than that prescribed by the IPR, he did not consider than anyone was prejudiced by the Notice of Electronic Facilities for Meeting issued in respect of the First Creditors’ Meeting which contained the longer response time.

In the same way, he states the Administrators also wish to provide those wishing to participate in the Second Creditors’ Meeting the same timeframe for notice under s 75-35(2)(b) of the IPR. He states that the period provides the longest period practicable for persons to participate in the Second Creditors’ Meeting while also allowing a sufficient time for the Administrators to convene the meetings and provide the requisite details to the persons wishing to participate.

In regard to the relief sought in paragraphs 6, 7 and 8 of the originating process, which again relates to the conduct of creditors meetings, Mr Shepard states that in order for creditors to participate and vote in the Second Creditors’ Meeting, they are required to provide the Administrators with various documents to establish that they are entitled to vote in the meeting or, if they are not intending to participate personally, identify who will be nominated as proxy to act on their behalf. Mr Shepard states that such documents are typically provided to the creditors by administrators prior to the second meeting of creditors as part of the notice convening the second meeting and returned by persons claiming to be creditors prior to participating in the second meeting. Pre-COVID-19, this was typically done by email, post or by hand when persons attend the second creditors’ meeting in person. The documents in question include the Meeting Participation Documents as defined in paragraph 6 of the originating process.

In his first affidavit, Mr Shepard states that persons who may be creditors of the Grocon Companies that wish to participate in the Second Creditors’ Meeting will not be prejudiced by requiring that they provide the Meeting Participation Documents by email 24 hours prior to the Second Creditors’ Meeting. This time period is not in compliance with the IPR nor with the Corporations COVID Determination. His reasons for saying this are that:

(a) it will facilitate the efficient conduct and management of the concurrent second meetings of the 39 Grocon Companies;

(b) it is considered that the period of 24 hours prior to the Second Creditors’ Meeting provides potential creditors with a sufficient period of time to return the Meeting Participation Documents in circumstances where the Administrators will then be required to adjudicate on the proof of debt and if necessary revert to the creditor and provide the creditors with the documents to be tabled at the Second Creditors’ Meeting together with details of the electronic links to enable participation at the Second Creditors’ Meeting. It will also enable the Administrators to ascertain which of the Grocon Companies will be required to conduct a second meeting where creditors will be present against identifying second meetings where analysis of the proxies indicate the outcome of the resolutions which will be passed;

(c) the majority of third party creditors are corporate entities with email contact details and return of the Meeting Participation Documents by email would not be burdensome to them;

(d) the employee creditors are all likely to have email addresses and similarly the return of the Meeting Participation Documents by email would not be burdensome to them;

(e) Australia Post has indicated that there are delays in mail delivery. At the time of swearing his first affidavit, the Second Creditors’ Meeting was scheduled for 23 December 2020 it was considered by the Administrators that there was a risk that if the Meeting Participation Documents were returned by ordinary post they would not arrive in adequate time, if at all, to enable participation of those creditors at the Second Creditors’ Meeting. Mr Shepard states that in his experience corporate creditors very rarely submit documents by regular post. This factor does not have the same force in light of the proposed extension of the convening period, however, I am influenced by Mr Shepard’s statement that in his experience corporate creditors very rarely submit documents by regular post and adopt electronic means.

Mr Shepard states that many of the Administrators’ staff are working remotely because of the imposition of restrictions arising from COVID-19 and says it will be considerably more efficient to monitor submissions of Meeting Participation Documents if they are received electronically.

Consideration

I consider it is appropriate to make the orders which are sought in respect of the conduct of the creditors’ meetings. In my experience, in applications involving approaches to the Court by administrators it is common for orders to be made for provision of notice to creditors by email and by electronic publication on the insolvency practitioner’s website. The orders sought are designed to enable fulfilment of the objective of notifying as many creditors as expeditiously and as economically as possible. This approach was adopted by Middleton J in the Virgin administration.[13] Middleton J referred with approval to the decision of Brereton J (as his Honour then was) in Re BBY Ltd[14] where Brereton J stated (citations omitted):

Courts have become increasingly willing to make orders such as those sought in this case in respect of the manner in which notices may be given of meetings of creditors of companies under external administration, both to save costs and to save time, and thus to conserve the limited available assets for the benefit of creditors. As Black J has pointed out, most recently in Re Creative Memories Australia Pty Ltd (admins apptd) [2013] NSWSC 732 (at [8]), this no doubt reflects, amongst other things, the fact that electronic means of communication are now widely accepted in the investing and commercial communities. There are now many decisions in which the Courts have made orders in respect of meetings of creditors permitting notice to be given by electronic means to those for whom e-mail addresses are available and otherwise by notice, for example, on an administrator’s website, or by newspaper advertisement…

[13]See Virgin Australia Holdings Ltd (admins apptd) (2020) 144 ACSR 310, 317-318.

[14][2015] NSWSC 974 (‘BBY’).

The approach of Brereton J in BBY was also endorsed by Yates J in Re Quinlan (in their capacity as joint and several liquidators of Halifax Investment Services Pty Ltd (admins apptd))[15] and Gleeson J in Re Jahani (as joint and several liquidators of Ralan Group Pty Ltd (admins apptd)).[16]
[15][2018] FCA 1891.
[16][2019] FCA 1446.

I accept the Administrators’ submission that no prejudice can arise by modifying the operation of the IPR such that creditors who intend to participate in the Second Creditors’ Meeting have until 24 hours before the meeting to provide the Administrators with the Meeting Participation Documents. While it is not in compliance with the IPR or the Corporations COVID Determination, it provides creditors with a longer interval which, in my view, can only be to their advantage and I will make an order modifying the provisions of the IPR to permit this.

Information requests

The relief sought pursuant to s 90-15 of the IPSC in paragraph 9 of the originating process is designed to enable the Administrators to have a longer period of time than that provided by s 70-1(2)(a) of the IPR (five business days) in which to respond to information requests from creditors. An extension of a further five business days is sought so that the administrators have 10 business days to respond to requests for information, a report or a document.

Mr Shepard says that there are 39 Grocon companies and the information in question may not be readily available having regard to the manner in which the Grocon Group was operated (including the fact that the electronic server operated by the Grocon Group contains documents that are relevant both to the Grocon Companies and companies within the Grocon Group that are not in administration). He states that the Administrators are obliged to adhere to a regime for accessing some material pursuant to the terms of a confidentiality undertaking that they have provided. This may delay the provision of some information if it is intermingled with documents of the Grocon Group that are not in administration.

Mr Shepard says that having regard to the fact that most of the Administrators’ staff, and possibly those of the Grocon Companies, continue to operate remotely means that it will be the source of additional delays in responding to requests from creditors. If the information in question is not readily available to the administrators electronically it will involve locating physical records or require the involvement of employees of the Grocon Companies to prepare a response. Mr Shepard states that, in his experience, information requests sometimes require the involvement of staff members from the companies in administration because the information requested is not always readily available or accessible.

Consideration

I consider that a modification to the prescribed time period is warranted. The Grocon administration is a complex one and the current environment arising from the pandemic justifies a slightly longer period for any requests which it is said may involve both the staff of the Administrators and employees of Grocon Companies. In respect of the situation in regard the server, it may also be necessary to have recourse to employees of members of the Grocon Group that are not in administration, i.e. persons who are not employees of the Grocon Companies.

Orders

On 10 December 2020 I made the following orders and directions:

THE COURT DIRECTS THAT:
1.All persons shall appear, give evidence and make submissions in this proceeding this day by video link.
2.Pursuant to sections 65-45(1), and further or alternatively 90-15 of the Insolvency Practice Schedule (Corporations) (the IPSC) at Schedule 2 of the Corporations Act 2001 (Cth) (the Act) that:
(a)subject to paragraphs 3 and 4, section 65-5(1) of the IPSC is to operate in relation to the Third Plaintiff (Grocon) such that the First Plaintiffs (Grocon Administrators) must pay all money received by them on behalf of or in relation to any one of Grocon and/or the Fourth to Forty-first Plaintiffs (Companies) into the Grocon administration account titled “Craig Shepard & Mark Korda as Administrators of Grocon Pty Ltd (Administrators Appointed)” (Treasury Administration Account) within 5 business days after receipt;
(b)subject to paragraphs 3 and 4, section 65-15(1) of the IPSC is to operate in relation to Grocon such that the Grocon Administrators must not pay any money into the Treasury Administration Account if the moneys are not received by the Grocon Administrators:
i.on behalf of or in relation to one or more of Grocon or the Companies; or
ii.on behalf of or in relation to one or more of the companies in the Grocon Group (as defined in paragraph 9 of the affidavit of Craig Peter Shepard sworn 7 December 2020), in which case paragraph 2(c)(iii) applies.

(c)section 65-25 of the IPSC is to operate in relation to Grocon such that the Grocon Administrators must not pay any money out of the Treasury Administration Account otherwise than:
i.for the purposes related to the external administration of any one or more of Grocon and/or the Companies to be paid from the Treasury Administration Account;
ii.to pay money into the Grocon administration account titled “Craig Shepard & Mark Korda as Administrators of Grocon Pty Ltd (Administrators Appointed) – Employees & Ongoing Supplier Agreements” (Administration Pass Through Account No 1) for the purpose of the Pass Through Agreement, as described in the affidavit of Craig Peter Shepard sworn 7 December 2020 (Pass Through Agreement);

iii.to transfer funds received into the Treasury Administration Account, on behalf of or in relation to one or more of the companies in the Grocon Group, to an account for the benefit of the company in the Grocon Group entitled to those funds;
iv.in accordance with the Act; or
v.in accordance with any further direction of the Court.

3.Pursuant to sections 65-45(1), and further or alternatively 90-15 of the IPSC, that the Grocon Administrators are justified in paying money received by them pursuant to the Pass Through Agreement into the Administration Pass Through Account No 1.
4.Pursuant to sections 65-45(1), and further or alternatively 90-15 of the IPSC that:
(a)section 65-15(1) of the IPSC is to operate such that the Grocon Administrators must not pay any money into the Administration Pass Through Account No 1 if the moneys are not received by them pursuant to the Pass Through Agreement; and
(b)section 65-25(1) of the IPSC is to operate such that the Grocon Administrators must not pay any money out of the Administration Pass Through Account No 1 otherwise than in accordance with:
i.the Pass Through Agreement; or
ii.any further direction of the Court.

5.The Second Plaintiffs (Companies’ Administrators) are not required to maintain a separate administration account in relation to each of the Companies (as otherwise required by the operation of Division 65 of the IPSC).
6.Pursuant to section 90-15 of the IPSC that section 75-35(2)(b) of the Insolvency Practice Rules (Corporations) (Cth) (IPR) is to operate in relation to notices of meeting provided for the purpose of section 75-35 of the IPR in respect of the creditors’ meetings convened for the Companies as if the words “second-last business day” and “the day” were replaced and read as “24 hours” and “time at” respectively.
7.Pursuant to section 90-15 of the IPSC that to the extent not permitted specifically by the IPR and for the purpose of sections 5(3)(a) of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) (Coronavirus Determination), the creditors of Grocon and the Companies who wish to participate or vote on resolutions at the meeting of creditors convened pursuant to section 439A of the Act (Second Creditors’ Meetings), must lodge with the Grocon Administrators and the Companies’ Administrators (collectively the Administrators) by email to [email protected] by no later than 24 hours before the commencement time of the Second Meetings:
(a)a formal proof of debt or claim in accordance with section 75-85(3)(b)(ii) of the IPR; and
(b)a notice in accordance with section 75-35(2)(b) of the IPR (as amended by paragraph 6 of these orders); and
(c)if the case requires it, an instrument of appointment of proxy pursuant to section 75-150(3) of the IPR or an instrument evidencing the appointment of a power of attorney pursuant to section 75-155(2) of the IPR
(collectively the Meeting Participation Documents).

8.Pursuant to section 90-15 of the IPSC that the IPR is to operate in relation to Grocon and the Companies such that the requirements of a person to lodge with the Administrators any of the Meeting Participation Documents in order to establish an entitlement to vote at the Second Creditors’ Meetings may only be satisfied by lodging the Meeting Participation Documents as prescribed in paragraph 7.
9.Pursuant to section 90-15 of the IPSC that the Administrators are justified in their reasonable discretion permitting only those persons who have lodged with the Administrators the Meeting Participation Documents in the manner prescribed in paragraph 7, to participate in the Second Creditors’ Meetings and vote by proxy or attorney at the Second Creditors’ Meetings.
10.Pursuant to section 90-15 of the IPSC, and further or alternatively section 447A(1) of the Act, that section 70-1(2)(a) of the IPR is to operate in relation to Grocon and each of the Companies as if the words “5 business days” after receiving the request be read as “10 business days after receiving the request.”

AND THE COURT ORDERS THAT:
11.The Plaintiffs have leave, pursuant to r 36.01 of the Supreme Court (General Civil Procedure) Rules 2015, to file and serve an amended originating process in the form attached to the email sent by the Plaintiffs’ solicitors to the Honourable Associate Justice Gardiner's chambers on 9 December 2020.
12.The Administrators take all reasonable steps to cause notice of the Court’s orders to be published on the KordaMentha website, set up for the purposes of the administration of the Grocon Group, within one (1) business day after the making of these orders.
13.Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify these orders on 3 business days’ notice to the Plaintiffs and to the Registry of the Commercial Court.
14.Liberty be granted to the Plaintiffs to apply on 1 business days’ written notice to the Court in relation to any variation or discharge of the Court’s orders.
15.The costs of this application be costs in the administration of Grocon and each of the Companies, jointly and severally.
16.The further hearing of the originating process, as amended in accordance with paragraph 11, is adjourned to 4.30pm on 14 December 2020, to be heard virtually.

SCHEDULE OF PARTIES

CRAIG PETER SHEPARD and MARK ANTHONY KORDA in their capacity as Joint and Several Voluntary Administrators of the Third Plaintiff	First plaintiffs
CRAIG SHEPARD and ANDREW KNIGHT in their capacity as joint and several voluntary administrators of the Fourth to Forty-first Plaintiffs	Second plaintiffs
GROCON PTY LTD (ACN 006 772 238) (Administrators Appointed)	Third plaintiff
GROCON BUILDERS (VIC) PTY LTD (ACN 133 299 162) (Administrators Appointed)	Fourth plaintiff
GROCON SERVICES PTY LTD (ACN 143 758 605) (Administrators Appointed)	Fifth plaintiff
61 LT COLLINS STREET PTY LTD (ACN 079 970 479) (Administrators Appointed)	Sixth plaintiff
BELGRAVE STREET DEVELOPMENTS PTY LTD (ACN 606 647 072) (Administrators Appointed)	Seventh plaintiff
GROCON (FAIRFIELD) PTY LTD (ACN 137 871 231) (Administrators Appointed)	Eight plaintiff
GROCON (PARKLANDS) HOLDINGS PTY LTD (ACN 148 964 836) (Administrators Appointed)	Ninth plaintiff
QV NO 1 PTY LTD (ACN 092 065 248) (Administrators Appointed)	Tenth plaintiff
QV NO 2 PTY LTD (ACN 092 065 257) (Administrators Appointed)	Eleventh plaintiff
QV NO 3 PTY LTD (ACN 092 065 284) (Administrators Appointed)	Twelfth plaintiff
QV NO 4 PTY LTD (ACN 092 065 319) (Administrators Appointed)	Thirteenth plaintiff
QV NO 5 PTY LTD (ACN 092 065 337) (Administrators Appointed)	Fourteenth plaintiff
GROCON OPERATIONS (ACN 113 588 702) (Administrators Appointed)	Fifteenth plaintiff
GROCON DEVELOPMENTS NSW PTY LTD (ACN 115 182 682) (Administrators Appointed)	Sixteenth plaintiff
GROCON (VICTORIA STREET) PTY LTD (ACN 120 542 707) (Administrators Appointed)	Seventeenth plaintiff
GROCON DEVELOPMENTS (BOX HILL) PTY LTD (ACN 152 818 221) (Administrators Appointed)	Eighteenth plaintiff
GROCON (480 QUEEN STREET) PTY LTD (ACN 149 586 603) (Administrators Appointed)	Nineteenth plaintiff
GROCON (SCOTS CHURCH) PTY LTD (ACN 143 388 087) (Administrators Appointed)	Twentieth plaintiff
QV PTY LTD (ACN 092 065 195) (Administrators Appointed)	Twenty-first plaintiff
GROCON (BOUVERIE STREET) PTY LTD (ACN 079 970 353) (Administrators Appointed)	Twenty-second plaintiff
GROCON (PITT STREET) DEVELOPMENTS PTY LTD (ACN 626 888 588) (Administrators Appointed)	Twenty-third plaintiff
GROCON DEVELOPMENTS (55 ELIZABETH ST) PTY LTD (ACN 149 678 482) (Administrators Appointed)	Twenty-fourth plaintiff
GROCON CONSTRUCTORS (SA) PTY LTD (ACN 137 871 213) (Administrators Appointed)	Twenty-fifth plaintiff
GROCON (BAROONA RD) HOLDINGS PTY LTD (ACN 617 571 007) (Administrators Appointed)	Twenty-sixth plaintiff
GROCON (BOUVERIE ST) HOLDINGS PTY LTD (ACN 092 065 355) (Administrators Appointed)	Twenty-seventh plaintiff
GROCON (CB) DEVELOPMENT MANAGER PTY LTD (ACN 615 590 684) (Administrators Appointed)	Twenty-eighth plaintiff
GROCON (SPRING STREET) PTY LTD (ACN 151 382 722) (Administrators Appointed)	Twenty-ninth plaintiff
GROCON QV INVESTMENTS PTY LTD (ACN 100 045 574) (Administrators Appointed)	Thirtieth plaintiff
QV PROPERTY MANAGEMENT PTY LTD (ACN 104 652 913) (Administrators Appointed)	Thirty-first plaintiff
GROCON (PIXEL) PTY LTD (ACN 144 954 487) (Administrators Appointed)	Thirty-second plaintiff
GROCON (SWANSTON SQUARE) HOLDINGS PTY LTD (ACN 158 618 841) (Administrators Appointed)	Thirty-third plaintiff
GROCON (CARLTON BREWERY) DEVELOPMENTS PTY LTD (ACN 158 619 053) (Administrators Appointed)	Thirty-fourth plaintiff
GROCON (SQ STAGE 2) DEVELOPMENTS PTY LTD (ACN 124 614 704) (Administrators Appointed)	Thirty-fifth plaintiff
GROCON (VICTORIA STREET) DEVELOPMENTS PTY LTD (ACN 126 741 802) (Administrators Appointed)	Thirty-sixth plaintiff
GROCON (FCAD) PTY LTD (ACN 143 621 514) (Administrators Appointed)	Thirty-seventh plaintiff
GROCON (CASTLEREAGH ST, NSW) PTY LTD (ACN 094 111 510) (Administrators Appointed)	Thirty-eighth plaintiff
GROCON DEVELOPMENT HOLDINGS PTY LTD (ACN 133 519 114) (Administrators Appointed)	Thirty-ninth plaintiff
GROCON (BELGRAVE ST) DEVELOPER PTY LTD (ACN 617 489 639) (Administrators Appointed)	Fortieth plaintiff
GROCON (FAIRFIELD) DEVELOPER PTY LTD (ACN 145 290 795) (Administrators Appointed)	Forty-first plaintiff

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Citations

Re Grocon Pty Ltd (admins apptd) (No 1) [2020] VSC 833

Most Recent Citation

Re Grocon Pty Ltd (admins apptd) (No 2) [2020] VSC 859

Cases Citing This Decision

7

Re Aerison Group Ltd (Administrators Appointed) [2023] WASC 274

Kelly (administrator), in the matter of Lutum Holdings Pty Ltd (administrators appointed) [2024] FCA 554

Colbran, in the matter of PBS Building Pty Limited (Administrators Appointed) [2023] FCA 276

Cases Cited

7

Statutory Material Cited

0

Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 6) [2020] FCA 1172

Hutson (liquidator), in the matter of WDS Limited (in liq) (Receivers and Managers Appointed) [2020] FCA 299

Re Octaviar Ltd (in liq) [2019] QSC 235

[2020] VSC 833

10 December 2020