Re Grocon Pty Ltd (admins apptd) (No 2)
[2020] VSC 859
•14 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL 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: | 14 December 2020 |
DATE OF JUDGMENT: | 14 December 2020 |
DATE OF REASONS: | 18 December 2020 |
CASE MAY BE CITED AS: | Re Grocon Pty Ltd (admins apptd) (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 859 |
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CORPORATIONS – Application by administrators appointed to large corporate group for extension of convening period for concurrent second meetings of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth) – Thirty eight companies in administration – Time needed for thorough assessment of proposal for deed of company arrangement – Complex corporate group structure and intercompany loans – Additional time needed to continue discussions with proponent for deed of company arrangement – Extension of three and a half months granted – Re Riviera Group Limited (2009) 72 ACSR 352.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P Fary SC | Norton Rose Fulbright |
HIS HONOUR:
On 27 November 2020, 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 the same day, the second plaintiffs, Mr Shepard and Andrew Knight (‘Companies’ Administrators’) were appointed as joint and several administrators of the fourth to forty-first plaintiffs (‘Companies’). I shall refer to the Grocon Administrators and Company Administrators collectively as ‘the Administrators’.
By an amended originating process filed 14 December 2020, the Administrators and the third to forty-first plaintiffs (‘Grocon Companies’) applied for an order under s 439A(6) of the Act for an extension of the period within which the Administrators are required to convene the second meeting of creditors of the Grocon Companies to 31 March 2021. In addition, the plaintiffs applied for an order pursuant to s 447A of the Act so that the respective meetings of creditors of the Grocon Companies to be convened under s 439A of the Act may be convened at any time during the convening period as extended by the previous order, or within five business days thereafter. As discussed below, this type of order is referred to as a Daisytek order, one of the first authorities in which such an order was made.[1] The Administrators propose to conduct the meetings of each of the Grocon Companies concurrently.
[1]Re Daisytek Pty Ltd (admin apptd) (2003) 45 ACSR 446 (‘Daisytek’).
On 14 December 2020, I made orders and gave directions extending the convening periods of the second meetings of creditors, together with ancillary orders, and I indicated that I would provide reasons at a later time. These are those reasons.
In addition, the plaintiffs sought ancillary orders in respect of provision of notice of the Court’s orders made in the application, together with provision of liberty to apply, and costs.
Unless extended, the convening period for the second meeting of creditors for each of the companies would have ended on 29 December 2020 and have required the second meeting to be held within five business days before or after the end of the convening period.[2] The second meeting was scheduled to be held by 23 December 2020 but by reason of developments in the administrations, the Administrators decided to make this application. The application had some urgency as s 75‑225(2)(a) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (‘IPR’) required notice of the second meeting to be given by 16 December 2020 if the second meetings of creditors were to proceed on 23 December 2020.
[2]Section 439A(5) of the Act.
In their application, the Administrators proposed that there be an extension of the convening period for the second meetings of creditors for approximately three and a half months, to 31 March 2021.
On 10 December 2020, I made orders and gave directions in relation to other aspects of the Grocon Companies’ administrations, including modification of the provisions applicable in respect to maintenance of separate bank accounts for each of the companies, and for the manner in which the meetings of the creditors of the companies were to be conducted.[3] My reasons for making those orders describe the general background to the administrations of the Grocon Companies and the terms and definitions used in those reasons have been adopted here.
[3]See Re Grocon Pty Ltd (admins apptd) (No 1) [2020] VSC 833 (‘Grocon No 1’).
In support of this application, the plaintiffs relied on affidavits of one of the Administrators, Craig Shepard, sworn 7 December 2020 (‘First Shepard affidavit’), 10 December 2020 (‘Second Shepard affidavit’), and 11 December 2020 (‘Third Shepard affidavit’) and the affidavit of Stephanie Trajcevska sworn 11 December 2020 (which relates to service of the amended process on the Australian Securities and Investments Commission (‘ASIC’)).
Since Mr Shepard swore the First Shepard affidavit and the Second Shepard affidavit, further information has come to light about the operation of the companies. These matters are the subject of the Third Shepard affidavit. Mr Shepard deposes that some employees have been seconded to related entities of the Grocon Group that are outside the administration process, with the employment of the remainder having been terminated. Grocon and Grocon Vic continue to pay wages for seconded employees under the Pass Through Agreement as described and referred to in Grocon No 1. Some of the Grocon Companies own real property consisting of apartments, retail, car park and storage cages, and are party to lease agreements in respect of leased property and vehicles. Of the Grocon Companies, 25 are inactive or dormant and do not hold assets, but may still be the subject of obligations pending further investigations by the Administrators. It appears these companies were involved in completed projects and developments.
The director of the Grocon Companies, Mr Grollo, has provided the Administrators with ROCAPs for each of the companies. The ROCAPs have been provided in a form which does not break down assets or liabilities into categories such as trade, unsecured and secured creditors, and they do not provide total figures for each category of creditors.
Mr Shepard, by reference to the ROCAPs, makes the following observations by way of summary:
(a) the only Grocon Companies recorded as having cash are Grocon (which holds the Treasury Administration Account defined and referred to in Grocon No 1), and Belgrave Street Developments Pty Ltd and Grocon (Fairfield) Pty Ltd (which have cash at bank of under $1,000);
(b) except for Belgrave Street Developments Pty Ltd, and Grocon (Fairfield) Pty Ltd, which hold real property, the most significant assets of each of the Grocon companies are intercompany loans;
(c) Grocon is said to have related party debtors in the sum of approximately $30.7 million;
(d) several of the companies, QV No 1 Pty Ltd, QV No 2 Pty Ltd, QV No 3 Pty Ltd, QV No 4 Pty Ltd, and QV No 5 Pty Ltd are listed as holding interests in storage cages which Mr Shepard has identified are registered on title;
(e) in 34 of the Grocon Companies’ ROCAPs, there are significant amounts recorded for creditors identified as ‘related parties’. The majority of the total of ‘related parties’ liability for each entity range between approximately $1 million to $40 million. The ROCAP for Grocon records intercompany loans as a liability in excess of $500 million;
(f) the ATO is listed as a common creditor across all of the Grocon Companies for approximately $14.2 million for GST liability;
(g) the ROCAPs for Belgrave Street Developments Pty Ltd and Grocon (Fairfield) Pty Ltd record liability to the Bank of Queensland as a secured creditor with each having liabilities in excess of $1 million.
In his third affidavit, Mr Shepard outlines further information which has been revealed in respect of registrations on the Personal Properties Security Register (‘PPSR’).[4] A number of the PPSR registrations originally deposed to in the First Shepard affidavit have been discharged. The Administrators’ staff have identified 8 registrations against 14 of the Grocon Companies.
[4]Third Shepard affidavit, [17]–[25].
Mr Shepard deposes that his understanding is that at the date of the appointment of the Administrators the majority of the Grocon Companies had no assets. However, the Administrators have not finalised their investigations in this regard and are so not in a position to confirm the assets of each of the Grocon Companies due to, among other things, the intercompany loans that exist between the Grocon Companies.[5] The assets the Administrators are aware of are as follows:
[5]Third Shepard affidavit, [26].
(a) two real properties being owned by Grocon Fairfield Pty Ltd, valued at approximately $1.65 million;
(b) an apartment being owned by Belgrave Street Developments, valued at approximately $2.6 million;
(c) QV No 1, QV No 2 ATF Grocon Land Owning Trust 2, QV No 3 ATF Grocon Land Owning Trust 3, QV No 4 ATF Grocon Land Owning Trust 4 and QV No 5 ATF Grocon Land Owning Trust 5 each having an interest in 35 storage cages;
(d) QV No 1 holding an interest in a car park and a further area of property located on a rooftop;
(e) further property assets from title searches, which revealed a common property stairwell in Grocon (Carlton Brewery) Developments Pty Ltd and storage cages in Grocon (Victoria Street) Developments Pty Ltd that were not included in the ROCAPS. The Administrators are making further enquiries in relation to these potential assets;
(f) Computer and office furniture, fittings and equipment being owned by various Grocon Companies, with miscellaneous assets worth up to $70,000; and
(g) cash at bank being held in the Treasury Administration Account of Grocon which at the date of this affidavit is in the sum of approximately $687,000.
As to the position of creditors, Mr Shepard provides further information as a result of ongoing investigations. In particular, the Bank of Queensland Limited holds registered property mortgages over several properties in New South Wales and Victoria. Mr Shepard revised his position in respect of the number of known third party creditors. He states that there are in fact approximately 72 third party creditors, and the value of the claims total approximately $10 million. Included amongst this figure is a claim by the Australian Taxation Office (‘ATO’) of approximately $3.1 million against Grocon and Grocon Vic which are the employing entities of the Grocon Companies. In addition, the ATO has a claim with respect to outstanding GST across all of the Grocon Companies for approximately $14 million.
A number of the Grocon companies traded from leased premises in Queensland and Victoria. Grocon leases Level 1 at 577 Bourke Street, Melbourne, from AMP Capital Funds Management Limited, under a lease due to expire in March 2026. The ongoing rental payments for that lease are being, and will continue to be paid under the terms of the pass‑through agreement referred to in my earlier reasons. Another of the companies, 61 Lt Collins Street Pty Ltd, leases the property at 59 Little Collins Street from Black Swan Properties Pty Ltd (‘Black Swan Properties’). 61 Lt Collins Street Pty Ltd sub‑leases the property to a number of sub-tenants. 61 Lt Collins Street Pty Ltd owes Black Swan Properties approximately $1.5 million or the equivalent of one year’s rent. Black Swan Properties has issued a notice of default, advising of its intention to terminate the lease if the default was not remedied. 61 Lt Collins Street is in the process of surrendering its rights under the lease and assigning its rights under the sub‑leases to Black Swan Properties. In Brisbane, Grocon Services leases premises and the costs of this are presently being met under the Pass Through Agreement referred to in Grocon No 1.
In addition to the leases of real property, Grocon leases motor vehicles from Leaseplan for the benefit of certain employees and these are being paid for pursuant to the terms of the Pass Through Agreement.
Work undertaken since appointment
Mr Shepard states that the Administrators and their staff have undertaken the following tasks since the Administrators’ appointment:
(a) considered a summary of all litigation and known disputes involving the Grocon Companies to determine:
(i) if proceedings are stayed by the operation of the Act;
(ii) where there may be value for creditors in the relevant Grocon company defending or pursuing the litigation; and
(iii) at ·a high level where the litigation may give rise to a contingent liability or contingent asset for a Grocon Company;
(b) entered into the Pass Through Agreement to enable some of the critical business operations to continue;
(c) commenced investigations into the affairs of the Grocon Companies;
(d) commenced investigating the history of the Grocon Group and the Grocon Companies and the events that led to the appointment of the Administrators through discussions with management and Mr Grollo; and
(e) commenced reviewing whether transactions are possibly voidable transactions and recoverable;
(f) secured assets by:
(i) confirming insurance arrangements for the assets of some or all of the Grocon Companies;
(ii) frozen all bank accounts in the names of the Grocon Companies;
(iii) cancelled all of the credit cards of the Grocon Companies; and
(iv) commenced securing electronic data, including email, file servers hosted by a third party and some employee devices. The Administrators have also entered into a confidentiality agreement to enable them to access data when material of the Grocon Companies is intermingled with other companies in the Grocon Group or third parties for material not relevant to the administration;
(g) notified secured creditors of the Administrators’ appointment, communicated with secured parties and assessed the information received from other secured parties in respect of their claims;
(h) established an internal PPSR register and issued correspondence to all parties with a security interest registered on the PPSR;
(i) confirmed the status of leased assets with personnel of the Grocon Companies;
(j) commenced a review and sale campaign of the property held by the Grocon Companies and prepared for the sale of the real property assets of Grocon (Fairfield) Pty Ltd and Belgrave Street Developments Pty Ltd;
(k) reviewed the leased property portfolio and lease agreements and considered the approach to dealing with landlords regarding an intention to continue occupying leased premises;
(l) progressed a surrender of the head lease of the premises and assignment of the sub-leased with respect to 61 Lt Collins Street Pty Ltd;
(m) terminated some employees, issued notifications and commenced calculating the amounts owing to employees while entering into the Pass Through Agreement to secure payment of ongoing employee costs for employees of Grocon and Grocon Vic;
(n) engaged with media, including issuing press releases;
(o) in relation to books and records, arranged for copies of electronic records of the Grocon Companies including emails, servers and finance and payroll systems;
(p) in relation to statutory notifications have prepared and lodged appointment documentation, issued circulars to creditors, supplier and employees and managed their enquiries, corresponded with the ATO, state tax authorities and court officers to notify of the Administrators’ appointment, held the First Creditors’ Meeting and the necessary procedures for that meeting including the production of the minutes of meeting;
(q) reviewed and responded to correspondence regarding legal matters and engaged with legal advisors;
(r) prepared court applications regarding the conduct of the administrations;
(s) immediately ceased operations of all Grocon Companies save for the Pass Through Agreement, requested cancellation of supply where necessary and assessed go-forward supplier arrangements
(t) on appointment, closed off financial accounts and obtained balances of debtors, creditors and assets and so on.
Legal principles to be applied
Since the introduction of Part 5.3A of the Act, applications for extensions of convening periods for the second meetings of creditors have been made frequently, particularly in administrations involving large corporate groups whose affairs are complex. In such administrations, the time period prescribed by s 439A(5) will often not be sufficient to enable administrators to perform the tasks required before the second meeting. On occasion, Courts have extended the convening period for up to several months to enable administrators to conduct the necessary enquiries and negotiations.[6]
[6]See the authorities referred to by Nettle and Gordon JJ in Mighty River International Limited v Hughes (2018) 265 CLR 480 (‘Mighty River’): Re Brash Holdings Ltd (Administrators Appointed) (1994) 13 ACSR 793, 794-795; Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409, 431-432 [78]; Re Lift Capital Partners Pty Ltd (Administrators Appointed) [2008] NSWSC 446, [23]-[33]; Re Octaviar Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2008] QSC 272; Re Lehman Bros Australia Ltd [2008] NSWSC 1132, [20]; Re Worrell, Storm Financial Ltd (Receivers and Managers Appointed) (2009) 69 ACSR 584, 594 [43]-[44]; I(2009) 71 ACSR 560, 565-566 [26]-[28], [32]; Re Lombe, Babcock & Brown Ltd (Administrators Appointed) [2009] FCA 349, [30]-[31], [33]; Re Silvia, FEA Plantations Ltd (Administrators Appointed) [2010] FCA 468, [19]-[25]. See also Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352, 355 [13].
In this regard, in Mighty River,[7] Nettle and Gordon JJ (in dissent, but not on the issue under consideration here) observed (citations omitted):
The period fixed by s 439A(5) for the convening of the meeting of the company’s creditors is designedly brief. As the Full Court of the Federal Court of Australia observed in Federal Commissioner of Taxation v Comcorp Australia Ltd, it may be gathered from the terms of the legislation and the words of the Explanatory Memorandum and the Second Reading Speech that the emphasis of Pt 5.3A is on informality and flexibility and on speed of action. The procedure is not designed to allow for the kind of indefinite administrations which can occur under the United States’ Ch 11 approach to corporate insolvency.
It is, however, recognised that it is not always practicable for an administrator to gather sufficient information within the convening period to form the requisite opinions under s 438A and communicate them in the notice given to creditors in accordance with ss 439A(3) and 439A(4). Accordingly, the courts are given specific power under s 439A(6), and also general power of varied application under s 447A(1), to extend the convening period. Consistent with the legislative intention of Pt 5.3A that the administration of a company be brought to an end within a short period of time, there is a presumptive expectation that extensions will be brief. But over time the courts have come to recognise that significant extra time may be required, and should be allowed, in complex cases. Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. As Barrett J rightly observed in Diamond Press Australia Pty Ltd:
The function of the Court on an application [for an extension under s 439A(6)] is ... to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.
[7]Mighty River (n 6) 511-512.
One authority which is often referred to in applications to extend the period in which meetings of creditors are to be convened, and which provides a convenient collection of the principles and authorities, is the decision of Austin J in Re Riviera Group Pty Ltd.[8] Riviera Group was referred to with approval in Mighty River[9]. After considering the authorities outlining the principles, Austin J recited a number of circumstances in which extensions of the convening period have been granted.[10]
[8](2009) 72 ACSR 352 (‘Riviera Group’).
[9]Mighty River (n 6) 511 fn 51.
[10]Riviera Group (n 8) 355-357.
The power given to the court to grant an extension should be exercised with the overriding objectives of Part 5.3A of the Act (as stated in s 435A) firmly in view; that is, to maximise the chances of the company continuing existence, or alternatively, terminating its existence in the most appropriate way.
In Daisytek,[11] in addition to making orders extending the convening period under s 439A, Lindgren J made orders under s 447A of the Act providing that the second creditors’ meeting may be held at any time within the extended convening period or the period of five business days thereafter, notwithstanding the effect of s 439A(2). Daisytek orders are now considered to be almost routine and provide administrators with flexibility to enable them to convene the meetings earlier if circumstances indicate it is appropriate.
[11](n 1).
In Riviera Group Austin J grouped the reasons given for an extension into the following categories:
(a) the size and scope of the business;
(b) substantial offshore activities;
(c) large number of employees with complex entitlements;
(d) complex corporate group structure and intercompany loans;
(e) complex transactions entered into by the company;
(f) complex prospects of recovery proceedings;
(g) lack of access to corporate financial records;
(h) the time needed to execute an orderly process for disposal of assets;
(i) the time needed for a thorough assessment of a proposal for a deed of company arrangement;
(j) whether the extension will allow the sale of the business as a going concern;
(k) generally, whether additional time is likely to enhance the return for unsecured creditors.[12]
[12]Riviera Group (n 8) 355.
Austin J observed that the authorities indicate that the court tends to exercise its discretion to extend the convening period where there is a substantial issue in relation to any one of those categories.[13] The consent of the creditors to an extension is a relevant factor in the court's discretion. The Administrators’ own opinion as to the need for an extension will also be given weight.[14] The interests of those whose claims are affected by the statutory moratorium are relevant, though not decisive. In Virgin (No 2)[15] Middleton J observed (citations omitted):
The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors…
[13]Ibid.
[14]See Re Virgin Australia Holdings Ltd (No 2) (2020) 144 ACSR 347, 371 [68] (‘Virgin No 2’) and the cases there cited.
[15]Ibid 370.
Mr Fary, senior counsel for the plaintiffs, pointed to certain of those categories mentioned by Austin J which are particularly relevant in the context of this application. They are as follows.
The size and scope of the business
The size and scope of the business. As my reasons in Grocon No 1 reveal, the Grocon Companies form part of a substantial enterprise comprising 96 companies across Australia, the United States and the Middle East (‘Grocon Group’). Thirty-nine of those 96 companies are under administration.
Time is required for a thorough assessment of a proposal for a deed of company arrangement
Mr Shepard’s evidence that there are early indications that the Administrators will receive a proposal for a deed of company arrangement (‘DOCA’) on a pooled basis for all of the Grocon Companies and this will require time for a thorough assessment of the proposal. The position in this regard is complicated by the intervention of the Christmas and New Year periods. Mr Fary submitted that the extension of the convening period will allow the Administrators, among other things, to liaise further with the director of the Grocon Companies, Daniel Grollo, review the proposal for any deed of company arrangement and consider whether it is the interests of creditors to support the proposal. This will involve an analysis of the comparison of the terms of the DOCA to a liquidation.
In this regard, it was contended that the Administrators require more time to clarify the benefits of any DOCA proposal for the benefit of creditors generally. The Administrators submitted that if the extension was not granted, there is a concern that they would not be in a position, prior to the second meeting, to provide adequate information to creditors in relation to the proposal. In particular, the Administrators pointed to the necessity of creditors needing to have a proper explanation as to the likely liquidation return compared with the return under a DOCA proposal.
The complexity of the corporate group structure and intercompany loans.
Mr Fary pointed to the evidence of Mr Shepard which demonstrated that the administrations of the Grocon Companies have a complexity by reason of the size of the Grocon Group as a whole, and the internal operational arrangements between the entities of which it is comprised. My earlier reasons summarise the position in that regard. A central feature of this structure is the treasury function carried on by the penultimate holding company, Grocon, on behalf of the Grocon Group generally.[16] This treasury function operated in such a way such that journal entries were made in the accounts of Grocon and the relevant Grocon Group entity in respect of a particular transaction. Those journal entries record the intercompany loans in the books and records of the Grocon Group (including the companies and related companies of Grocon that are not in administration). The Report on Company Activities and Property (‘ROCAP’) for Grocon records a liability for intercompany loans in excess of $500 million and indicates that Grocon has related party debtors in the sum of approximately $30.7 million. The ROCAPs for the Companies reveal that 34 of the Companies are recorded as having ‘related party’ creditors, with liabilities ranging between $1 million to $40 million. In the First Shepard affidavit, Mr Shepard deposes that there are approximately 79 intercompany loan claims against the Companies by Grocon Group companies which are not in administration.
[16]Grocon Group Holdings Pty Ltd is the ultimate holding company.
Additional time being likely to enhance the return for unsecured creditors
As has been mentioned, it is said there is a prospect that a DOCA on a pooled basis will be proposed by Mr Grollo prior to the second meeting of creditors. It was submitted on behalf of the Administrators that such a proposal is likely to provide potential benefits to creditors by enhancing the return to the general body of unsecured creditors. It was also said that a further benefit of such a proposal would be a continuity of employment for the remaining employees of two of the companies, Grocon and Grocon Builders (Vic) Pty Ltd (‘Grocon Vic’). Those employees are anticipated to be offered employment with a new entity or, alternatively, to have their entitlements paid in full. In this regard, it is said that the additional time will allow the Administrators to continue discussions with Mr Grollo in relation to a DOCA proposal, but this could not be completed in the present convening period given the intervening Christmas period.
Time to enable compilation of the report required by s 75-225 of the IPR for consideration of creditors
Mr Shepard deposes in the Third Shepard affidavit that the Administrators do not consider that they are presently in a position to prepare a considered and informative administrators’ report which accurately estimates the return to creditors in the liquidation scenario. In his third affidavit, Mr Shepard has described the various tasks required to be undertaken in order to prepare a report for consideration at the second meeting, including, amongst other things, liaising with Mr Grollo in relation to a DOCA proposal, reviewing such proposal and documenting the Administrators’ opinion in the administrators’ report, continuing investigations and assessing claims of related party creditors. It is said that an extension is appropriate where necessary to enable administrators to arrive at the opinion and provide the report required by the Act. Mr Shepard states that if the convening period is not extended, the administrators may recommend to the creditors the meeting be adjourned, resulting in significant additional costs being incurred.
Consideration
As I indicated on the occasion of making the orders on the return of this application, I consider the convening period for the second meeting of creditors should be extended. I am of the opinion that there are a number of substantial grounds to support the extension sought.
First, the size and scope of the business carried on by the Grocon Group, and more particularly the Grocon Companies which are under administration, is very substantial and complex. The description by Mr Shepard of the tasks undertaken to date by the Administrators and their staff reveals the complexity of the administration. The ROCAP for Grocon records a liability for intercompany loans in excess of $500 million and that document also indicates there are related party debtors of approximately $30 million.
Secondly, the extent of intercompany loans is significant.
Thirdly, it seems clear that an extension is justified alone for the purpose of negotiating the proposal for a DOCA and the intervention of the Christmas period will result in a considerable interruption to that process. The extension of the convening period will enable the Administrators to negotiate with the director of the Grocon Companies, analyse any proposal which is put and consider whether it is in the interest of creditors to support the DOCA proposal and compare it to the scenario of a liquidation of the Grocon Companies. The affairs of the Grocon Companies are obviously quite elaborate and warrant a considerably longer period than that fixed by s 439A of the Act for the Administrators to carry out their responsibilities and obtain the best result for the creditors, which is the overarching and dominant consideration.
Fourthly, the Administrators, who are experienced insolvency practitioners, are of the opinion that it is in the best interests of creditors that the convening period be extended for the period sought.
Fifthly, if the convening period is not extended, the Administrators will have needed to convene the meeting and adjourn it, at significant additional cost, for no good reason or purpose.
Sixthly, all creditors present during the first meetings of creditors on 9 December 2020 were informed by the Administrators of the intention to seek an extension of the convening period. At that point it was contemplated that the extension sought would be 120 days, rather than the shorter period which has been ordered. None of the creditors present at the first meeting opposed such a course being taken. ASIC was served with a draft of the amended originating process and the Second Shepard affidavit and in response, ASIC indicated that it did not intend to intervene.[17]
[17]Affidavit of Stephanie Trajcevska sworn 11 December 2020.
Seventhly, significant creditors, including the Australian Taxation Office and AIG, who were both represented at the first meeting. Mr Shepard subsequently telephoned them to explain the purpose of the application. In response, the ATO stated that it was supportive of the application and AIG indicated that it did not oppose it. Various landlords and the lessor of the motor vehicle leases were notified of the application by email and requested to notify the Administrators if they wished to take a position in regard to the application. At the date of the hearing of the application there was no response in that regard.
Eighthly, I am satisfied that the Administrators have taken into account the potential impact on stakeholders consequent to the grant of the extension. The position as to person effected by the orders is protected by the usual provision of liberty being granted to any person who can demonstrate sufficient interest to discharge or modify the orders for an extension being able to approach the Court on the giving of three business days’ written notice to the Administrators and the Court. I also note that the extension sought is a relatively modest one compared to those ordered in other administrations which have been the subject of these types of applications.[18]
[18]See the authorities referred to by Middleton J in Virgin No 2 (n 14) 372 [76].
I also consider that it is appropriate to make a Daisytek order enabling the Administrators to convene the period in accordance with the order I made in paragraph 2 of my orders. For completeness, the orders I made on 14 December 2020 were as follows:
THE COURT DIRECTS THAT:
1.All persons shall appear, give evidence and make submissions in this proceeding this day by video link.
2.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.
AND THE COURT ORDERS THAT
1.Pursuant to section 436A(6) of the Corporations Act 2001 (Cth) (the Act), the period within which the First and Second Plaintiffs (Administrators) are required to convene the second meeting of creditors of Grocon Pty Ltd (Administrators Appointed) (ACN 006 772 238) (Grocon) and the Fourth to Forty-first Plaintiffs (Companies) under section 439A(1) of the Act be extended to 31 March 2021.
2.Pursuant to section 447A of the Act, section 439A of the Act is to operate in relation to Grocon and each of the Companies so that the respective meetings of creditors of Grocon and each of the Companies to be convened under section 439A of the Act may be convened at any time during the convening period as extended by paragraph 1, or within 5 business days thereafter.
3.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.
4.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.
5.The costs of this application be costs in the administration of Grocon and each of the Companies, jointly and severally.
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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