Re Rhodes and Beckett Pty Ltd
[2017] VSC 170
•5 April 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 00713
IN THE MATTER of Rhodes & Beckett Pty Ltd (ACN 118 576 364) (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed)
| BRUNO ANTONY ROBERT SECATORE (In his capacity as Joint and Several Administrator of Rhodes & Beckett Pty Ltd ACN 118 576 364 (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed) and Others (according to the attached schedule) | Plaintiffs |
---
JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1, 3 March 2017 |
DATE OF JUDGMENT: | 5 April 2017 |
CASE MAY BE CITED AS: | Re Rhodes & Beckett Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 170 |
---
CORPORATIONS – External administration under Part 5.3A of the Corporations Act 2001 (Cth) ss 439A(6) and 447A – Application for extensions of convening period to enable sales of businesses as going concerns and orderly process of sale of assets – Application granted.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Galvin QC | Hall & Wilcox |
HIS HONOUR:
Introduction
The plaintiffs (‘the administrators’) make application under s 439A(6) of the Corporations Act 2001 (Cth) (‘the Act’) for orders extending the period within which they must convene the second meeting of creditors of Rhodes & Beckett Pty Ltd (‘R & B’) and Herringbone Pty Ltd (‘HB’) (collectively ‘the companies’) to 6 July 2017. The administrators also seek certain ancillary orders pursuant to s 447A of the Act to enable the meetings to be held at any time during or within five business days after the end of the convening period.
The administrators were appointed as joint and several administrators of R & B and HB on 6 February 2017 pursuant to s 436C of the Act. The convening periods will expire unless extended on Monday, 6 March 2017. The administrators rely on an affidavit of the second plaintiff, Luke Targett, sworn 28 February 2017.
On 1 March 2017, I made orders extending the convening periods to the date sought. These are my reasons in respect of my orders.
On 3 March 2017, senior counsel for the administrators, Mr Galvin, requested that the matter be mentioned to correct certain inaccuracies in his submissions of 1 March 2017. I do not consider that the matters raised by Mr Galvin, which related to whether any lessors of property occupied by the companies had expressed an attitude to this application, would have affected the outcome of the application and the orders that I made on 1 March 2017. Mr Galvin had indicated at the hearing on 1 March 2017 that the lessors had not expressed any attitude to the application, whereas subsequent to the hearing, it emerged that correspondence had been received but not noticed by the relevant persons at the administrators’ office and that of their solicitors, that two such lessors had taken a position in regard to their respective tenancies. To my mind, any concern in this regard was allayed by the fact that subsequently the administrators have reached agreement with the two lessors concerned in regard to the continued occupation of the subject premises. These matters are the subject of a further affidavit of Mr Targett sworn 23 March 2017, and of Adrian Lasky, the administrators’ solicitor, sworn 6 March 2017.
Although Mr Galvin indicated that the administrators intend to conduct the meetings concurrently, there are minor differences in the affairs of the companies, and I shall first detail each company’s situation individually.
R & B
The current shareholders of R & B are:
(a) van Laack Australia Holdings Pty Ltd (‘VLAH’) which owns 80 per cent of the issued shares; and
(b) Balnaring Holdings Pty Ltd, which holds 20 per cent of the issued shares.
The current directors of R & B are Christian-Albrecht Edler von Daniels and Sebastian Potyka. R & B carries on business as the retailer of premium men’s and women’s apparel and accessories in five states and online, trading under the name ‘Rhodes & Beckett’ (‘R & B business’).
R & B has been operating the R & B business since its incorporation on 28 February 2006. The sole supplier of stock to the R & B business is one of its two secured creditors, van Laack GmbH (‘VLGmbH’), a corporation registered in the Federal Republic of Germany. VLGmbH is the holding company of VLAH. It consents to the extension of the convening period sought by the administrators, as does the other secured creditor, van Laack Singapore Pte Ltd (‘VLS’).
R & B operates the R & B business from 12 stand-alone stores, eight Myer concession stores and an online store. It occupies a distribution centre in Port Melbourne which it shares with HB and had a total of 74 employees. On the date that the administrators were appointed, R & B had cash at bank of $164,601.81.
Since the appointment of the administrators, the administrators have continued to operate the R & B business with a view to offering the business for sale as a going concern and maximising the return to creditors. Following a review of the R & B business, the administrators have closed four stand‑alone retail stores at Macquarie Place and Chatswood Chase in Sydney, at Edwards Street in Brisbane and at Brookfield Place in Perth (‘the R & B closed stores’). They have also terminated the employment of five employees (‘the R & B terminated employees’).
As of 28 February 2017, R & B operated the R & B business from eight stand‑alone retail stores, eight Myer concession stores and one online store (‘the remaining R & B stores’). It continues to occupy the distribution centre in Port Melbourne and now employs 69 employees (‘the remaining R & B employees’).
The administrators have continued to trade the R & B business as they believe that that course of action will maximise the chances of procuring the sale of the R & B business as a going concern which will in turn increase the likelihood that the remaining R & B employees will retain their employment and will maximise the return to creditors of R & B. The administrators have sought the cooperation of employees, landlords, Myer (which is the licensor of the concession stores) and suppliers in relation to ongoing trading of the R & B business.
HB
The circumstances of HB are similar to those of R & B. VLAH is the sole shareholder of HB. Mr von Daniels and Mr Potyka are its directors.
HB also carries on business as the retailer of premium apparel and accessories in three states and conducts trading online under the name ‘Herringbone’ (‘HB business’). HB has been operating the HB business since 2012. The sole supplier of stock to the HB business is VLGmbH which is its major secured creditor. It consents to the extension as does its other significant secured creditor, van Laack Singapore Pte Ltd (‘VLS’).
On the date of the administrators’ appointment, HB had cash at bank of $76,240.25. It operated the HB business from ten stand-alone stores and one online store. It occupied the distribution centre in Port Melbourne with R & B and employed 47 employees.
Since their appointment, the administrators have continued to operate the HB business with a view to offering the HB business for sale and maximising the return to creditors of HB. The administrators have closed three stand‑alone retail stores at Chatswood Chase in Sydney, Hay Street in Perth and Melbourne Emporium (‘the HB closed stores’). They have terminated the employment of seven employees (‘the HB terminated employees’).
HB presently operates the HB business from seven stand‑alone retail stores and an online store (‘the HB remaining stores’), continues to occupy the distribution centre in Port Melbourne and employs a total of 40 employees (‘the HB remaining employees’).
As is the case with R & B, the administrators continue to trade the HB business as they believe that course of action will maximise the chances of procuring a sale of the HB business which will increase the likelihood that the remaining HB employees will retain their jobs and also maximise the return to creditors of HB. They have also sought the cooperation of employees, landlords and suppliers in relation to the ongoing trading of the HB business.
Tasks undertaken by the administrators since their appointment
Since their appointment, the administrators and their staff have completed a number of tasks as part of the conduct of the administrations of the companies, including the following:
(a) taking control of the business and assets of the companies including:
(i) identifying, securing and inspecting the companies’ assets;
(ii) securing the retail, commercial and warehouse premises occupied by the companies;
(iii) attending the companies’ premises and addressing the employees either in person or by teleconference;
(iv)obtaining and analysing key financial records; and
(v) reviewing relevant payroll records and contracts of employment;
(b) issuing circulars to the creditors of each of the companies providing further information in relation to the Plaintiffs’ appointment and the details of the first creditors’ meeting;
(c) responding to creditor inquiries in relation to the conduct of the administration of the companies and procedural matters;
(d) conducting a review of each company’s trading viability including an analysis of the viability of individual stores;
(e) planning and implementing the closure of certain companies’ stores, including dealing with employees and landlords in relation to closures;
(f) establishing new procedures and controls for ongoing trading of the companies;
(g) arranging for stocktakes to be conducted;
(h) preparing and reviewing trading and cash flow budgets and forecasts to facilitate the ongoing trading of the companies;
(i) engaging in discussions and correspondence with the companies’ secured creditors, employees, landlords, licensor and major suppliers in relation to ongoing trading of the businesses;
(j) preparing an information memorandum in relation to the sale of the companies’ businesses and assets (‘Information Memorandum’) and liaising with interested parties;
(k) advertising the companies’ businesses for sale, including in the Australian Financial Review (8 February 2017 and 11 February 2017), The Sydney Morning Herald (9 February 2017), The Age (9 February 2017) and The Chinese Daily (11 February 2017);
(l) convening and chairing the first meeting of creditors for both companies on 14 February 2017 and drafting minutes of the first meeting of creditors for lodgement with ASIC on 24 February 2017;
(m)instructing solicitors and counsel to respond to an application for leave to proceed under section 440D of the Act and separate urgent relief brought in existing proceedings in this Court;[1]
[1]See Mair v Rhodes & Beckett(Injunctive Relief and Contempt) [2017] VSC 54 (17 February 2017).
(n) commencing preliminary investigations into the affairs of the companies, including but not limited to:
(i) the insolvency of the companies; and
(ii) voidable transactions and insolvent trading; and
(o) instructing and corresponding with:
(i) solicitors for the administrators, Hall & Wilcox, in the administration of the companies;
(ii) valuers in relation to inventory, plant and equipment; and
(iii) current and pre-appointment insurers in relation to insurance requirements.[2]
[2]Affidavit of Luke Christopher Targett sworn 28 February 2017, 5-7.
Since their appointment, the administrators’ investigations reveal that the assets of the companies include leasehold interests, plant and equipment, stock, goodwill and intellectual property. They have sought offers for the purchase of the R & B business, the HB business and all assets of both companies. They will also consider offers to purchase individual business operations, assets and classes of assets of each company.
A summary of the estimated debts of each of the companies as at the date of the first meetings of creditors is as follows:[3]
[3]Ibid 12.
RB HB Creditor class Number Value Number Value Priority creditors 39 $96,562 39 $68,068 Secured creditors 2 $17,768,884 2 $22,770,890 Unsecured creditors 66 $1,856,022 38 $1,026,003 Total 107 $19,721,468 79 $23,864,961
On 14 February 2017, the first meetings of creditors of both companies were conducted concurrently. The creditors attending did not express any interest in the appointment of a committee of creditors for either of the companies to consult with the administrators about matters relating to the administrations. Resolutions relating to the appointment of a committee of creditors were therefore not proposed at either meeting. A large majority of the debt owed by each of the companies is to VLGmbH and VLS, the only secured creditors of both companies.
On 28 February 2017, Mr Targett was informed by Mr Stewart Lewin, a partner at Mills Oakley Lawyers, who act for VLGmbH and VLS, that those companies do not object to the proposed extension of the convening period sought in this application. This has been confirmed in an email from Mr Lewin of 28 February 2017.
Mr Targett deposes that an indicative timeline for the sale of the companies’ businesses and assets prepared by the administrators at the preliminary stage of the administrations is as follows:[4]
[4]Ibid 8.
Event Date Deadline for submission of indicative (non-binding) offers 17 February 2017 Shortlisted parties invited to conduct further due diligence 21 February 2017 Due diligence period 21 February to 24 February 2017 Deadline for submission of final binding offers 1 March 2017 Successful bidder notified of acceptance 6 March 2017 Execution of Business Sale Agreement 13 March 2016 Settlement To be determined
There has apparently been a great deal of interest shown by potential buyers in the sale of the companies. Because of this high level of interest and the receipt of a larger number of offers than originally anticipated, the timelines have been lengthened to enable shortlisted bidders an opportunity to undertake further due diligence and submit revised offers. To facilitate this process, the administrators have made additional information available to shortlisted bidders to enable them to refine their bids, including making key staff available for those shortlisted bidders to interview and providing bidders with the option to inspect the Port Melbourne warehouse premises.
In order to allow further due diligence to occur, the deadline for the submission of final binding offers by shortlisted bidders has been extended by the administrators to the close of business on 8 March 2017.
Mr Targett has been directly involved in the conduct of the sales process and liaising with interested parties since the date the administrators were appointed. As at the time of swearing his affidavit, he states that the administrators have:
(a) received expressions of interest from 51 parties who have expressed interest in acquiring all or part of the RB Business (‘Interested Parties’);
(b) forwarded confidentiality agreements to 44 of the Interested Parties;
(c) received 25 executed confidentiality agreements back from Interested Parties;
(d) received a $500 deposit from 25 of the Interested Parties for further information;
(e) forwarded the Plaintiffs’ Information Memorandum to 25 Interested Parties between 14 February 2017 and 24 February 2017;
(f) received 7 indicative non-binding offers for the acquisition of either the R & B Business, the HB Business or both; and
(g) shortlisted 5 bidders to undertake the further due diligence.[5]
[5]Ibid 8-9.
The offers received to date differ in relation to their underlying assumptions, scope and terms. Some offers contemplate keeping some or all of the Remaining RB Stores and Remaining HB Stores open while others are couched as an inventory realisation process which will not result in stores being retained in the long term but will nevertheless involve stores remaining open for an extended period.
The administrators are currently trading the R & B business from the remaining R & B remaining stores, including the eight stand‑alone retail stores which R & B leases from various landlords (‘the R & B remaining lease stores’) and eight Myer concession stores which R & B occupies under licence from Myer (‘the R & B remaining Myer stores’). Mr Targett considers, given the retail nature of the R & B business, that the administrators’ successful and profiting trading on of the R & B business is contingent and conditional upon R & B’s continued ability to occupy the R & B remaining lease stores and the R & B remaining Myer stores, or at least a majority of them. The same situation applies in relation to HB remaining tenancies.
It is clear that a principle reason for seeking extension of the convening periods is to obtain an extension of the protection of the moratorium afforded by s 440B(1) of the Act which precludes lessors and other owners of property from enforcing their interest during that extended period without the leave of the Court under s 440B(2). The administrators say that the extension of the convening period will enable a better foundation for the sale of both the businesses as a going concern or at least enable the existing stock to be realised from the remaining premises. This will also have the effect of protecting the interests of the remaining employees and result in a better return to creditors.
At the hearing of the matter, I raised with Mr Galvin at the outset whether the lessors and licensor (Myer) had been informed of the making of this application and he indicated they had not. In my view, however, their interests can be adequately protected by reserving to them leave to apply to set aside the orders upon being served with a sealed copy of them. Those lessors or owners of property may make application to set aside these orders by reason of them being interested persons affected by the orders which were made in their absence. Because the orders have been made in their absence, they are faced with a low threshold if they wish to set the orders aside.
As I have indicated above, since the orders of 1 March 2017, it has come to light that AMP Capital Ltd (AMP) which is the owner of premises at Collins Place, Melbourne and Martin Heritage Management Pty Ltd, which is sub‑lessor of property in Martin Place, Sydney, were in contact with the administrators regarding the tenancies of their properties. AMP was owed outstanding rent for the Collins Place properties. Mr Targett indicates in his affidavit of 23 March 2017 that the situation in that regard has been resolved by agreement.
Martin Heritage Management Pty Ltd had given notice of termination of the lease for the Martin Place property in February. The administrators have also since negotiated an agreement with its agents to remain in occupation of the property.
During the period of the administration, R & B and HB are occupying the R & B remaining lease stores and R & B remaining Myer stores with the protection afforded by s 440B(1) of the Act. The administrators believe that in the event that the administrations came to an end within the usual timeframe provided for in the Act, it would be most difficult for the administrators to successfully negotiate the companies’ continued occupation of the remaining stores with each of the landlords of the remaining lease stores and the licensor of the Myer stores without the protection afforded by s 440B(1) of the Act. For this reason, Mr Targett considers that in the event the administrators are no longer afforded the protection of that provision of the Act, they may not be able to successfully trade the companies’ business. This is likely to result in:
(a) the closure of some or all of the remaining stores;
(b) the termination of some or all of the remaining employees;
(c) the loss of potential purchasers, which is likely to result in a corresponding reduction of the competitive commercial pressure in the process adopted for the sale of the business of the companies;
(d) the value of the companies’ business being significantly diminished; and
(e) a reduced return to the creditors of the companies.[6]
[6]Ibid 10.
The application for an extension of the convening period
The administrators seek orders extending the convening period within which the administrators must convene the second meeting of the creditors of the companies to, and including, 6 July 2017 (a period of just over four months). Mr Targett states that an extension of the convening period for the companies to that date will enable the administrators to:
(a) progress the sales process for each of the companies;
(b) continue to trade the R & B Business and HB Business with the protection of section 440B(1) of the Act; and
(c) obtain landlord agreement to assign leases and licenses if required by a successful bidder for the purchase of the R & B Business and/or HB Business.[7]
[7]Ibid 11.
Mr Targett states that in circumstances where the administrators propose to continue to trade the businesses during the proposed extended convening period, the administrators expect that during this period the rent and licence fees will continue to be paid in relation to the R & B remaining stores and HB remaining stores and R & B remaining employees and HB remaining employees will continue to be paid.
Mr Targett considers that the extension of the convening period to and including 6 July 2017 in respect of the second meetings of both companies is in the best interests of the creditors of these companies. The administrators believe that it will:
(a) increase the likelihood that the administrators will be able to continue to successfully trade the R & B Business and HB Business;
(b) maximise the chances of the administrators procuring a sale of the R & B Business and HB Business;
(c) increase the likelihood that the R & B remaining employees and HB remaining employees will retain their jobs; and
(d) maximise the return to the creditors of the companies.[8]
[8]Ibid 13.
As I indicated on 1 March 2017 in the course of the hearing of this application, I consider it appropriate to make the orders sought by the administrators. It will enable the administrators time to facilitate the sale of the business and assets of the two companies and will give flexibility to the sale process and put it on an optimum footing. As such, there are substantial reasons to make the orders sought. In Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed),[9] Austin J of the Supreme Court of New South Wales cited 11 exemplary categories in which it was appropriate to award extensions. Of particular relevance in the context of this application are that the proposed extensions will allow sale of the businesses as going concerns and provide the time required to execute an orderly process of the disposal of the companies’ assets. The only material prejudice to those affected by the making of these orders is the extension of the moratorium period affecting the lessors and the licensor of the companies’ property and as I have said, I think that can be satisfactorily protected by provision of liberty to apply to those parties if they consider it appropriate to do so.
[9][2009] NSWSC 585; (2009) 72 ACSR 352 (‘Re Riviera Group’)
I will also make an order under s 447A to enable the administrators to allow them to hold the second creditors’ meetings at any time within the convening period as extended or within five business days thereafter. This type of order, known as a Daisytek[10] order, is commonly made in these types of applications to give the administrators flexibility to perform their function.
[10]Re Daisytek Australia Pty Ltd (Administrators Appointed) [2003] FCA 575.
SCHEDULE OF PARTIES
S CI 2017 00713
IN THE MATTER of Rhodes & Beckett Pty Ltd (ACN 118 576 364) (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed)
| BETWEEN: | |
| BRUNO ANTONY ROBERT SECATORE (In his capacity as Joint and Several Administrator of Rhodes & Beckett Pty Ltd ACN 118 576 364 (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed) | First Plaintiff |
| LUKE CHRISTOPHER TARGETT (in his capacity as joint and several Administrator of Rhodes & Beckett Pty Ltd (ACN 118 576 364) (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed) | Second Plaintiff |
| DANIEL PETER JURATOWITCH (in his capacity as joint and several Administrator of Rhodes & Beckett Pty Ltd (ACN 118 576 364) (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed) | Third Plaintiff |
2
0