Re Rhodes and Beckett Pty Ltd (No. 2)
[2017] VSC 388
•30 June 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS ACT
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)
EX PARTE
| 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 schedule attached) | Plaintiffs |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 June 2017 |
DATE OF JUDGMENT: | 30 June 2017 |
CASE MAY BE CITED AS: | Re Rhodes & Beckett Pty Ltd (No. 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 388 |
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CORPORATIONS – Corporations Act 2001 (Cth), s 447A(1) – Application by administrators for further extensions of convening periods of companies in administration – Administrators conducting orderly sale of stock to obtain optimum prices for the benefit of creditors – Order made for further extensions.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Galvin QC | Hall & Wilcox |
HIS HONOUR:
By an originating process filed 26 June 2017, the plaintiffs (‘the administrators’) who are the administrators of Rhodes & Beckett Pty Ltd (‘R&B’) and Herringbone Pty Ltd (‘HB’) (collectively ‘the companies’) make application under s 447A(1) of the Corporations Act 2001 (Cth) (‘the Act’) to further extend the convening periods prescribed in s 439A(5) of the Act for the second meetings of creditors.
On 1 March 2017 I made orders extending the convening periods within which the administrators must convene the second meeting of creditors of the companies to 6 July 2017 together with certain other ancillary orders.
On 5 April 2017 I published reasons for making those orders in which the factual background to the administrations of the companies is set out.[1]
[1]See Re Rhodes & Beckett Pty Ltd [2017] VSC 170.
On 27 June 2017, I made orders further extending the convening periods together with other ancillary orders and I now publish my reasons for doing so.
The application for further extensions is supported by an affidavit of one of the administrators, Luke Targett, sworn 26 June 2017. Mr Targett also relies on his affidavit filed in support of the first application sworn 28 February 2017.
There is no doubt that the Court has power to grant more than one extension of the convening period under s 447A(1) of the Act.[2]
[2]See generally Lombe, Re: Australian Discount Retail Pty Ltd [2009] NSWSC 110; Re ABC Learning Centres (No 8) [2009] FCA 994.
In his affidavit sworn 26 June 2017 Mr Targett deposes as to the tasks undertaken by the administrators since 28 February 2017. Those tasks include the following:
(a) continuing to trade the businesses of the companies including attending to day to day management activities;
(b) responding to creditor inquiries in relation to the conduct of the administration of the companies and procedural matters;
(c) preparing and reviewing trading and cash flow budgets and forecasts to facilitate the ongoing trading of the companies;
(d) engaging in discussions and correspondence with the companies' secured creditors, employees, landlords, licensor and major suppliers in relation to ongoing trading of the businesses;
(e) continuing investigations into the affairs of the companies; and
(f) liaising with interested parties regarding the proposed sale of the companies' businesses and assets.
R&B continues to carry on business as a retailer of men’s and women’s clothing and accessories under the trading name ‘Rhodes and Beckett’ (‘RB Business’).
R&B operates the RB Business from an online store, eight standalone retail stores and eight Myer concession stores. It continues to occupy the distribution centre in Port Melbourne which it shares with HB. It currently employs 62 employees, of which 23 are employed on a full time or part time basis and 39 on a casual basis.
Since late February the administrators have given notice of termination to one employee of R&B on 1 June 2017 thereby starting a contractual three months’ notice period but have not closed any more R&B stores. Mr Targett deposes that all lease and licence payments owed by R&B are up to date.
HB continues to carry on business as a retailer of men’s and women’s clothing and accessories under the trading name Herringbone (‘the HB business’). It operates the HB Business from an online store and seven standalone retail stores. It occupies the distribution centre in Port Melbourne with R&B. It employs 28 employees of which 13 are employed on a full or part time basis and 15 are casual employees. The administrators have not terminated the employment of any further employees of HB since the first application nor have they closed any more HB stores. All lease and licence payments owed by HB are paid up to date.
In his earlier affidavit, Mr Targett described the sales process envisaged for the companies’ businesses.[3] The administrators conducted a detailed review and analysis of each of the offers received for the businesses and formed the view that a binding offer received from Gordon Brothers Pty Ltd (‘Gordon Brothers’), which is an advisory restructuring and investment firm frequently partnering with retail businesses to facilitate the disposition and realisation of assets including stock. The administrators are of the opinion that this process was likely to result in the best return for the creditors of the companies. The administrators consider that this return will be achieved by providing a short term financial return from the sale of stock and facilitating the sale of the businesses and remaining assets of the companies in a manner which will allow a potential purchaser to relaunch the businesses with a new product range. To this end, on 19 May 2017 the administrators entered into an agreement with Gordon Brothers (‘the GB Agreement’) to undertake a stock realisation program.
[3]Affidavit of Luke Christopher Targett sworn 28 February 2017, 31-37.
Pursuant to the GB Agreement, Gordon Brothers commenced a stock clearance program on 22 May 2017 (the ‘stock clearance’). The stock clearance is presently being conducted from each of the online stores, standalone retail stores and the Myer concession stores operated by each of the companies. The employees of the companies have been engaged in the stock clearance.
Before the appointment of the administrators, each of the stores operated by the companies was said to be carefully chosen and designed to reflect the higher quality of the products sold by the businesses. The decision to conduct the stock clearance from the existing stores is based on the strategy that customers are more likely to purchase products from these stores and pay a higher price than they would if the stock clearance was carried out in a more modest, suburban warehouse typical of other retail stock realisation programs. This strategy has been devised by the administrators in consultation with Gordon Brothers who apparently have considerable experience in stock realisation strategies and programs.
The stock clearance will continue until around 20 August 2017 unless terminated earlier by either the administrators or Gordon Brothers. The GB Agreement also provides for an option in favour of Gordon Brothers to extend the period of the stock clearance by four weeks to 17 September 2017. This of course requires the administrators to have the ability to remain in occupancy of the stores for the duration of the clearance sales and I surmise that this is a prominent reason for seeking the further extension.
During the course of the stock clearance, rent and licence fees will continue to be paid in full when due for the premises occupied by the companies and the wages of the remaining employees of the companies will continue to be met.
The companies are continuing to occupy the remaining premises with the protection afforded by s 440B(1) of the Act. The licences granted to R&B in relation to each of the eight Myer concession stores from which it trades will expire on 31 July 2017.
The plaintiffs consider that the successful completion of the stock clearance is conditional upon the companies continued occupation of the remaining premises. The administrators also believe that the continued occupation of the remaining premises is also likely to maximise the value of the sale of the businesses and remaining assets of the companies following the completion of the stock clearance.
In this regard, the administrators consider that if the administrations of the companies come to an end on 6 July 2017 pursuant to the orders made on 1 March 2017:
(a) it will be very difficult for the plaintiffs to successfully negotiate the continued occupation of the remaining premises without the protection afforded by s 440B(1) of the Act;
(b) if the stock clearance is unable to be run from the remaining premises, the commercial outcomes from this program will be adversely affected such that there is likely to be a reduced return to the creditors of the companies;
(c) the ability of the plaintiffs to procure a sale of the businesses and remaining assets of the companies following the completion of the stock clearance is likely to be impeded where an assignment of the leases of the remaining premises to a potential purchaser at the conclusion of the stock clearance is unable to occur; and
(d) the return to creditors flowing from the stock clearance and subsequent sale of the businesses and remaining assets of the companies is likely to be adversely affected.
Following their investigation into the affairs of the companies, the administrators are not aware of any claims by the companies which require immediate commencement. Since Mr Targett swore his earlier affidavit on 28 February 2017 in support of the first application, R&B has been the subject of proceedings commenced in the Civil Division of the VCAT by an unsecured creditor seeking payment of an outstanding debt.[4] By orders made by Deputy President Lulham on 31 May 2017, those proceedings were struck out with a right of reinstatement pending the granting of consent by the administrators or leave of the Court under s 440D of the Act. Other than this, the administrators are not aware of any other current or anticipated litigation against the companies which would be affected by the continued operation of the moratorium provisions of s 440D(1) of the Act.
[4]Proceeding no. C1633/2017.
During the course of the stock clearance, the administrators are engaging in commercial discussions with interested parties in relation to the sale of the companies’ businesses and assets other than stock. It is anticipated by the administrators and it is their intention that the sale of the companies’ businesses and assets will be completed after the stock clearance has concluded. The administrators consider that if the negotiation of the sale is completed during the course of the stock clearance, settlement of such sale can be scheduled to occur any time after the stock clearance has concluded but no later than 1 October 2017.
In this regard, Mr Targett deposes that the administrators have received seven non-binding offers to purchase some or all of the assets of the companies and are continuing to employ certain employees and negotiate assignments of leases of the remaining premises.
Mr Targett’s affidavit is silent as to whether any proposals for a Deed of Company Arrangement have been put forward. At the hearing of this application, in response to a question from me in this regard, Mr Galvin indicated that there was unlikely to be such a proposal.
On 7 June 2017, the administrators wrote a circular letter to all creditors of the companies and landlords of the remaining premises giving notice of the administrators’ intention to apply for orders seeking further extensions of the convening periods of the second creditors’ meetings to 6 October 2017. The circular letter was provided in hard copy to creditors and landlords using contact details provided by those parties to the administrators of the companies and, if there were no details provided, to the addresses recorded in the books and records held by the companies.
The circular letter requested that any objections to the proposed application be received by 16 June 2017. Mr Targett deposes that, at the time of making his recent affidavit, the administrators have received three notices of objection by email in response to the circular letter. Each of the objectors were former employees of the companies who, if the companies proceed to go into liquidation at the second meetings of creditors, may receive entitlements under the Fair Entitlements Guarantee scheme (‘FEG’) administered by the Federal government. The first of those objectors, Ms Di Renzo, states that she strongly objects to the further extension sought as ‘the creditors have had enough time in order to complete the sale of the businesses.’ Ms Di Renzo wants matters finalised on 6 July 2017 at the second creditors’ meeting. The second objector, Mr Di Labio, also objects to the further extension. He cites no reasons for his objection and states that he looks forward to the second creditors’ meeting taking place on 6 July 2017. The third objector, Ms Ghiri, also wishes the meetings to be conducted by the extended date. She states that she is unemployed and needs financial closure of this matter.
I would assume the underlying basis of the objections is that, until the second meetings are convened and conducted, the employees are disadvantaged because they will not have access to the FEG scheme and, then only if the companies proceed to go into liquidation. At the hearing of this matter I suggested to Mr Galvin that it may be possible to assuage the objectors concerns by making application for a declaration under s 49 of the Fair Entitlements Guarantee Act2012 (Cth). This seems an appropriate course as it appears more than probable that the creditors, in the absence of proposals for deeds of company arrangement, will resolve that the companies go into liquidation.
Mr Targett observes that the administrators have not received any response to the circular letter from landlords of the remaining premises who might be potential objectors to the further extensions of the convening periods by reason of the longer moratorium which results.
The administrators consider that the further extension of the convening period to and including 6 October 2017 is in the best interests of the creditors of the companies as they believe that it will:
(a) increase the financial return to creditors from the stock clearance;
(b) facilitate and maximise the chances of the administrators procuring a sale of the businesses and assets of the companies other than stock;
(c) increase the likelihood that the remaining employees of the companies will retain their jobs; and
(d) maximise the return to the creditors of the companies and result in a better return to creditors than would result from an immediate winding up of the companies.
In the numerous authorities that deal with the question as to whether it is appropriate to order an extension of the convening period, matters, including the time required to implement an orderly process of disposal of assets and to allow the enhancement of the return for unsecured creditors, are regarded as proper reasons for the award of extensions.[5] For example, in ABC Learning Centres (no 7)[6] Emmett J granted an extension of the convening period of companies in the ABC Learning Group for a further period of 6 months in circumstances where the receivers, who were in possession of property of the companies, were of the view that the further extension of the convening period was in the best interests of all creditors as it would allow them adequate time to achieve the best possible price for the sale of the group’s business. Here, the evidence is that the administrators are conducting an orderly realisation of the stock for the best possible price rather than a quick ‘fire’ sale. The employees who have objected to the extension are no doubt frustrated by the time involved and the delay in obtaining access to the FEG scheme, but I have to balance their position against the interests of all the creditors.
[5]Southern Riverina Dairy Group Pty Ltd [2017] VSC 4, 25.
[6](2009) 71 ACSR 560.
The administrators, who are experienced insolvency practitioners, consider that the current process by which the stock is realised at the trading premises of the companies is likely to result in a better outcome for all creditors than if such stock was sold off site in a liquidation warehouse. The lessors and the licensee of the premises from which the stock realisation is being conducted are apparently content with the continued occupancy of their property as long as the rental obligations are being met.
I consider there are good reasons to justify a departure from the time limits applicable under s 439A of the Act and to make orders for further extensions of the convening periods. I will also make the ancillary orders in respect to provision of notice sought by the administrators in their interlocutory process. I will also order that the administrators’ costs of the application are costs in the administrations of the companies in equal proportions.
For completeness, I set out the orders that I pronounced on 27 June 2017:
1.Pursuant to subsection 447A(1) of the Corporations Act 2001 (Cth), the convening period within which the Plaintiffs must convene the second meeting of the creditors of Rhodes & Beckett Pty Ltd ACN 118 576 364 (Administrators Appointed) and Herringbone Pty Ltd (ACN 135 481 953) (Administrators Appointed) (‘the Companies’) is further extended to and including 6 October 2017.
2.The Plaintiffs are to give notice of these orders to the Companies’ creditors by:
(a)uploading a copy of these orders onto the Cor Cordis website; and
(b)sending a circular letter to creditors of the Companies (by email in respect of those Creditors who have informed the Plaintiffs that email is their preferred method of communication and by post in respect of all other known Creditors) informing them of the substance of these orders.
3.The Plaintiffs' costs of the application are costs in the administration of the Companies in equal shares.
SCHEDULE
| S CI 2017 00713 | |
| 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 |
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