Re: Smiles Inclusive Limited

[2020] QSC 392

SUPREME COURT OF QUEENSLAND

CITATION:	Re: Smiles Inclusive Limited & Anor [2020] QSC 392
FILE NO:	BS 12761 of 2020
DIVISION:	Trial division
PROCEEDING:	Originating application
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	3 December 2020 (ex tempore)
DELIVERED AT:	Brisbane
HEARING DATE:	3 December 2020
JUDGE:	Ryan J
ORDER:	1.   Orders as per draft
COUNSEL:	S Webster for the applicants
SOLICITORS:	Allens for the applicants

HER HONOUR (delivered ex tempore):   This is an application by the administrators of Smiles Inclusive Limited and Totally Smiles for an extension of the time by which the administrators must convene a second meeting of creditors. 

The applicant administrators are the administrators of two companies: Smiles Inclusive and Totally Smiles.  Smiles Inclusive is the parent company of Totally Smiles.  Totally Smiles operates a business acquiring dental practices, integrating them and providing services to dental practitioners.

Fifty-two dental practices form part of the Smiles Group.  Forty-one of those 52 practices were trading when the administrators were appointed.  The majority of the dental practices have contractual arrangements with Totally Smiles in accordance with a business sale agreement and a joint venture partnership agreement.  Additionally, another 75 practitioners are engaged by Totally Smiles under individual facilities and services agreements. 

Totally Smiles is the lessee of 53 leases and itself employs about 240 staff. 

The Smiles Group experienced a significant deterioration in revenue in the financial year ending 30 June 2020 – probably a product of the COVID19 pandemic and the impact of health directives on dental practice.

Administrators were appointed on 9 November 2020. 

The identification and details of the Smiles Group’s creditors are outlined in the applicants’ submissions at paragraphs 9 and 10, and I won’t repeat them here. 

The first meeting of creditors was held on 19 November 2020, at which a Commission of Inspection was appointed. 

I have considered the conduct of the administrators as set out in paragraph 40 of the affidavit of Mr Heenan.  I note that, via the administrators, the Smiles Group has continued to trade; the administrators have liaised with various creditors and others; and the administrators have investigated Smiles Group’s affairs with the view to determining alternatives to liquidation.

The administrators have devised an administration strategy which involves continuing to trade, as noted, and assessing options which might produce a better outcome than an immediate winding up, including options which would either allow the Smiles Group business to remain in existence, or at the least, to achieve a better return than that which would result from an immediate winding up. 

The administrators consider that the options available to the Smiles Group include marketing the business as a going concern, or marketing it for asset sales, or promptly winding it up.  The administrators are of the view that the better option - in the sense of the option which would produce the better return for the Smiles Group creditors - is one that involves marketing the company for sale as a going concern or as an asset.

Under the Corporations Act 2001, the second meeting of creditors must be convened by 7 December 2020.[1]  The administrators seek an extension of the convening period to 26 February 2021, to properly pursue the options of selling the business or its assets.  That date has been nominated taking into account the time likely taken by a marketing campaign, due diligence and negotiations.  That timeframe is tight, and I note that it spans the Christmas period. 

[1] s 439A Corporations Act 2001 (Cth).

It is important to bear in mind that, under the legislation, the administrators have the power to adjourn the second meeting of creditors for 45 days.  But that cannot occur until the second meeting is actually convened.  The cost implications of doing so are obvious.

Also, the administrators are concerned that 45 days will not give them sufficient time to explore properly the option of selling the business or its assets.  For that reason, the Court is asked to make an order extending the time for the convening of the second meeting beyond 45 days, although not particularly far beyond it. 

There is opposition to the Court making such an order by many of the joint venture participants and practitioners.  I have considered that opposition.  It is not clear to me that those opposing the making of the order sought appreciate that the administrators could adjourn the date for the second meeting without requiring an order of the Court, and, as I understand it, would do so if I were not to make such an order.  Having said that, I acknowledge their frustrations. Nevertheless, I am satisfied that in bringing this application, the administrators have properly considered the opposition to my making the order sought, and the real consequences of an immediate liquidation. 

In deciding to make the order sought, I must balance the concerns of the objectors to it against the interests of other creditors or persons otherwise affected by the liquidation. 

If Totally Smiles were placed into liquidation at a second meeting of creditors in December of this year, 237 staff will have their jobs terminated before Christmas and lose the prospect of retaining their employment through the sale of a business as a going concern.  Also, the prejudice to those affected by the moratorium arising from an administration is most relevant.  The concerns of those opposing the order do not arise from the moratorium. 

In any event, the power of the administrators to adjourn the second meeting for a period of 45 days, without requiring the involvement of the Court, means that even if I were to refuse to make the order sought, the concerns of those opposing would not be alleviated. 

In those circumstances, I consider it appropriate to make the order sought, extending time for the convening of the second meeting of creditors.

Also, I consider it appropriate to make the other orders sought which facilitate the primary order and deal with costs, and which concern the Committee of Inspection.

The order concerning the Committee of Inspection is designed to anticipate that members of the Committee of Inspection might, because of who they are, be counterparties to transactions with Totally Smiles. 

I agree with the submissions of the applicant that it is in the interests of creditors that the administrators not be handicapped in operating or attempting to sell the Smiles Group by the fact of the composition of the Committee of Inspection and the prohibition which would apply were I not to make the order sought in respect of it. 

For those reasons, I will make an order in terms of the draft.  I note in particular paragraph 10, which requires certain of the material to remain confidential.  And I note paragraph 11 as to costs.