Re Sneakerboy Pty Ltd
[2022] VSC 502
•31 August 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 02843
IN THE MATTER OF SNEAKERBOY PTY LTD (ACN 603 960 961) (ADMINISTRATOR APPOINTED)
| SNEAKERBOY PTY LTD (ACN 603 960 961) (ADMINISTRATOR APPOINTED) & ORS (according to the attached Schedule) | Plaintiffs |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 August 2022 |
DATE OF JUDGMENT: | 31 August 2022 |
CASE MAY BE CITED AS: | Re Sneakerboy Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 502 |
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CORPORATIONS – External administration – Application for further extension of convening period of companies in administration pursuant to s 447A of the Corporations Act 2001 (Cth) (’Act’) – Administrator sought further extension to enable conclusion of the sale of the companies’ business and assets and to conduct further investigations required to be undertaken under the provisions of Pt 5.3A of the Act – Further extension for a relatively short period – Orders made for further extension of convening period together with ancillary orders.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Kohn | MST Lawyers |
HIS HONOUR:
On 2 July 2022, the sixth plaintiff, Mr Stephen Robert Dixon, was appointed administrator of several companies comprising the Sneakerboy Group. Those companies are:
(a) Sneakerboy Pty Ltd (ACN 603 960 961) (Administrator Appointed);
(b) Sneakerboy Retail Pty Ltd (ACN 604 708 189) (Administrator Appointed);
(c) Sneakerboy IP Pty Ltd (ACN 604 708 090) (Administrator Appointed);
(d) Luxury Retail Group Pty Ltd (ACN 604 195 717) (Administrator Appointed); and
(e) Luxury Retail Treasury Pty Ltd (ACN 614 712 766) (Administrator Appointed) (collectively the ‘Companies’).
The Companies carry on business as a retailer of casual footwear (the ‘business’).
On 27 July 2022, Mr Dixon made application by originating process for an extension of the convening periods in respect of each of the Companies until 23 August 2022 for the reasons set out in his affidavit sworn on 27 July 2022. The extensions were sought, primarily, to enable Mr Dixon to conclude the sale of the Companies’ business and assets and conduct further investigations, which it is his responsibility to undertake as administrator.
On 28 July 2022, I made orders under s 439A(6) of the Corporations Act 2001 (Cth) (the ‘Act’), extending the convening periods for the second meetings of creditors of the Companies up to, and including, 23 August 2022. I also made what has become known as a “Daisytek order”[1] under s 447A of the Act, so that the second meetings of creditors of the Companies, required by s 439A(1) in respect of each of the administrations of the Companies, could be held at any time during, or within five business days, after the end of the convening periods, as extended by my first order, notwithstanding the operation of s 439A(2) of the Act.
[1]See Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446.
I also made orders granting liberty to apply to the plaintiffs to apply to Court for any purpose connected with the administrations of the Companies, including, but not limited to, seeking any further extension or variation of the convening periods under the first order at any time prior to 23 August 2022.
By an interlocutory process filed on 18 August 2022, a further extension of the convening periods is sought up to, and including, 6 September 2022. On 22 August 2022, I made orders providing for a further extension of the convening periods in the administrations of the Companies and indicated that I would provide reasons.
The interlocutory process makes application for the extensions pursuant to s 439A(6) of the Act, but it is clear that s 439A does not allow for a further extension of time after the initial extension.[2] The power to grant a further extension is found in s 447A(1).[3] I gave leave for the interlocutory process to be amended to claim relief under s 447A, in lieu of s 439A(6). The application for a further extension is supported by affidavits of Mr Dixon, sworn on 19 August 2022 and 22 August 2022.
[2]See Mentha, Re Griffin Coal Mining Co Pty Ltd (No 2) [2010] FCA 499, [35] (McKerracher J) (‘Griffin Coal’) and the authorities cited.
[3]See Griffin Coal [36]; Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110, [32] (Barrett J).
The plaintiffs sought a confidentiality order in respect of Mr Dixon’s affidavit sworn on 19 August 2022. By reason of that affidavit’s reference to sensitive commercial negotiations that are presently underway, I acceded to that application, but provided that such confidentiality will expire on 7 September 2022, after the expiry of the convening periods as extended by the orders.
In my orders of 28 July 2022, I required Mr Dixon to inform all known creditors, including persons claiming to be creditors of the Companies of the orders made in respect of the first extension. In his affidavit of 19 August 2022, Mr Dixon states that he has complied with my orders in that regard and indicates he has received no communication from any creditor expressing concern about the orders made on 28 July 2022. His affidavit of 22 August 2022 provides more elaborate details of compliance with that order.
Mr Dixon states that none of the lessors of the five premises, which are presently occupied by one or other of the Companies, have expressed any concerns in relation to the conduct of administrations of the Companies generally or the first extension of the convening periods ordered on 28 July 2022. Further, none of the lessors have sought consent from Mr Dixon to take possession of their properties, nor sought leave from the Court pursuant to s 440B(2) of the Act to take possession of their properties.
Mr Dixon seeks a further extension of the convening periods for the second meetings of creditors up to, and including, 6 September 2022, to enable him to:
(a) conclude the sale of the Companies’ business and assets; and
(b) conduct the substantial further investigations that are required to be undertaken by him under the provisions of Pt 5.3A of the Act.
On 22 August 2022, I made orders granting a further extension of the convening period, until 6 September 2022, together with ancillary orders and on that occasion.
In his affidavit of 19 August 2022, Mr Dixon describes the tasks that have been undertaken by him and his office since the time he swore his first affidavit in this proceeding on 27 July 2022. He describes these tasks as follows:
(a) conducted investigations into the affairs of the Companies, in compliance with his responsibilities under ss 438A to 438D of the Act;
(b) conducted investigations into the Companies’ assets and liabilities;
(c) continued to employ the majority of the employees of the business;
(d) held numerous discussions and meetings with one of the directors and the group financial controller of the Companies in relation to the history, financial position, financial performance, trading of the Companies and the business, and the ongoing sale of the business and assets;
(e) continued to negotiate with the lessors of real property leased to one or other of the Companies to allow continued occupancy and utilisation of the retail premises to continue trading on the business;
(f) continued to trade the business to enable a sale of the business and assets on a going concern basis;
(g) liaised with the Sneakerboy’s employees on a daily basis to monitor the trading position of the Companies;
(h) extracted stock reports from the records of the Companies and compared the stock report information to the stocktake conducted and physical stock held to determine the source of stock variances;
(i) engaged with approximately 5,800 customers who have placed orders but have not received their orders prior to his appointment. This has involved corresponding with these customers via telephone, email, and in-person, at the retail stores;
(j) negotiated with a freight forwarder in relation to stock held by it, which has been purchased by the Companies and is required to be released;
(k) conducted investigations into the information contained on the Companies’ server systems, including reviewing approximately 60 mailboxes of current and former employees of the Companies and organising a full backup of the Companies’ servers;
(l) commenced conducting a forensic accounting review to determine the trading position and liabilities of each of the Companies;
(m) conducted further investigations and reconciliations into the Companies’ consolidated loans and intercompany transactions identified on the Companies’ balance sheets;
(n) conducted an analysis as to whether there had been insolvent trading and involvement in voidable transactions for each of the Companies;
(o) continued to progress the sale of the business and assets, including liaising with the relevant interested parties to address further inquiries and engaging in further negotiations in relation to the purchase price and terms and conditions of that sale;
(p) met with interested parties to discuss their proposal to purchase the business and terms and conditions of sale;
(q) met and liaised with the secured creditor in relation to the sale of the business and assets; and
(r) liaised with solicitors and an interested party in relation to a draft contract of sale.
Mr Dixon states that as of 19 August 2022, he was still yet to receive any proposal for a Deed of Company Arrangement.
Mr Dixon states that in regard to the sale process, he has identified a preferred purchaser (‘preferred purchaser’) and a non-binding letter of intent has been signed by him and the preferred purchaser. A draft business sale agreement has been prepared, which is the subject of ongoing negotiations between his solicitors and the solicitors acting for the preferred purchaser. There are a number of issues that are required to be agreed upon, but Mr Dixon does not consider these to be insurmountable. He is confident that a binding business sale agreement will be executed by 6 September 2022.
Mr Dixon is concerned that if the periods of administration comes to an end before a business sale agreement is concluded, the lessors of premises that are presently occupied by the Companies may take steps to terminate the leases and recover possession of the subject premises. If this occurred, the business would be unable to be sold as a going concern, which would obviously be adverse to the interests of creditors.
Mr Dixon states that in addition to the cost savings of not being required to convene the second meetings of creditors, which may have to be adjourned on his recommendation, extensions of the convening periods for the administrations of the Companies will potentially avoid the prospect of the Companies being placed into liquidation and also allow him to undertake his responsibilities as administrator under the Act to investigate the Companies’ affairs and compile reports for the consideration of creditors.
Mr Dixon states that he believes a further extension of the convening periods will be for the benefit of the creditors of the Companies. He says that after having had an opportunity to complete a sale of the business, there is likely to be a better return to the creditors and stakeholders of the Companies as compared with the position if the Companies were placed into liquidation.
He states his belief that there will be no material prejudice to any creditors of the Companies if the convening periods were further extended. He says that he is “reasonably confident” that based on the steps already undertaken by him in respect of the purported sale of the business, that he will be in a position to convene the second meetings within the further extension period.
Principles for the grant of an application to further extend the convening period
The principles for application when considering whether a further extension of a convening period is warranted have been the subject of consideration in state Supreme Courts and in the Federal Court of Australia. In Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 7),[4] Middleton J of the Federal Court of Australia stated:
There are many occasions in which Courts have granted further extensions of the convening period (that is, after an initial extension): eg, Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (No 2) [2010] FCA 499 at [36]; In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Recs and Mngrs Apptd) [2013] FCA 1102; Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 5) [2013] FCA 1443; Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 at [33]; In the matter of Acquire Learning Pty Ltd (ACN 168 523 279) (administrators appointed), Acquire Learning & Careers Pty Ltd (ACN 159 509 323) (administrators appointed) and Acquire Retail Pty Ltd (ACN 167 927 693) (administrators appointed) [2017] VSC 572 (‘Acquire Learning’); Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 4) [2020] FCA 671 (‘CBCH Group’); Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1059.
The principles that apply when considering a further extension are the same as those that apply for any extension of the convening period: South Wagga Sports and Bowling Club at [9]; Acquire Learning at [12]; Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 at [19]; CBCH Group at [25]. These principles are summarised in Virgin No 2 at [64]-[68].[5]
[4][2020] FCA 1182.
[5]Ibid [13]–[14].
In an earlier judgment in the series of applications made in the Virgin administrations, Strawbridge, in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 2),[6] Middleton J collected and considered the principles and authorities governing an application to extend a convening period required to be held under Part 5.3A of the Act. His Honour stated:
[6](2020) 144 ACSR 347.
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: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).
The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Limited [2019] FCA 11 at [3]-[8], where his Honour endorsed the comments of Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs. apptd) [2009] NSWSC 585 (‘Re Riviera’) at [13] as to the categories of cases in which an extension is granted including, relevantly:
(1)where the size and scope of the business in administration is substantial (citing Lombe, in the matter of Babcock & Brown Limited (Administrators Appointed) [2009] FCA 349; Worrell; In the matter of Storm Financial Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70; and ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947);
(2)where the extension will allow sale of the business as a going concern, citing Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, in the matter of Kleins Franchising Pty Ltd (administrators appointed) (ACN 007 348 236) [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, in the matter of Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619 [2006] FCA 1423; and
(3)more generally, where additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, In the matter of Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; in the matter of Marrickville Bowling & Recreation Club Ltd (under Administration) [2008] FCA 622.
An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 (Jacobson J); Re Riviera (Austin J); Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 (Lindgren J) (‘Re Austcorp’); and In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 (Black J).
In Mighty River International Ltd v Hughes (as deed administrators of Mesa Minerals Ltd) (2018) 359 ALR 181 at 201-202, [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded:
… 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. …
Finally, the administrator’s own opinion as to the need for an extension will be given weight in an application of this kind: Owen and Others in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (ACN 116 665 304) (admins apptd) (recs and mgrs. Apptd)) v Madden (No 4) (2012) 92 ACSR 255 at [26] (Logan J); In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J).[7]
[7]Ibid 370–1 [64]–[68].
Mr Dixon states that the primary reason for seeking the extension (an additional eight business days), is that further time is required to conclude an agreement for the sale of the business and assets. Mr Dixon, an experienced liquidator, is of the opinion that a sale achieved in the administration context is likely to achieve a better price than one conducted in the context of a liquidation. He states that the short extension sought will allow such negotiations to be concluded.
A review of the authorities dealing with extensions reveals that courts will readily grant extensions to the time frame in Pt 5.3A to adapt to the requirements and circumstances of particular administrations.[8] The Sneakerboy administrations are relatively complex when compared to the administration of a single corporate enterprise. Where an administration is more complex, the time periods prescribed in Pt 5.3A will often not enable the interests of creditors to be best served.[9]
[8]See, eg, Longley, in the matter of Dixon Advisory & Superannuation Services Pty Ltd (admin apptd) [No 2] [2022] FCA 950, [23]–[26] (Moshinsky J) (in this case, a total extension of more than nine months was granted to give the administrators more time to finalise a deed of company arrangement proposal, which ensures creditors are apprised of all pertinent information before the exercise of their right to determine the future of the company in question); In the Matter of Harrisons Pharmacy Pty Ltd (Administrators Appointed) (rec and mgr apptd) [2013] FCA 1102, [4]–[5], [9] (Jagot J) (here, a further six month extension was granted, on top of an initial six month extension, to allow various businesses to be sold).
[9]See, eg, Lombe, In the matter of Babcock & Brown Ltd (admin apptd) [2009] FCA 349, [33] (Jacobson J).
The further extension sought is quite modest compared with some that are made to the Court and it is unlikely there will be any prejudice to creditors from a further extension.[10]
[10]See, eg, Fitzgerald, In the matter of Primebroker Securities Ltd (admin apptd) (rec and mgr apptd) [2008] FCA 1247, [7] (Finkelstein J) (an extension of 60 days was granted in this case and in arriving at this order, his Honour considered “whether the unsecured creditors will be worse off if the extension be granted” and found ). The longer the extension sought, “the more important it is for the court to be given a clear and complete explanation of the state of the administration, the grounds for the extension and any potential prejudice that would flow from granting it”: Re Riviera Group Pty Ltd (admin apptd) (rec and mgr apptd) (ACN 102 298 279) (2008) 72 ACSR 352, 357 [18] (Austin J).
Mr Dixon again seeks a Daisytek order pursuant to s 447A of the Act to provide flexibility as to the date on which the meeting of creditors is convened, in particular, that the meeting may be held at any time within the extended convening period and the period of five business days thereafter. I consider that to be an appropriate order to make.
I am satisfied that the further extension sought is consistent with the overall object of Pt 5.3A of the Act, which is to maximise the chances of the relevant companies or its businesses continuing in existence or achieve a better return for the companies’ creditors and members than would otherwise be attained from an immediate winding up.[11]
[11]See Corporations Act 2001 (Cth) s 435A.
For completeness, I recite the orders that I made on 22 August 2022:
1.The plaintiffs are granted leave to file an amended Interlocutory Process, claiming relief in paragraph 1 pursuant to s 447A of the Corporations Act 2001 (Cth) (the ‘Corporations Act’), in lieu of s 439A(6).
2.Pursuant to s 447A(1) of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to the administrations of:
(a) Sneakerboy Pty Ltd (Administrator Appointed) (ACN 603 960 961);
(b)Sneakerboy Retail Pty Ltd (Administrator Appointed) (ACN 604 708 189);
(c)Sneakerboy IP Pty Ltd (Administrator Appointed) (ACN 604 708 090);
(d)Luxury Retail Group Pty Ltd (Administrator Appointed) (ACN 604 195 717); and
(e)Luxury Retail Treasury Pty Ltd (Administrator Appointed) (ACN 614 712 766) (collectively, the ‘Companies’)
as if s 439A(6) provided that the period for convening the second meetings of creditors of each of the Companies be further extended from 23 August 2022 up to, and including, 6 September 2022.
3.Pursuant to s 447A(1) of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to the administrations of each of the Companies such that, notwithstanding s 439A(2) of the Corporations Act, the second meetings of creditors of each of the Companies required under s 439A of the Corporations Act may be convened at any time before, or within, five (5) business days after the end of the convening period, as extended by paragraph 2 above.
4.By 4.00pm on 25 August 2022, the plaintiffs are to inform all known creditors (including persons claiming to be creditors) of the Companies and all persons who are lessors of real property presently occupied by the Companies of these Orders by means of:
(a) a circular posted on any website maintained by the sixth plaintiff;
(b)sending such information electronically to the email addresses of the creditors or lessors of real property presently occupied by the Companies for whom the plaintiffs have an email address; and
(c)sending such information to the postal address or facsimile number, or otherwise as provided for by the Corporations Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to creditors or lessors of real property presently occupied by the Companies in respect of whom the plaintiffs do not have an email address.
5.The plaintiffs must take all reasonable steps to obtain written acknowledgment from the lessors of real property presently occupied by any of the Companies that they have received a copy of these Orders.
6.Pursuant to r 28A.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), until 7 September 2022, the affidavit of Stephen Robert Dixon, sworn on 19 August 2022, and any copies of that affidavit provided to, and retained by, the Court, are to be treated as confidential on the RedCrest electronic Court file and are not to be inspected without order of a Judge, Associate Judge or Judicial Registrar of the Court and any application to inspect that affidavit is to be referred to a Judge, Associate Judge or Judicial Registrar of the Court, with three (3) business days’ notice thereof to be provided to the solicitors for the plaintiffs.
7.Liberty be granted to:
(a)the plaintiffs to apply to the Court for any purpose connected with the administrations of the Companies, including, but not limited to, seeking any further extension of the convening period as extended under Order 2 above at any time prior to 6 September 2022; and
(b)any creditor or any lessor of real property of any premises presently occupied by any of the Companies, or any person who is otherwise affected by these Orders, who can demonstrate sufficient interest to make application, to vary or discharge these Orders on three (3) business days’ written notice to the solicitors for the plaintiffs.
8.The costs of, and incidental to, this application be costs and expenses in the administrations and be paid out of the assets of the Companies.
SCHEDULE OF PARTIES
| S ECI 2022 02843 | |
| BETWEEN: | |
| SNEAKERBOY PTY LTD (ACN 603 960 961) (ADMINISTRATOR APPOINTED) | First Plaintiff |
| SNEAKERBOY RETAIL PTY LTD (ACN 604 708 189) (ADMINISTRATOR APPOINTED) | Second Plaintiff |
| SNEAKERBOY IP PTY LTD (ACN 604 708 090) (ADMINISTRATOR APPOINTED) | Third Plaintiff |
| LUXURY RETAIL GROUP PTY LTD (ACN 604 195 717) (ADMINISTRATOR APPOINTED) | Fourth Plaintiff |
| LUXURY RETAIL TREASURY PTY LTD (ACN 614 712 766 961) (ADMINISTRATOR APPOINTED) | Fifth Plaintiff |
| STEPHEN ROBERT DIXON | Sixth Plaintiff |
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