Re Total Essential Services Group Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2024 02799

IN THE MATTER of TOTAL ESSENTIAL SERVICES GROUP PTY LTD (ADMINISTRATOR APPOINTED) (ACN 099 386 393)

BETWEEN:

STEPHEN ROBERT DIXON as Voluntary Administrator of TOTAL ESSENTIAL SERVICES GROUP PTY LTD (ADMINISTRATOR APPOINTED) (ACN 099 386 393)

Plaintiff

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JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	7 June 2024
DATE OF JUDGMENT:	7 June 2024 (ex tempore, revised 19 June 2024)
CASE MAY BE CITED AS:	Re Total Essential Services Group Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 331

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CORPORATIONS — External administration — Application for extension of convening period of second meeting of creditors of company in voluntary administration pursuant to s 439A of the Corporations Act 2001 (Cth) — Administrator seeking extension to enable completion of investigations into affairs of the company required under Pt 5.3A of the Corporations Act2001 (Cth) and to enable the proposal of a Deed of Company Arrangement — Modest extension sought of convening period of administration of a single corporate enterprise — No significant prejudice to those affected by moratorium by grant of extension — Orders made for extension of convening period together with ancillary orders including liberty to apply to administrator and those whose interests are affected by orders.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Koroneos, solicitor	Capstone Koroneos Legal Pty Ltd

HIS HONOUR:

By originating process filed on 4 June 2024, the plaintiff, Mr Stephen Dixon (‘Administrator’) who is the voluntary administrator of Total Essential Services Group Pty Ltd (Administrator Appointed) (ACN 099 386 393) (‘Company’), makes application under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) (‘Act’) for an extension of the convening period for the second meeting of creditors of the Company, required to be held by s 439A(1) of the Act (‘Application’).
The convening period expired at midnight on 4 June 2024 and the Application was made that day. The Administrator seeks an extension pursuant to s 439A(6) of the Act until 26 June 2024, a period of 15 business days.[1] He also seeks an order often described as a ‘Daisytek order’,[2] allowing the Administrator to hold the second creditors’ meeting any time during, or within five business days after, the end of the period as extended, notwithstanding the operation of s 439A(2) of the Act.
[1]In his originating process, the Administrator sought an extension of 10 business days but at the hearing of this matter, he sought an amendment of the originating process for an extension of 15 business days.
[2]See Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446, 448 [10]–[14] (Lindgren J) (‘Daisytek’).
In addition, the originating process seeks orders that the creditors of the Company be informed by several means of the making of the orders sought, together with liberty to apply to persons affected by those orders and costs.
On 7 June 2024, I made orders and gave brief reasons on the return of the Application. I indicated that I would provide more elaborate reasons which I now do.
The Application is supported by an affidavit of the Administrator (‘Dixon Affidavit’), sworn 4 June 2024. That affidavit has been supplemented by an affidavit of the Administrator’s solicitor, Mark Koroneos (‘Mr Koroneos’), sworn 6 June 2024.
The Administrator was appointed as the administrator of the Company pursuant to s 436A of the Act on 7 May 2024 (‘Appointment Date’).
The first meeting of creditors of the Company required by s 436E of the Act was held on 17 May 2024.
The Administrator calculates that in accordance with ss 439A(1) and 439A(5) of the Act, the second meeting of creditors was required to be convened by 4 June 2024; s 439A(2) requires the meeting to be held by 12 June 2024. In addition, the report to creditors regarding the Company’s affairs (‘Report’) required by r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (‘Insolvency Rules’) was required to be provided to creditors by 4 June 2024.
The Administrator deposes that at the time of swearing the Dixon Affidavit, he did not expect to be in a position to make the required recommendations to be included in the Report to creditors or convene a second meeting of creditors by the dates stipulated by the Act because:
(a)his investigations into the Company’s affairs and the business it operates are ongoing;
(b)further time is required to complete his investigation into the Company's books and records;
(c)the Company's major creditor is the Deputy Commissioner of Taxation (‘DCT’). To quantify the debt, the Company is required to lodge two outstanding Business Activity Statements (‘BAS’) and an outstanding Income Tax Return (‘ITR’) for FY2023. The Administrator deposes that he requires further time to finalise and lodge the relevant BAS and ITR;
(d)the Directors intend to propose a deed of company arrangement (‘DOCA Proposal’) which will require the creation of a creditors' trust with contributions to be made from the Company’s future trading profits. The Company has reviewed its trading operations and is in the process of implementing cost cutting measures without impacting on its trading performance. The Administrator states that, based on his discussions with the Directors, the Directors intend to submit a DOCA proposal which he anticipates will provide a return of ten to twenty cents in the dollar to ordinary unsecured creditors, however this amount is subject to revision pending the his review of the final DOCA Proposal. As at the date of Mr Koroneos’ affidavit, Mr Koroneos deposes that the Administrator had not received a final DOCA Proposal; and
(e)the Company's external accountant, Fordham Business Advisors, are in the process of finalising a cashflow forecast for FY2024/2025 (‘Cashflow Forecast’). Mr Koroneos deposes in his affidavit that on 6 June 2024, the Administrator received a draft of the Cashflow Forecast from Fordham Business Partners. Mr Koroneos states the Administrator is in the process of reviewing the draft and will provide his comments in relation to the draft to Fordham Business Partners, however it appears the Cashflow Forecast may not be finalised before 14 June 2024. He states the Cashflow Forecast will assist the Directors in formulating the DOCA Proposal and the Administrator in making the recommendations necessary for the Report.
The Company operates within a group of companies providing services with respect to building surveying, safety measures and fire safety engineering to commercial properties (‘Business’).
The Australian Securities and Investments Commission’s (‘ASIC’) extract for the Company records that it was incorporated on 25 January 2002. There are two directors of the Company: Bradley Johannsen was appointed on 14 April 2003 and Norman Whiteside was appointed on 3 July 2006 (collectively ‘the Directors’). The current shareholders of the Company are the Directors and Andrea Jane Whiteside.
The Company is the subject of 14 security interests registered on the Personal Property Securities Register (‘PPSR’) over the Company. The PPSR certificate records that 11 security interests are in favour of National Australia Bank Limited, two are in favour of Volkswagen Financial Services Australia Pty Limited and one is in favour of BMW Australia Finance Limited (collectively ‘Secured Creditors’).
In his evidence, the Administrator describes the preliminary investigations that have been conducted into the Company’s affairs by reference to its financial records since the Appointment Date. These investigations reveal that:
(a)a balance sheet for the Company as at 30 June 2023 indicates a negative net debt position of $777,089;
(b)a profit and loss statement for the Company for the financial year ended 30 June 2023 records a net profit of $388,510;
(c)an Aged Payables Summary for the Company as at 30 April 2024 reveals a total aged payables of $208,353.20;
(d)an Aged Receivables Summary for the Company as at 2 May 2024 indicates a total aged receivables of $1,237,841.97; and
(e)a month-by-month trading report for the current financial year, which shows the Company has invoiced $1,112,553.38 for the month of May 2024; its best month for the financial year ending 30 June 2024.
Since his appointment, the Administrator has also caused work to be undertaken to update the Company’s financial records, which includes:
(a)accessing the Company’s management accounts in Xero;
(b)liaising with the Directors, the Company’s staff and external accountants to obtain relevant financial information and understand the Company’s financial position; and
(c)undertaking an urgent review of the Company’s financial position and requesting information from the Directors, the Company’s staff, external accountants and related parties.
The Form 507 Report on Company Activities and Property (‘ROCAP’) was completed by the Directors on 31 May 2024. As at the date of the Dixon Affidavit, the Administrator’s office was in the process of lodging the ROCAP with ASIC.
As at 4 June 2024, a list of the Company’s known creditors who have submitted proofs of debt reveals a total of $5,157,971.23 owing to unsecured creditors. The major unsecured creditors are:
(a)the DCT for $4,911,167.47;
(b)Uptick Pty Ltd for $162,380.00;
(c)Chief Commissioner of State Revenue (NSW) for $33,368.29;
(d)Fordham Business Advisors Pty Ltd for $32,585.00;
(e)Firemate Software Pty Ltd for $16,445.00; and
(f)Allianz Australia Workers Compensation (Victoria) Limited for $2,025.47.
In a letter dated 3 June 2024 sent to creditors, the Administrator notified them of the proposed Application for the extension of the convening period. The notices were emailed to creditors and posted on the creditors’ portal for the administration of the Company on Hamilton Murphy Advisory’s website. As at the date of his affidavit, Mr Koroneos deposes that the Administrator had not received any objections or responses to his letter informing creditors of the proposed Application.
The Administrator states that since the Appointment Date, he has continued to trade the Business to preserve its value and the value of the Company’s assets. The Administrator states he has been informed by the Directors that they intend to submit a DOCA Proposal. The Administrator believes the DOCA Proposal will provide a return of between ten and twenty cents in the dollar to ordinary unsecured creditors, but notes that this amount may change.
Based on his experience, the Administrator contends that if the Company was placed into liquidation, it would have a detrimental effect on the potential realisable value of the Business and the Company’s other assets.
Mr Koroneos deposes that at the time of his affidavit, the Administrator was working with the Company’s external bookkeeper to finalise a projected trading statement for the Business for the period up to 30 June 2024. At that stage, it appeared that:
(a)the projected trading statement would be finalised by 7 June 2024; and
(b)the Business was currently trading profitably and there was no detriment to creditors if the convening period was extended as sought.
The Administrator states the proposed extension of the convening period is in the best interests of creditors as it would:
(a)enable the external accountants to finalise the Cashflow Forecast;
(b)enable the Directors to submit the DOCA Proposal which could provide a better return to creditors than a potential liquidation scenario;
(c)provide him with time to properly review the DOCA Proposal and seek any further information to be provided in support;
(d)not cause any substantial prejudice to creditors in relation to the ongoing trading costs or otherwise;
(e)avoid the need to adjourn the second meeting of creditors, which would result in additional expenditure;
(f)potentially avoid the prospect of the Company being placed into liquidation; and
(g)enable him to prepare the Report in compliance with the requirements of r 75-225(3) of the Insolvency Rules and provide an opinion as contemplated by s 438A of the Act as to whether it would be in the interests of the Company's creditors to execute a DOCA, for the administration to end, or for the Company to be wound up.
The Administrator contends that the extension period sought in the Application would enable the above steps to be undertaken in an orderly and cost-effective manner.

Relevant legal principles

The relevant principles to be applied when considering whether an extension of a convening period is warranted have been the subject of consideration in numerous authorities of state Supreme Courts and the Federal Court of Australia. They are referred to in Strawbridge, Re Virgin Australia Holdings Ltd (admins apptd) (No 2) (‘Strawbridge’),[3] where Middleton J collected and considered the principles and authorities governing an application to extend a convening period of a second meeting of creditors required to be held under Part 5.3A of the Act. His Honour stated:
[3](2020) 144 ACSR 347 (‘Strawbridge’) (Middleton J).
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).[4]
[4]Ibid, 370–1 [64]–[68].
In Re Riviera Group Pty Ltd (admin apptd) (recs and mgrs apptd) (‘Re Riviera’), Austin J further noted as follows:
The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category), the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator’s estimate of time has a reasonable basis.[5]
[5](2009) 72 ACSR 352, 355 [14] (Austin J) (‘Re Riviera’).
It is apparent that the primary reason for the Administrator seeking the extension is to progress and assess the DOCA Proposal. The authorities dealing with extensions reveal this is a proper purpose for the grant of an extension. In numerous cases, convening periods have been extended to enable the progression and assessment of a DOCA proposal.[6]
[6]See the authorities referred to in the extract of Strawbridge in para 23 above.
The administration of the Company is not a particularly complex one. It is a singular corporate enterprise although the debt owing to the DCT is very substantial, almost $5 million. Nonetheless, the Administrator, who is an experienced insolvency practitioner, is of the opinion that an extension is warranted to enable the progression and submission of a DOCA Proposal which he anticipates is likely to provide a return of ten to twenty cents in the dollar to ordinary unsecured creditors. An extension would also enable the Company’s external accountant, Fordham Business Advisors to finalise the Cashflow Forecast which will assist the Directors in formulating the DOCA Proposal and assist the Administrator in making the recommendations necessary for the Report.

When compared with other applications of this type, the extension sought is a modest one and it is somewhat unlikely that there will be any prejudice to creditors. On an application of the criteria collected in Strawbridge, I consider that there is a clear and compelling case for the grant of an extension of the convening period. One of the prominent criteria mentioned in Strawbridge is the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up. The Administrator is of the opinion that this will achieve the best return for the creditors. The authorities indicate that the opinion of the administrator in this context should be given considerable weight. There is no obvious prejudice to persons constrained by the moratorium provisions of Part 5.3A.
The Company was the tenant for a premises in Sydney which is in the process of being surrendered to the landlord. That landlord is not affected by any extension of the statutory moratorium on taking possession of those premises.
As has become commonplace in these types of applications, the Administrator seeks a ‘Daisytek order’[7] pursuant to s 447A of the Act to enable flexibility as to the date on which the meeting of creditors is required to be convened. I consider that to be an appropriate order to be made in these circumstances.
[7]Daisytek (n 2).
If I were not to grant the extension, it would be necessary for the Administrator to convene a second meeting of creditors and then adjourn it. I see no sensible purpose in requiring him to take such a course with all the attendant costs to the administration.
In the circumstances, on the return of this Application on 7 June 2024, I considered that it was appropriate to make the orders sought. I now recite the orders I made on that occasion:
(i)The plaintiff has leave to amend the date in paragraph 2 of the originating process to “26 June 2024”.
(ii)Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (‘the Act’), the period in which the plaintiff must convene the second meeting of creditors of Total Essential Services Group Pty Ltd (Administrator Appointed) (ACN 099 386 393) (‘the Company’) is extended up to and including 26 June 2024.
(iii)Pursuant to s 447A(1) of the Act, Part 5.3A is to operate in relation to the Company such that the second meeting of creditors required by s 439A(1) of the Act may be held at any time during or within five business days after the end of the convening period as extended by order 1 above, notwithstanding the operation of s 439A(2) of the Act.
(iv)The plaintiff must inform all known creditors of the Company (including persons claiming to be creditors) of this order by 4:00pm on 7 June 2024[8] by means of:
[8]By an order made by me on 11 June 2024, on the informal application of the Administrator, I extended the date mentioned in paragraph 4 of my order to 4:00pm on 12 June 2024.
(A)circular posted on any website maintained by the plaintiff;
(B)sending such information electronically to the email addresses of the creditors for whom the plaintiff has an email address; and
(C)sending such information to the postal address or facsimile number or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to creditors in respect of whom the plaintiff does not have an email address.
(v)Liberty to apply is granted to:
(A)the plaintiff to apply to the Court concerning the administration of the Company; and
(B)any creditor who can demonstrate sufficient interest to make an application to vary or discharge these orders no later than three business days prior to the last day of the convening period as extended by order 1 of this Order.
(vi)The costs of and incidental to this originating process, are costs and expenses in the administration of the Company and be paid out of the assets of the Company

[2024] VSC 331

7 June 2024 (ex tempore, revised 19 June 2024)