Re Wealth Within Holdings Pty Ltd (Administrators Appointed)
[2016] VSC 792
•19 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2016 05091
IN THE MATTER of s 439A(6) of the Corporations Act 2001 (Cth)
IN THE MATTER of Wealth Within Holdings Pty Ltd ACN 124 628 020 (Administrators Appointed)
| EX PARTE: STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE (in their capacities as joint and several administrators of WEALTH WITHIN HOLDINGS PTY LTD ACN 124 628 020 (ADMINISTRATORS APPOINTED) AND OTHERS (according to the Schedule attached) | Plaintiffs |
| v | |
| WEALTH WITHIN HOLDINGS PTY LTD (ACN 124 628 020) (ADMINISTRATORS APPOINTED) | Defendant |
---
JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 December 2016 |
DATE OF JUDGMENT: | 19 December 2016 |
CASE MAY BE CITED AS: | Re Wealth Within Holdings Pty Ltd (Administrators Appointed) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 792 |
---
CORPORATIONS – External administration under Part 5.3A of the Corporations Act 2001 (Cth) of a group of companies – Application for extension of convening period – Corporations Act 2001 (Cth), ss 439A and 447A – Circumstances favour granting of extension sought – Application granted.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P Fary | Cornwall Stodart |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background......................................................................................................................................... 1
Companies in Voluntary Administration................................................................................. 2
Companies in Creditors Voluntary Liquidation...................................................................... 3
Dormant Entities........................................................................................................................... 3
Employees.................................................................................................................................... 12
Assets and income...................................................................................................................... 12
Lessor of property....................................................................................................................... 13
Funding from government agencies........................................................................................ 13
Restructure................................................................................................................................... 14
Liquidation scenario................................................................................................................... 16
The administration to this point............................................................................................... 17
Convening Period....................................................................................................................... 20
Legal principles................................................................................................................................ 21
HIS HONOUR:
Introduction
The plaintiffs (‘the Administrators’) make application for extensions of time of the convening periods of meetings pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (‘the Act’) of Wealth Within Holdings Pty Ltd (‘Holdings’) and several other companies in its group, which are identified in paragraph 8 below.
Section 439A(1) of the Act, read with s 439A(5)(b), requires the Administrators to convene the required meetings of creditors of the defendant companies within the period of 20 business days after the Administrators’ appointment on 28 November 2016. The meetings must therefore be convened by 28 December 2016. By operation of s 439A(2) of the Act, the meetings must be held within five business days before, or within five business days after, the end of the convening periods mentioned.
Section 439A(6) of the Act gives the Court power to extend the convening period ‘on an application made during or after the [convening] period’. The Administrators seek a four month extension to 28 April 2017. The Administrators also seek orders, under the general power to make orders contained in s 447A of the Act, in relation to Part 5.3A of the Act.
The originating process seeking this relief is dated 14 December 2016 and is supported by an affidavit of one of the Administrators, Jason Glenn Stone sworn 14 December 2016.
Background
On 28 November 2016, Mr Stone, Petr Vrsecky and Stirling Lindley Horne were appointed as joint and several administrators of Wealth Within Holdings Pty Ltd (‘Holdings’) and four other companies which form part of the Wealth Within Group of companies (‘Wealth Within Group’).
Mr Stone deposes that the extensions of the convening periods are necessary, appropriate and in the interests of creditors such that the convening periods should be extended under s 439A(6) of the Act for a period of four months to 28 April 2017. Those factors are as follows:
(a) it will allow for the Administrators to identify any potential investors, effect a restructure of the Wealth Within Group, and maximise the return to unsecured creditors of the administration companies;
(b) it will maximise the possibility of a return to the shareholders of Holdings;
(c) the potential return for unsecured creditors is substantially greater if a restructure of the Wealth Within Group can be effected by the Administrators rather than a winding up of the administration companies; and
(d) no opposition has been raised to the extension by any creditors of the administration companies.
Mr Stone states that the Administrators have already received an indication from a potential investor that it might be prepared to invest a sum that would be sufficient to enable the administrations of the Wealth Within Group to come to an end. In addition Mr Stone states that the two core income generating businesses operating by the Wealth Within Group which are a Registered Training Organisation (‘RTO’) Business and a wealth management business may not be able to be sold as a going concern if the companies were to be liquidated.
The Wealth Within Group consists of the following companies:
Companies in Voluntary Administration
(a) Holdings;
(b) Wealth Within Limited (Limited);
(c) Wealth Within Institute Pty Ltd (Institute);
(d) Wealth Within IP Pty Ltd (IP);
(e) SRBM College Australia Pty Ltd (SRBM);
(collectively, ‘Administration Companies’);
Companies in Creditors Voluntary Liquidation
(f) Wealth Within Finance Pty Ltd (Finance); and
(g) Wealth Within Services Pty Ltd (Services);
(collectively, ‘Liquidation Companies’); and
Dormant Entities
(h) Barton College Pty Ltd;
(i) Wealth Within Investment Management Pty Ltd;
(j) Global One Management Pty Ltd
(k) Wealth Within TM Pty Ltd.
The current directors of each of the Administration Companies are as follows:
(a) Holdings, Limited and Institute:
(i) William Robert Pickett (Pickett);
(ii) Felicia Margaret Zerbes (Zerbes); and
(iii) Dale Edward Gillham (Gillham);
(b) IP:
(iv) Gillham; and
(v) Zerbes;
(c) SRBM:
(vi) Gillham.
(collectively the ‘Directors’)
Mr Gillham and Mr Zerbes are also directors of the Liquidation Companies. Mr Stone states that the Administrators’ discussions in relation to the Wealth Within Group have been predominantly with Mr Gillham and Mr Zerbes.
On 28 November 2016, the Administrators were appointed joint and several administrators of the following companies by resolution of their directors, Messrs Pickett, Zerbes and Gillham:
(a) Holdings;
(b) Limited;
(c) Institute;
On 28 November 2016, the Administrators were appointed joint and several administrators of IP by resolution of its directors, Mr Gillham and Mr Zerbes.
On 28 November 2016, the Administrators were appointed joint and several administrators of SRBM by resolution of its director, Mr Gillham.
On 28 November 2016, the Administrators were appointed joint and several liquidators of Finance and Services following a special resolution by each of those companies’ members that each of Finance and Services be wound up.
The Wealth Within Group’s business was founded in 2002, and operated primarily as an RTO (Education Business), as well as a fund manager and Australian Financial Services licence (AFSL) holder (Funds Management Business).
In addition to those functions, Wealth Within Group has also been developing a software platform over a number of years known as ‘Global One’ (Global One Platform). The function of the Global One platform is to provide financial advisors with a tool to manage and consolidate a client’s wealth across investment, superannuation, risk and debt. The Global One platform is not currently generating any income on behalf of the Wealth Within Group.
Each of the companies in the Wealth Within Group has a separate function, which can be summarised as follows:
(a) Holdings - the holding company of the Wealth Within Group;
(b) Limited - the holder of the AFSL and offers an investment service known as Direct Equity Managed Account Service (DEMAS) that manages clients' share portfolios on a discretionary basis. The books and records of Limited indicate that it has an annual turnover of approximately $400,000 to $500,000 and accounts for approximately 10% of the Wealth Within Group's annual income. At the time of the administrators’ appointment, Limited had approximately $16 million funds under management;
(c) Institute - provides education and training services to the Wealth Within Group. Institute is an RTO (RTO No. 21917) and is regulated by the Australian Skills Quality Authority (ASQA) under the Australian Quality Training Framework. The primary courses offered by Institute are a Diploma and Advanced Diploma in Share Trading and Investment (Primary Courses). The Primary Courses are accredited courses, and are online-based. Wealth Within Group is presently the only provider offering such courses in Australia. Institute is the main source of income for the Wealth Within Group, and accounts for approximately 90% of the Wealth Within Group's annual income received from third party sources;
(d) IP - holds the intellectual property rights for all software developed by the Group, including the Global One Platform;
(e) Services - employed all staff for the Wealth Within Group. It incurred and paid for most of Wealth Within Group's operating expenses;
(f) SRBM - is an RTO, which was acquired by the Wealth Within Group in 2015. Upon acquisition of this entity, the Wealth Within Group commenced the provision of additional courses which included the Diploma of Early Childhood Education and Care, Diploma in Business and Diploma of Leadership and Management (Secondary Courses). Although SRBM was initially acquired with the view to it providing those Secondary Courses, the Secondary Courses were ultimately provided by Institute, pursuant to a program developed by SRBM. SRBM is also the tenant of the premises from which the Wealth Within Group conducts business (see below);
(g) Finance – is a dormant entity within the Wealth Within Group.
In 2010, Institute was approved as a Vocational Education and Training (VET) FEE-HELP provider and Victorian Training Guarantee (VTG) provider, which enabled students to defer their tuition fees through the Federal and Victorian Government's loan schemes respectively. Prior to 2010, Institute had enrolled private fee paying students only. As a result, Institute received government funding in relation to student enrolments in relation to both the Primary and the Secondary Courses, which was paid directly to it by the Commonwealth Department of Education and Training (DET) and the Department of Education and Training Victoria (DETV). This resulted in a significant increase in the number of students, and the corresponding level of income received by Institute.
In July 2016, Institute was approved as a provider for Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) courses for internationally-based students for diploma and advanced diploma courses. Such courses required face-to-face classes for approximately 20 hours per week during the length of the course. Although Institute obtained a licence from CRICOS and intended to enrol international students, this has not eventuated to date.
As a consequence of the above events, Wealth Within Group expanded its operations from its office in Auburn Road, Hawthorn, and took up additional space at 10/190 Queen Street, Melbourne (Premises). Focus Group Investments Pty Ltd (‘the Landlord’) is the lessor and SRBM is the tenant of the Premises. Following the recent expiry of the lease at the Hawthorn premises, the Wealth Within Group has now relocated to the Premises and operates solely from that premises.
From the preliminary investigations conducted by the Administrators, the failure of the Wealth Within Group can largely be attributed to two main factors:
(a) loss of income and subsequent impact on cash flow resulting from a requirement to refund amounts to the DETV and DET arising out of an internal audit conducted in September and October 2016;
(b) recent changes to Federal Government (DET) Funding criteria; and
(c) strain on the company's cash flow as a result of the significant investment in the Global One Platform.
SRBM was acquired by the Wealth Within Group in about 2015, with a view to expanding the Wealth Within Group's traditional vocational training services offerings.
At the time of acquisition, the sole shareholder of SRBM was Piara Lal Pty Ltd. In consideration for the purchase was the covenant that Piara Lal Pty Ltd was to procure at least 300 students to enrol in training courses undertaken by Institute. In the period ending 30 June 2016, Piara Lal Pty Ltd was issued 90 ordinary shares in Holdings. The sole shareholder and director of Piara Lal Pty Ltd is Bhavesh Sidana (Bhavesh). The parties entered into a shareholders agreement dated 7 December 2015 and an undated share sale agreement.
Mr Stone is informed by the Directors that:
(a) after the acquisition, and pursuant to the covenant referred to above, Mohit Sidana (Mohit), the brother of Bhavesh, organised for delivery of 161 new student enrolments into the Secondary Courses, namely, a Diploma of Early Childhood Education and Care (109 students), a Diploma of Business (50 students) and a Diploma of Business and Management (2 students);
(b) in September 2016, Wealth Within Group conducted an internal audit of the Education Business. The results of the audit revealed anomalies in approval of student enrolments in order to receive further government funding at both State and Federal level;
(c) as a result of the internal audit, the Directors believe that Mohit may have orchestrated a sophisticated scheme to produce "phantom" enrolments into Secondary Courses provided by the Wealth Within Group, which led to Wealth Within Group receiving funding for students who had not actually enrolled or completed those courses;
(d) the alleged actions of Mohit and Bhavesh put Piara Lal Pty Ltd in breach of the share sale agreement and/or the shareholders’ agreement; and
(e) the Wealth Within Group then self-disclosed the above issues to the Victorian and Federal Governments.
As a consequence, a portion of the government funding already received for enrolments in the Secondary Courses must be refunded to the relevant government departments. Mr Stone estimates the amount to be refunded to the DETV is in the order of $100,000, and the amount to be refunded to the DET is in the order of $318,000. In addition, Mr Stone estimates that an additional $100,000 may also be required to be refunded to the DET.
All funding for the Secondary Courses, which receive funding from the DETV, has been withdrawn. Wealth Within Group is presently receiving income only in relation to the Primary Courses, which receive funding from the DET VET FEE HELP scheme. The Wealth Within Group is not able to set off this income against the debt due to the DETV.
In addition, recent changes to the government funding criteria resulted in the removal of some courses that Institute had previously offered to students from the list of government-funding approved courses (namely, the Diploma in Share Trading and the Advanced Diploma in Share Trading). Consequently, Wealth Within Group anticipates a drop in student numbers and a reduction in income as they are not eligible for funding for new enrolments after 12 December 2016. However, new students may still enrol in those courses, on an ‘up-front fee’ basis (that is, without Government Funding).
The Global One Platform has been in development for in excess of five years. The Global One Platform has never generated any income and, prior to the Administrators’ appointment, there did not appear to be any attempts to use the Global One Platform, although that was the intention in the future. Some preliminary attempts had been made to sell it.
The books and records of the Wealth Within Group show that an amount of approximately $5 million has been spent by the Wealth Within Group on developing the Global One Platform, and the software is carried in the balance sheet of IP in the sum of $4,855,377.68.
The Administrators’ initial investigations indicate that the Global One Platform is not readily realisable and thus is likely overvalued in the balance sheet of IP (it is carried at or near development cost, rather than realisable value). Notwithstanding, the Administrators have met with a potential purchaser and believe that the Global One Platform may have significant value, if it can be properly put to market. Due to the unique nature of the software, it is very difficult to accurately assess the ultimate value of the Global One Platform at this stage.
Mr Stone exhibits to his affidavits copies of the financial records as follows:
(a) balance Sheet and Profit and Loss Statement of the Administration Companies, as at the date of our appointment; and
(b) Mr Stone understands that none of the other Administration Companies had financial reports prepared and audited.
With the exception of SRBM, income tax returns for the 2015-2016 period are yet to be lodged for the Wealth Within Group. SRBM is not part of the Tax Consolidated Group and accordingly, prepares a separate income tax return lodgement.
According to the Administrators’ investigations, Business Activity Statement (BAS) lodgements are up to date in respect of all the Administration Companies.
Creditors of the Administration Companies
Mr Stone exhibits to his affidavit copies of a list of creditors of the Administration Companies as at 28 November 2016.
The unsecured creditors of the Administration Companies are as follows:
(a) Holdings
Creditor
Debt Amount ($ AUD)
Barton College Pty Ltd
100.00
Dalelea Pty Ltd ATF The Gillham Family Trust
675,000.00
SRBM
528.00
Institute
364,337.00
Limited
43,875.00
Services
820,245.00
Total:
1,904,085.00
(b) Limited
Creditor
Debt Amount ($ AUD)
Australian Tax Office
1,994.50
Dalelea Pty Ltd ATF The Gillham Family Trust
90,597.96
Total:
92,592.46
(c) Institute
Creditor
Debt Amount ($ AUD)
Australian Tax Office
1,179.89
Department of Education & Training - VTG
100,765.50
Department of Education & Training – VET FEE-HELP
318,000.00
Limited
2,200.00
Total:
422,145.39
(d) IP
Creditor
Debt Amount ($ AUD)
Holdings
4,855,371.00
Services
246.00
Total
4,855,617.00
(e) SRBM
Creditor
Debt Amount ($ AUD)
Sidana Group Pty Ltd
215,202.21
Services
1,058.00
Total:
216,260.21
The Administration Companies have no secured creditors.
The Administrators estimate the liabilities of the Wealth Within Group to be, on a consolidated basis (including the Liquidation Companies), to be as follows:
Trade creditors
$8,000
Credit cards
$11,000
Payroll debt (which is a liability of Services)
$133,000
Student deposits (students who have enrolled but not yet commenced or completed course)
$63,000
Loan creditors (excluding intercompany loans, but including director and other related party loans)
$890,000
Preference shareholders (who rank below creditors but above ordinary shareholders)
$1,473,000
Government Debt
$418,000
TOTAL
$2,996,000
Employees
As at the date of the Administrators’ appointment, Services employed 21 employees and provided the use of its employees to the Wealth Within Group. Services is now in liquidation. Services provided the use of its employees to the Wealth Within Group. All employees are expected to be retained and used for the purposes of trading on the business of the Wealth Within Group during the period of the administrations.
The employees are predominantly utilised in the Education Business, and include a group of assessors and a sales team to sign up new students. In relation to the Funds Management Business, a senior analyst is employed to conduct trades in relation to the funds under management. Administrative staff work across both the Education and Funds Management Businesses.
Assets and income
As at the date of the appointment of the Administrators, Wealth Within Group had an amount of approximately $1.1 million cash at bank, primarily made up of $884,000 held by Institute, $285,000 held by Limited, with the remaining funds held in Holdings, Finance and Services. Mr Stone’s preliminary investigations indicate that these funds will be sufficient to allow the Wealth Within Group to trade-on the business over the period of the proposed extended convening period.
The Administrators also anticipate that Institute will receive income totalling $100,000 in government funding in December 2016, in relation to ongoing training of students. This income is contingent on DET making payment of that income to Institute, rather than setting off this amount from the debt owed by Institute to DET.
Wealth Within Group will also receive further income from Limited in an amount of approximately $25,000 per month in commissions. This is expected to continue for the duration of the extended convening period.
Lessor of property
As to the premises from which the companies operate, the Wealth Within Group has consolidated its operations into one Premises and as of this time, all rent has been paid and is up to date. The Administrators’ investigations indicate that there are sufficient funds to pay the rent at the Premises over the extended convening period.
Further, the Landlord of the Premises holds a bank guarantee as security for the lease. The bank guarantee is in the amount of $107,000.
Mr Stone indicates that he has been informed by George Reilly, a Manager employed by PKF who has been working on the administrations, that on or about 7 December 2016 he spoke to Brett Aguis on behalf of the Landlord, and informed him that the Administrators proposed seeking an extension of the convening period for a period of four months. As at the date that Mr Stone swore his affidavit, he states that he had not received any objection from the Landlord to the extension.
Funding from government agencies
The Administrators are not eligible to receive any funding from the DET for new enrolments in any accredited courses after 31 December 2016, as the Scheme ceases at this time for new enrolments under VET FEE HELP. Institute is not eligible to apply for the Federal Government's new Scheme "VET Student Loans" that commences on 1 January 2017.
Subject to the Administrators obtaining tuition assurance through Australian Council for Private Education and Training's (ACPET) Australian Student Tuition Assurance Scheme (ASTAS), which protects student fees paid in advance, DET has indicated to us that it is prepared to continue VET FEE HELP for the students who are undertaking, and were enrolled in the Primary Courses, prior to 31 December 2016.
Mr Stone estimates the approximately 440 students who enrolled in the Primary Courses will continue their tuition after 31 December 2016 and that the VET FEE HELP income payable to Institute in relation to those students is in the order of $525,000. However, those funds are likely to be withheld by the DET and off-set against its outstanding debt, until it is repaid in full. Any surplus funds will flow to Institute.
The Administrators’ investigations to date reveal there are a number of intercompany loans between some of the companies in the Wealth Within Group, which require further analysis to determine the accurate financial circumstances of the Wealth Within Group. The intercompany loans in relation to the Administration Companies are listed in paragraph 34 above.
The Administrators’ preliminary investigations indicate that a restructure of the Wealth Within Group may be possible, which would allow the Administration Companies to exit administration, and to continue to trade profitably.
Restructure
The Administrators have explored a number of options to effect a restructure, which include:
(a) Finding an investor and source of new students for the Wealth Within Group (as a whole)
The Administrators have actively sought investors, and have received interest from one buyer prepared to invest $1 million in return for a 20% interest in the Wealth Within Group. This was received by way of initial interest only, and is not a binding offer. The Administrators have sought a formal expression of interest from the potential investor to enable negotiations to continue;
(b) Sale of Global One Platform
The Administrators have met with a number of parties with a view to affecting a sale of the Global One Platform. An information memorandum has been prepared, and on 6 December 2016, the Directors and staff from the Administrators’ office met with a potential purchaser to ascertain its interest in purchasing the Global One Platform. Negotiations are ongoing.
(c) Sale of AFSL and Funds Management Business
The Administrators have spoken to various parties to ascertain whether there is any interest in acquiring the AFSL and Funds Management Business, which produces a regular income stream in the order of $35,000 per month.
The Administrators consider that the preferable course of action would be to find an investor for the Wealth Within Group as a whole. In the absence of finding such an investor, the Administrators will need to sell the various arms of the business in a piecemeal fashion, including the Education and Funds Management Businesses.
The Administrators are taking steps to secure assurance through ASTAS which will allow Institute to obtain VET FEE HELP in relation to existing students enrolled in Primary Courses. The income referred to in paragraph 47 above, will provide sufficient funds to repay the liability to the State and Federal governments as referred to in paragraph 34(c) above.
If the Administrators are not able to secure assurance through ASTAS such that VET FEE HELP government funding is not available for the existing students, Institute will require upfront payment from the students to complete the Primary Course. Alternatively, the students will have to be withdrawn from the course prior to its completion. A fee increase of this nature to the students will have an adverse effect on Institute's business, by reducing the number of students who will complete the Primary Courses.
Given that Institute is not eligible for DET or DETV funding in 2017, new enrolments will be sought on an upfront fee for service basis of $11,800 for the Diploma in Share Trading and $13,295 for the Advanced Diploma in Share Trading.
Further, if the Administrators are not able to secure assurances through ASTAS, the Administrators will consider licencing the accredited Primary Courses to another RTO in exchange for a share of the VET FEE HELP received in relation to each student. This would enable Institute to maintain some source of ongoing income.
As a part of a restructure, the Administrators require time to seek removal of Piara Lal Pty Ltd as a shareholder of Holdings (currently a 47.37% shareholder) in light of the alleged dishonest behaviour and breach of the shareholders agreement.
Mr Stone’s preliminary investigations indicate that a trade on and restructure of Wealth Within Group, as outlined in paragraph 50 would enable all employees, together with all accrued entitlements, to be transferred out of Services into a new entity. This will ensure that all employees will be paid entitlements which have accrued. This may not be achievable if the Administration Companies go into liquidation.
At present, there is no Deed of Company Arrangement proposed by the Directors which can be put to creditors for their consideration.
Liquidation scenario
If the Administration Companies were to go into liquidation at the second meeting of creditors, the Administrators’ investigations indicate:
(a) Institute's RTO licence will be terminated such that all VET FEE HELP for the students who are undertaking and were enrolled in the Primary Courses prior to 31 December 2016 will be withdrawn;
(b) Institute will be unable to trade as a RTO if it goes into liquidation;
(c) a RTO license is non-transferrable, and therefore could not be sold or transferred whilst in liquidation and will lose all value. Institute will lose any value;
(d) all employees associated with the Education Business (being the bulk of the employees employed by the Wealth Within Group) will be terminated. As Services has minimal assets, employees would need to rely on FEG for the payment of any entitlements, or from the flow of intercompany loans, once reconciliation of the loan accounts is completed. Mr Stone also estimates that there will be some unpaid superannuation entitlements due to those employees;
(e) there is a risk that investors who have funds under management with Limited will withdraw their funds, such that the Funds Management Business would have reduced value as a going concern;
(f) even apart from the funds management business, the AFSL will still have some value, so long as ASIC does not cancel it. ASIC may cancel the license at its discretion, and in the Administrators’ view, that is more likely to occur if the Wealth Within Group goes into liquidation;
(g) the only remaining assets may be the Global One Platform, which has not been independently valued and for which it is not yet clear whether there would be interested buyers, and some office furniture, which Mr Stone estimates to have a market value in the order of $30,000, or a value of approximately $10,000 at auction; and
(h) if the Education Business and the Funds Management Business cannot be sold as a going concern, and depending on the value of the Global One Platform, the Administrators anticipate, that although the cash at bank will enable a significant dividend to the creditors of Limited and Institute (most of whom are related parties), there will be a minimal return to unsecured creditors of the other entities in the Wealth Within Group and in particular Services.
The administration to this point
The Administrators’ office currently has 2 partners, 1 consultant and 3 staff working on the administration of the Administration Companies.
The Administrators’ have circulated the following documents to creditors on 30 November 2016:
(a) a Declaration of independence, Relevant Relationships & Indemnities;
(b) Notice of Meeting to Creditors;
(c) Explanatory Memorandum to Creditors;
(d) Remuneration Advice;
(e) Form of Proxy;
(f) Proof of Debt for Voting Purposes; and
(g) Covering letter.
Substantially the same documents have also been sent to the creditors of the other Administration Companies within the Wealth Within Group.
The first meeting of creditors of the Group was held on 8 December 2016.
The principal tasks that the Administrators and their staff have undertaken to date are as follows:
(a) liaising with the employees of the corporations within the Wealth Within Group, especially the executive staff, to obtain information;
(b) arranging payment of the employees' wages;
(c) preparation and lodgement of Notice of Appointment with ASIC;
(d) preparation of letters to various banks, Australian Taxation Office, essential services and other government departments advising of their appointment as Administrators;
(e) interview with Directors;
(f) Interview with management staff;
(g) organising and setting up new bank account for the Administration Companies;
(h) preparation of correspondence to the Directors of the Administration Companies confirming the appointment of the Administrators, demanding the delivery of books and records, and the preparation of a Report as to Affairs and Questionnaire;
(i) preliminary inspection of the Administration Companies' books and records;
(j) liaising with the Directors in regards to the history of the Administration Companies, their affairs, assets and liabilities;
(k) reviewing and dealing with creditors;
(l) corresponding with creditors with registered security interests in the Personal Property and Securities Register (there are two creditors listed holding PPSA registrations. Fuji Xerox, in relation to a photocopier, that was collected prior to the Administrators’ appointment, and Leveraged Equities, who have advised the Administrators that they are no longer a creditor);
(m) convened the first meeting of creditors;
(n) dealing with the inquiries of shareholders and employees;
(o) assumed liabilities for the provision of services to the Administration Companies;
(p) corresponded with the DET and ASQA;
(q) dealing with student enquiries;
(r) corresponded with potential investors;
(s) placed binder insurance cover and engaged an insurance broker to review the insurance position of the Wealth Within Group;
(t) obtained and reviewed the books and records;
(u) reviewed cash flow forecast for the anticipated trade-on period;
(v) paid ongoing wages to the employees (employees are paid fortnightly) which include wages for the days prior to our appointment;
(w) calculated outstanding employee entitlements as at the date of the Administrators’ appointment; and
(x) engaged solicitors to deal with various legal matters.
The directors of the Administration Companies have completed Reports as to Affairs (RATA) in relation to each of those entities.
At the first creditor’s meeting of the Administration Companies on 8 December 2016, Mr Vrsecky indicated that the Administrators would be seeking an extension of the convening period for the second creditors meeting, to which no objection was raised. Only one creditor attended in person, a representative of the DETV.
Mr Stone has also notified major creditors and relevant parties including DET, DETV, ASQA and the Landlord that the Administrators would be seeking an extension of the convening period. As at the date of Mr Stone swearing his affidavit, he had not received any notification from any creditor objecting to this course of action.
Convening Period
For the reasons appearing in his affidavit, Mr Stone considers that an extension of the convening period, which ends on 28 December 2016, will enable the investigation of the affairs of the Administration Companies and provide additional time for a restructure of the Wealth Within Group. He considers this, for the reasons outlined in his affidavit, to be in the best interest of the creditors.
If a second meetings of creditors was to occur within the time specified by section 439A(5) of the Act, by reason of Mr Stone’s preliminary investigations, he would recommend that creditors resolve to put the Administration Companies in to liquidation. Mr Stone does not believe that it is in the best interest of creditors to do so. Based on his professional judgment, Mr Stone considers it likely that, taking into account the Christmas and New Year period, it will take at least four months for enquiries to be completed in relation to potential investors, to consider options for a potential restructure and to effect a restructure of the Wealth Within Group.
Mr Stone states that in his view, there is a reasonable prospect of a return to creditors of approximately 90 to 100 cents in the dollar if the Wealth Within Group is given the opportunity to source investors and give effect to a restructure of the business. In the circumstances, Mr Stone considers that it would be in the interests of the creditors that the convening period be extended so as to allow the Administrators to identify potential investors, effect a restructure and maximise returns to creditors.
Legal principles
A number of authorities have summarised the principles to be applied in these types of applications. In Algeri; Re Colorado Group Ltd,[1] Judd J observed:[2]
[1][2011] VSC 260.
[2]Ibid [24]-[25] (citation omitted).
24.When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension. In Re FEA Plantations Ltd [2010] FCA 468, at para 19, Dodd-Streeton J said:
Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company.
25.In Re Riviera Group, Austin J noted that extensions had been granted in cases falling within the following broad categories:
The reasons given for an extension in subsequent cases can be grouped into the following broad categories:
• the size and scope of the business: Re Lombe; Babcock & Brown Ltd (admins apptd) [2009] FCA 349 (Re LombeRe Worrell; Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584; [2009] FCA 70 (Re WorrellRe ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947;
• substantial offshore activities: Re Lehman Bros Australia Ltd [2008] NSWSC 1132;
• large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari [2005] VSC 496; Re Ansett Australia Ltd and Korda; sub nom Ansett Australia Ltd (No 3) (FCR) (2002) 115 FCR 409 ; 40 ACSR 433 ; [2002] FCA 90;
• complex corporate group structure and intercompany loans: Re Lombe; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd) [2008] QSC 272; Re LED Builders Pty Ltd (admin apptd) [2008] NSWSC 633; Hall; Re Australian Capital Reserve Ltd (admins apptd) [2007] FCA 1328;
• complex transactions entered into by the company (for example securities lending or derivatives transactions): In Re Lift CapitalPartners Pty Ltd (admin apptd) [2008] NSWSC 446 (Re Lift Capital);
• complex prospects of recovery proceedings: Re WorrellCoal Developments (German Creek) Pty Ltd v Cmr of Taxation (2007) 241 ALR 667 ; [2007] FCA 1324;
• lack of access to corporate financial records: Re Sims; Destra Corp Ltd [2008] FCA 2002; Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363;
• the time needed to execute an orderly process of disposal of assets: Re Carter, SFM Australasia Pty Ltd (admin apptd) (No 2) [2009] FCA 419; Re ABC Learning Centres Ltd; Application byWalker (No 7) (2009) 71 ACSR 560 ; [2009] FCA 454;
• the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admin apptd) [2009] FCA 636;
• where the extension will allow sale of the business as a going concern: Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admin apptd) [2008] FCA 721; Re Uni-AireSecurity Pty Ltd (admin apptd) [2006] FCA 1423;
• more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v ScottsdaleHomes No Pty Ltd (No 2) [2009] FCA 190; Re Fitzgerald; PrimebrokerSecurities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; ReVouris; Marrickville Bowling and Recreation Club Ltd [2008] FCA 622.
In my view, if the above factors are applied in the context of the Administrations the subject of this application, I consider there are substantial grounds to support an extension of time for the period sought by the Administrators. Extensions of time are likely to:
(a) allow time for the Administrators to identify potential investors, effect a restructure of the Wealth Within Group, and maximise the return to unsecured creditors of the Administration Companies;
(b) facilitate investigation into the affairs of the Administration Companies;
(c) maximise the possibility of a return to the shareholders of Holdings;
(d) enhance the prospects that the two core income generating businesses operated by the Wealth Within Group (an RTO business and a wealth management business) be sold as a going concern;
(e) enhance the prospects that the 21 employees' jobs will be retained with the consequence that priority creditor claims may be reduced; and
(f) there is a reasonable prospect of a return to creditors of approximately 90 to 100 cents in the dollar if the Wealth Within Group is given the opportunity to source investors and give effect to a restructure of the business.
The Administrators have assessed that the estimated loss of $419,067.42 across the Wealth Within Group, if the Group were to trade on, will be outweighed by the potential benefits which include an increased return against a liquidation scenario.
In addition, the Landlord of the premises from which the Group now operates, who will be potentially prejudiced by the extension of the moratorium consequent on the making of these orders, has been informed of the proposed application and, while it does not consent, it has not objected to it either. As I have noted, the Administration Companies have no secured creditors who would be affected by these orders.
The Administrators also seek a so-called ‘Daisytek’ order which will permit them to hold the meeting at any time during, or within the five business days after the end of the convening period, and I consider that it is appropriate to make such an order if the Administrators wish to convene the meeting earlier than is contemplated by these orders. If it subsequently transpires that a shorter period of time is required than currently anticipated, the second creditors meeting may be held without any unnecessary delay. An order of this type was made by Kenny J in Re Midas Australia Pty Ltd[3] and by Lindgren J in Re Daisytek Australia Pty Ltd.[4] I also consider it appropriate to make orders of the type made by White J in Carter v Global Food Equipment Pty Ltd[5] that the creditors of the companies be given notice of these orders by either email or post (if an electronic address is not available) and that liberty to apply be granted to any person with sufficient interest to apply to the Court to vary them.
[3][2009] FCA 38.
[4](2003) 45 ACSR 446.
[5](2007) 25 ACLC 1173; [2007] NSWSC 901.
SCHEDULE OF PARTIES
| S CI 2016 05091 | |
| BETWEEN: | |
| STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE IN THEIR CAPACITIES AS A JOINT AND SEVERAL ADMINISTRATOR OF WEALTH WITHIN HOLDINGS PTY LTD (ACN 124 628 020) (ADMINISTRATORS APPOINTED) | Firstnamed Plaintiff |
| STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE IN THEIR CAPACITIES AS A JOINT AND SEVERAL ADMINISTRATOR OF WEALTH WITHIN LIMITED (ACN 088 389 913) (ADMINISTRATORS APPOINTED) | Secondnamed Plaintiff |
| STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE IN THEIR CAPACITIES AS A JOINT AND SEVERAL ADMINISTRATOR OF WEALTH WITHIN INSTITUTE PTY LTD (ACN 116 394 837) (ADMINISTRATORS APPOINTED) | Thirdnamed Plaintiff |
| STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE IN THEIR CAPACITIES AS A JOINT AND SEVERAL ADMINISTRATOR OF WEALTH WITHIN IP PTY LTD (ACN 114 756 517) (ADMINISTRATORS APPOINTED) | Fourthnamed Plaintiff |
| STIRLING LINDLEY HORNE, PETR VRSECKY AND JASON GLENN STONE IN THEIR CAPACITIES AS A JOINT AND SEVERAL ADMINISTRATOR OF SRBM COLLEGE AUSTRALIA PTY LTD (ACN 141 001 121) (ADMINISTRATORS APPOINTED) | Fifthnamed Plaintiff |
| - and - | |
| WEALTH WITHIN HOLDINGS PTY LTD (ACN 124 628 020) (ADMINISTRATORS APPOINTED) | Defendant |
0