Shaw and Albarran (Joint and Several Administrators of Home Art Building Group Pty Ltd) v Home Art Building Group Pty Ltd (Administrators Appointed)
[2016] WASC 274
•29 AUGUST 2016
CAMERON SHAW and RICHARD ALBARRAN (IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HOME ART BUILDING GROUP PTY LTD (ADMINISTRATORS APPOINTED) -v- HOME ART BUILDING GROUP PTY LTD (ADMINISTRATORS APPOINTED) [2016] WASC 274
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 274 | |
| 29/08/2016 | |||
| Case No: | COR:181/2016 | 22 & 25 AUGUST 2016 | |
| Coram: | BEECH J | 25/08/16 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Convening period extended | ||
| B | |||
| PDF Version |
| Parties: | CAMERON SHAW and RICHARD ALBARRAN (IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HOME ART BUILDING GROUP PTY LTD (ADMINISTRATORS APPOINTED) HOME ART BUILDING GROUP PTY LTD (ADMINISTRATORS APPOINTED) |
Catchwords: | Corporations Insolvency External administration Administrators' application to extend convening period for meeting of creditors Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 439A |
Case References: | Parbery, Re NewSat Ltd [2015] FCA 435 Re ABC Learning Centres Ltd [No 7] [2009] FCA 454 Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115 Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 Re Vision (Brisbane) Pty Ltd [2010] FCA 186 Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71; (2009) 40 WAR 116 Stewart, Re Kleins Franchising Pty Ltd [2008] FCA 721 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicants
AND
HOME ART BUILDING GROUP PTY LTD (ADMINISTRATORS APPOINTED)
Respondent
Catchwords:
Corporations - Insolvency - External administration - Administrators' application to extend convening period for meeting of creditors - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 439A
Result:
Convening period extended
Category: B
Representation:
Counsel:
Applicants : Mr B S Morton
Respondent : No appearance
Solicitors:
Applicants : Mendelawitz Morton
Respondent : No appearance
Case(s) referred to in judgment(s):
Flynn v Theobald [2008] WASC 263
Parbery, Re NewSat Ltd [2015] FCA 435
Re ABC Learning Centres Ltd [No 7] [2009] FCA 454
Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110
Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352
Re Vision (Brisbane) Pty Ltd [2010] FCA 186
Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71
Stewart, Re Kleins Franchising Pty Ltd [2008] FCA 721
- BEECH J:
Introduction
1 The applicants are administrators of the respondent, Home Art Building Group Pty Ltd. They seek an order extending the convening period for the second meeting pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), and an order under s 447A permitting the meeting to occur before the end of the extended convening period.
2 The application is supported by Mr Shaw's affidavits of 18 August 2016 and 24 August 2016.
3 On 25 August 2016, I made orders extending the convening period. These are my reasons for doing so.
Background
4 The applicants were appointed joint and several administrators of Home Art Building Group Pty Ltd pursuant to a resolution of directors held on 28 July 2016.
5 The first meeting of creditors of the company in accordance with s 436E of the Act was held on 9 August 2016.
6 The company owns, as registered proprietor, a property known as 173 Kooyong Road, Rivervale (the Rivervale property) and a property on Ferguson Street in Maylands.
7 Both properties are subject to mortgages, to different mortgagees.
8 Prior to the appointment of the administrators, the company had undertaken significant work towards constructing an apartment complex at the Rivervale property. The apartment complex comprises eight two storey apartments.
9 The essence of the administrators' application is that they, on behalf of the company, propose to complete the construction of the apartment complex before convening the second meeting.
Mr Shaw's first affidavit
10 Mr Shaw has commissioned a report as to the estimated cost for completion of the apartment complex. Based on the report, he estimates the costs will be about $526,000 and it will take about 12 weeks to complete the works.
11 On 11 August 2016, the company accepted an offer of a loan of $2.35 million, secured by mortgages over the two properties. The loan is for a term of one year with an interest rate of 18% unless, in case of breach, the higher rate applies of 21%. The loan will be applied to discharging the existing mortgages over the two properties, involving payments totalling about $1.55 million, about $500,000 to complete the development, and some other payments.
12 The company has entered into conditional contracts to sell apartments in the apartment complex for six apartments. The contracts are due for completion by about April 2017.
13 The administrators seek the extension so they have adequate time to:
(a) complete the works associated with the completion of the apartment complex;
(b) obtain all clearances necessary for the completion and occupation of the apartments;
(c) make an application for separate certificates of strata title for each apartment;
(d) settle the pre-sale contracts of the apartments;
(e) attempt to sell the two unsold apartments; and
(f) consider the affairs of the company and set out their opinion as to the future of the company.
14 Mr Shaw says he has spent considerable time investigating the affairs of the company. To date, he has not received a report as to affairs from the directors.
15 Mr Shaw expresses the view that if:
(a) the works necessary to complete the apartment complex can be completed within the time estimated by the report;
(b) separate certificates of title for the apartments can be issued within 60 days thereafter;
(c) settlement of the pre-sale contracts occurs within 30 days of a separate certificate of title;
then there is every likelihood the company will be able to discharge all of its debts to unrelated parties.
The application
16 The administrators sought an extension of the convening period up to and including 31 January 2017.
Section 439A: General principles
17 The objects and scheme of pt 5.3A of the Act were outlined in Flynn v Theobald,1 and in Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd.2
18 In relation to s 439A(6), the following principles are established:
(1) The short time frames are an element of the scheme of the Act, the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible.
(2) However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under s 439A(6) involves a balancing of these considerations.
(3) In considering an application for an extension, the court must take into account the detriment to third parties including the suspension of rights and remedies of secured creditors, lessors and others.
(4) An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed of company arrangement, for the administration to end, or for the company to be wound up.
(5) Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, wind up the company or end the administration.
19 Helpful outlines of some of the broad categories of situations in which extensions of time have been granted were provided by Austin J in Re Riviera,3 and by Beach J in Parbery, Re NewSat Ltd.4
20 Among the situations where substantial extensions of time have been granted are when such time is needed to effect an orderly process for the disposal of the company's assets in a manner sufficient to maximise the return to creditors, or when the extension is needed to maximise the chances of the sale of the company's business as a going concern.
The first hearing
21 When the matter first came before me, on 22 August 2016, the application was supported solely by Mr Shaw's affidavit of 18 August 2016. At that stage, I was not persuaded that the extension sought should be granted. There was no evidence that creditors had any knowledge of the proposal. That stands in marked contrast of many of the cases where extensions had been granted.5 There was no information before the court as to the company's financial position, and as to its various creditors. As at that stage, there seemed to me to be insufficient assurance that creditors' interests were appropriately protected by proceeding as proposed by the administrators. The administrators' proposal goes beyond simply selling assets, or selling a business as a going concern. The proposal involves substantial expenditure by the administrators on behalf of the company. By its nature, the venture contemplated by the administrators involves substantial commercial risks such that the creditors may end up being worse off as a result of the expenditure of hundreds of thousands of dollars on completing the development. There is always the possibility of cost overruns, and of the process taking longer than anticipated.
22 In the circumstances, the application was adjourned to 25 August 2016 to enable the administrators to inform creditors of the proposal, and to canvass creditors' views, as well as to provide further evidence to the court about the company's position on the alternative scenarios that the proposal does or does not go ahead.
Mr Shaw's second affidavit
23 Mr Shaw's affidavit of 24 August 2016 attaches the report to creditors sent to all creditors on 23 August 2016. That report contains significantly more information than was provided in Mr Shaw's first affidavit. Mr Shaw deposes that to the best of his knowledge, information and belief, the contents of the report are true.
24 It is not necessary to set out in detail the contents of the report to creditors. It includes the following:
(1) Mr Shaw considers it likely that unless the existing facility is paid out very soon, the mortgagee will appoint receivers and managers to the company, which will significantly increase the costs of the administration and reduce the amount available to unsecured creditors;
(2) based on advice and appraisals, Mr Shaw believes that by completing the work on the apartment complex, involving spending about $500,000, the realisable value of the apartments will increase by something in the order of $1.5 million;
(3) Mr Shaw canvassed the very limited options if the second meeting was held in the short term. Realistically, that would result in the winding up of the company and the appointment of receivers and managers;
(4) the director of the company is, by a margin, its largest unsecured creditor;
(5) if the administrators' proposal is pursued, the director has said that she would contemplate subordinating her debt and allowing other unsecured debtors to be paid in priority to her debt.
25 In the short time since the report was sent to creditors, no creditor objected to what is proposed.
Disposition of the application
26 The additional information contained in Mr Shaw's second affidavit, and the contents of the report to creditors, combined with the absence of any objection from any creditor, satisfy me that it is appropriate to grant the extension for the period and for the purpose sought.
27 In the circumstances explained in Mr Shaw's affidavits and report to creditors, the prospect of significantly better return to unsecured creditors sustains the substantial extension that is sought. The administrators will only be able to make an informed recommendation as to the options provided by s 439A(4) when and if the apartment development is completed and at least some of the apartments are sold. The secured creditor is not prejudiced; it consents to this proposal, which involves it being paid out in the short term.
28 Given the short notice provided to creditors, I made the orders on terms that creditors have liberty to apply by no later than 2 September 2016 if they wish to apply to set aside the orders.
1Flynn v Theobald [2008] WASC 263 [36] - [53].
2Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71 [2] - [9].
3Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 [13].
4Parbery, Re NewSat Ltd [2015] FCA 435 [63].
5 For example, Re Vision (Brisbane) Pty Ltd [2010] FCA 186; Re ABC Learning Centres Ltd [No 7] [2009] FCA 454; Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd [2008] FCA 721.
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