Strawbridge, in the matter of Australian Convenience Foods Group Pty Limited (Administrators Appointed)
[2012] FCA 1173
•12 September 2012
FEDERAL COURT OF AUSTRALIA
Strawbridge, in the matter of Australian Convenience Foods Group Pty Limited (Administrators Appointed) [2012] FCA 1173
Citation: Strawbridge, in the matter of Australian Convenience Foods Group Pty Limited (Administrators Appointed) [2012] FCA 1173 Parties: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE as ADMINISTRATORS OF AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED) and AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED) File number: NSD 1366 of 2012 Judges: EMMETT J Date of judgment: 12 September 2012 Legislation: Corporations Act 2001 (Cth) s 439A, 443A, 447(1) Date of hearing: 12 September 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 24 Counsel for the applicants: SC Ipp Solicitor for the applicants: Corrs Chambers Westgarth
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1366 of 2012
IN THE MATTER OF AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED
BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE as ADMINISTRATORS OF AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED)
First ApplicantsAUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED)
Second Applicant
JUDGE:
EMMETT J
DATE OF ORDER:
12 SEPTEMBER 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.An order pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act) that the period within which the first applicants must convene the meeting of the second applicant under s 439A(5) of the Act be extended up to and including 14 December 2012.
2.An order pursuant to s 447(1) of the Act, that the meeting of the second applicant required under s 439A of the Act may be held at any time during, or within five business days after the end of, the convening period, as is extended by order 1 above, notwithstanding the provisions of s 439A(2) of the Act.
3.Orders pursuant to s 447A(1) of the Act that:
(a) the liabilities of the first applicants, in their capacity as joint and several administrators of the second applicant, under the Invoice Discounting Agreement entered into between the second applicant and Scottish Pacific Business Finance Pty Ltd (Invoice Discounting Agreement), which is included in Exhibit “VNS-1” to the affidavit of Vaughan Neil Strawbridge sworn on 12 September 2012 (Exhibit), will be limited in the manner provided for, pursuant to the terms of the deed of indemnity with Scottish Pacific Business Finance Pty Limited dated 5 September 2012 (Deed of Indemnity), which is also included in the Exhibit;
(b) the operation of s 443A(2) of the Act is modified, so far as it applies to the liability of the first applicants in their capacities as the joint and several administrators of the second applicant pursuant to the Invoice Discounting Agreement, so as to permit the liability of the first applicants to be limited in the manner provided for by the Deed of Indemnity;
(c) the operation of s 443A(1) of the Act is modified, so far as it applies to the liability of the first applicants in their capacities as the joint and several administrators of the second applicant, pursuant to the Invoice Discounting Agreement, so that the first applicants will not be personally liable pursuant to ss 443A(1)(d) – (f) of the Act or otherwise, for, or in connection with, the loan provided pursuant to the Invoice Discounting Agreement (including repayment of the money borrowed, interest thereon and borrowing costs) otherwise than in accordance with the Deed of Indemnity.
4.Liberty to apply be granted to any person who can demonstrate sufficient interest to modify or discharge these orders upon appropriate notice being given to the first applicants.
5.The cost of this application be paid from the administration of the second applicant.
6.Exhibit VN3 be marked as a confidential exhibit and that it is not to be inspected without the leave of the Court.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1366 of 2012
IN THE MATTER OF AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED
BETWEEN: VAUGHAN NEIL STRAWBRIDGE, JOHN LETHBRIDGE GREIG and DAVID JOHN FRANK LOMBE as ADMINISTRATORS OF AUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED)
First ApplicantsAUSTRALIAN CONVENIENCE FOODS GROUP PTY LIMITED (ACN 098 539 416) (ADMINISTRATORS APPOINTED)
Second Applicant
JUDGE:
EMMETT J
DATE:
12 SEPTEMBER 2012
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Messrs Vaughan Strawbridge, John Greig and David Lombe were appointed joint and several administrators (the Administrators) of Australian Convenience Foods Group Pty Limited (the Company) by a resolution of the board of directors of the Company on 28 August 2012. The Administrators have applied to the Court for an extension of the convening period for the calling of the second meeting of creditors of the Company, required to be held under s 439A(1) of the Corporations Act (2001) (Cth) (the Act). The Administrators have also applied under s 447A of the Act to alter the operation of s 443A(2), so as to limit their personal liability under an invoice discounting facility entered into by the Company prior to their appointment.
The Company was established in 2001 and makes and distributes ready-to-eat food products to a large range of convenience-type outlets. It operates from premises in New South Wales, Queensland, Victoria, South Australia, and Western Australia. At the time of the appointment of the Administrators, the Company had a total of 409 employees throughout Australia, being 116 full-time employees, 227 part-time employees, and 66 casual employees.
The Administrators have reviewed the financial position of the Company following receipt of a report as to affairs, provided to the Administrators by the directors on 4 September 2012. Since their appointment, the Administrators have also reviewed the books of the Company, at least on a preliminary basis, commissioned asset valuations, updated the Company’s accounts and conducted a stock take. They have prepared an estimated outcome statement for the Company and have formed a preliminary view of the potential outcome of the sale of the business of the Company on a going concern basis and on a forced sale or liquidation basis. They have not yet had an opportunity to consider any recovery that may be made by a liquidator for antecedent transactions or insolvent trading, because they have not yet had sufficient time to complete full investigation of those matters.
Rather, the Administrators have focused their efforts on the ongoing trading prospects of the Company’s business, including analysis of stock on hand, profitability by state and customer, cash flow, and operating costs and expenses. Since their appointment, the Administrators have carried out a wide range of tasks, including general administration, fulfilment of statutory obligations such as notification with Australian Securities and Investments Commission (the Commission) and notifying the Australian Taxation Office of their appointment, holding discussions with employees, liaising with directors, preparing a circular to creditors and conducting the first meeting of creditors under s 436E of the Act, and conducting preliminary investigations as to the financial position of the Company.
By reason of the effort involved in that work, including concentrating on stabilising the business and conducting the sales process of the Company, the Administrators have not had sufficient time to complete their investigations within the time stipulated by s 439A(5)(b) of the Act. The first meeting of creditors was conducted on 7 September 2012, and at that meeting the creditors passed a resolution appointing a committee of creditors. The Administrators have formed the view that it is desirable to continue the business of the Company as a going concern in order to maximise any return to creditors and to assist in the prospect of the employees of the Company continuing in employment.
The major asset of the Company is its business, and the value of that business will be greatly diminished if it cannot be sold on a going concern basis. If the business is not able to be sold as a going concern, it is likely that all employees will become redundant. However, the Administrators have been negotiating with a number of parties who may be interested in purchasing the business, who have indicated that they may offer the majority of employees continuing employment. They therefore propose to continue to trade the business until such time as the option of sale as a going concern is no longer viable.
The Administrators have advertised the business for sale and have been contacted by approximately 54 parties who have declared an interest in investigating the possibility of purchase. Some 31 parties have signed confidentiality agreements in order to review information and other material to be made available by the Administrators. Following a request that interested parties make preliminary non-binding offers by 4 September 2012, a number of expressions of interest for either the whole or part of the business have been received by the Administrators. They are continuing their discussions and negotiations with a number of those parties with a view to soliciting unconditional offers.
The Administrators expect that they would be in a position to exchange and complete a contract within two weeks of a final offer being made. However, they consider that it may take up to 10 weeks to satisfy all post-completion obligations. The Administrators have formed the view that it would be in the best interests of the creditors and the employees for the sale of the business and the remaining assets of the Company to be completed before the second meeting of creditors required under s 439A of the Act. They are concerned that, if the Company were wound up prior to the completion of the sale, supply contracts may be terminated and employees may leave the Company. The Administrators have formed the view that both of those events are likely to jeopardise any proposed sale of the business as a going concern and, in any event, would reduce significantly the sale price that a purchaser may be prepared to pay.
The convening period under the Act expires on 25 September 2012, unless extended by the Court. The Administrators seek an extension up to 14 December 2012. They advance two principal reasons.
First, they require further time to allow final and binding contracts for the purchase of the business of the Company to be entered into with a potential purchaser. The additional time would allow potential purchasers sufficient opportunity to conduct their own inquiries and finalise their own due diligence process. The Administrators contemplate that 10 further weeks would be required to allow any final and binding offers of purchase to be made and contracts exchanged, and post-completion obligations satisfied.
Second, the Administrators would presently be unable to report properly to creditors and make a recommendation as to the options available to them, as required by the Act, if they were required to do so by 25 September 2012. They require further time to conduct the investigations necessary to form a view of the financial position of the Company, including whether there are any actions available to a liquidator for antecedent transactions or insolvent trading. They expect that they will be in a position to form an opinion on those matters within that additional period of 10 weeks.
The Administrators did not indicate to the creditors at the first meeting that an approach might be made to the Court for an extension of the convening period. However, on 10 September 2012, the Administrators wrote to each member of the committee of creditors indicating the proposal to apply to the Court. On 11 September 2012, the Administrators posted on their website a circular informing the creditors that they intended to approach the Court either today, 12 September 2012, or tomorrow, 13 September 2012, for an extension for up to a further 90 days. The Administrators also sent a copy of that circular to each of the creditors, including employees recorded in the books and records of the Company. Not surprisingly, the Administrators have not received any response from any creditor, or member of the committee of creditors, raising any objection to the extension application. It is unclear whether they have received any response at all.
At the time of the appointment of the Administrators, landlords of premises occupied by the Company were owed less than one month’s rent. The Administrators will abide by their obligation to pay rent for premises for such time as they continue to be occupied during the course of the administration. All landlords have been informed of the intention of the Administrators to make this application. No objection has been received from any of the landlords.
The Company’s solicitors have also informed the Commission of their intention to make this application. The response from the Commission was that there is no requirement to notify the Commission and that, in any event, the Commission has not had ample time to consider the matter.
The Administrators have formed the view that the proposed extension will not unduly impact on creditors. They have received no proposal for a deed of company arrangement.
The Administrators have informed the secured creditor, Scottish Pacific Business Finance Pty Limited (Scottish Pacific), of this application and Scottish Pacific has informed the Administrators that it does not object to the extension. One matter of significance concerns the arrangements with Scottish Pacific. The Company had entered into an invoice discounting agreement with Scottish Pacific on 24 January 2011. The invoice discounting agreement is a factoring arrangement whereby the Company notifies Scottish Pacific daily of invoices sent. The Company receives an immediate payment of a fixed proportion of the face value of the invoices.
Under the arrangement, Scottish Pacific appoints the Company as its agent to collect payment due under the invoices. Scottish Pacific reimburses the Company for any excess over the consideration paid by it for the transfer of the invoices. In addition, the Company pays service charges to Scottish Pacific for the facility provided by it. By the invoice discounting agreement, the Company undertakes to carry out the task of administering the accounts of the debtors and collecting and enforcing payment of the transferred debts. The Company also gives warranties in respect of transferred debts. The terms of the warranties include a warranty that the details of the debts given are correct, that the currency of payment is Australian dollars, and that the goods were sold and accepted by the debtors in question.
The invoice discounting agreement is the only source of funding available to the Company. Scottish Pacific was prepared to allow the arrangement to continue so long as the Administrators entered into an indemnity deed with Scottish Pacific, which they did on 5 September 2012. The indemnity deed recites the agreement of 24 January 2011 and the fact that the obligations of the Company under the agreement are guaranteed by guarantors named in the agreement. The indemnity deed also recites the fact that the Company has given a charge in favour of Scottish Pacific over the whole of its assets and undertaking as security for the performance of its obligations under the agreement. Finally, it recites, relevantly, that the Administrators have given their written consent to Scottish Pacific enforcing its rights under that charge over all or any part of the assets, property and undertaking of the Company.
By the indemnity deed, the Administrators, in effect, agree to continue the provision of the facility under the invoice discounting agreement. The Administrators agree, relevantly, that all of the present and future assets and property and undertaking of the Company continue to be charged in favour of Scottish Pacific under the security. The Administrators also agree that all present and future transferred debts are the property of Scottish Pacific or are subject to the security interest if they have not been transferred to Scottish Pacific. By clause 2.5(e), the Administrators agree that, in relation to financial accommodation that Scottish Pacific provides to the Company during the period of the administration, they are personally liable to perform each of the Company’s obligations under the invoice discounting agreement.
By clause 2.5(f), the Administrators agree that, during the administration period, they will ensure that the Company performs each of the obligations on the Company’s part in the invoice discounting agreement, and that the security and other agreements between the Company and Scottish Pacific will also be performed. The Administrators agree that they are personally liable to perform each of those obligations. By clause 3.1, the Administrators agree to indemnify Scottish Pacific against any liability, expense or loss of any kind that Scottish Pacific may suffer or incur due to their consent to Scottish Pacific enforcing its rights under its security not being or ceasing to be fully effective.
By clause 3.3, the Administrators agree that, in relation to the financial accommodation that Scottish Pacific provides to the Company of the type described in clause 2.5(e), and in relation to the obligations of the type described in clause 2.5(f), the Administrators will also be liable to Scottish Pacific as if they had executed the guarantee. However, there is a qualification in each of clauses 2.5(e), 2.5(f), 3.1 and 3.3 to the effect that any liability of the Administrators is limited to the extent to which they are entitled to be indemnified out of the assets of the Company under s 443D of the Act. Under s 443D, the administrator of a company under administration is entitled to be indemnified out of the company’s property for debts for which the administrator is liable under other provisions of the Act, and any other debts or liabilities incurred, or damages or losses sustained, by the administrator in the performance or exercise, or purported performance or exercise, of any of his functions or powers as administrator.
The Administrators consider that, without access to the finance under the invoice discounting agreement, they would not have sufficient funding to continue trading the Company’s business. They have formed the view that that business, and the plant and equipment, of the Company constitute its most valuable asset. They have formed the view that, if the Company ceases to trade and cannot sell the business on a going concern basis, that will adversely affect the employment prospects of the employees and the amount that would be available to creditors. They do not wish to be personally liable for the repayment of any amount provided by Scottish Pacific under the invoice discounting agreement. Accordingly, they seek, in addition to an extension of time, an order that their liability under the invoice discounting agreement be limited in the manner provided for in the indemnity deed.
Under s 443A of the Act, the administrator of a company under administration is liable for debts he incurs in the performance or exercise, or purported performance or exercise, of any of his functions and powers as administrator, for services rendered, goods bought, property hired or leased, repayment of money borrowed, interest in respect of money borrowed, or borrowing costs. Section 443A has effect despite any agreement to the contrary, but without prejudice to the administrator’s rights against the company or anyone else. However, s 447A of the Act provides that the Court may make such order as it thinks appropriate as to how Part 5.3A is to operate in relation to a particular company. The provisions to which I have referred are all within Part 5.3A. It is appropriate to make the the orders sought by the Administrators.
Certain of the material provided to the Court by the Administrators is confidential and they have asked for an order that access be limited to the Administrators and their legal advisers. It is appropriate to make an order along those lines.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 5 November 2012
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