Worboyes v The Queen
[2021] VSC 169
•8 April 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 00984
IN THE MATTER of ZETO 6 MALCOLM PTY LTD (ADMINISTRATORS APPOINTED) IN ITS OWN CAPACITY AND AS TRUSTEE OF THE ZETO 6 MALCOLM UNIT TRUST (ACN 619 256 969) & ORS (in accordance with the attached Schedule)
| ZETO 6 MALCOLM PTY LTD (ADMINISTRATORS APPOINTED) IN ITS OWN CAPACITY AND AS TRUSTEE OF THE ZETO 6 MALCOLM UNIT TRUST (ACN 619 256 969) & ORS (according to the attached Schedule) | First to Fifth Plaintiffs |
| - and - | |
| SAM KASO AND BARRY WIGHT IN THEIR CAPACITY AS THE JOINT AND SEVERAL ADMINISTRATORS OF THE FIRST TO FIFTH PLAINTIFFS (according to the attached Schedule) | Sixth and Seventh Plaintiffs |
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JUDGE: | Matthews AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 April 2021 |
DATE OF JUDGMENT: | 8 April 2021 |
DATE OF REASONS: | 13 April 2021 |
CASE MAY BE CITED AS: | Re Zeto 6 Malcolm Pty Ltd (Admins Apptd) & Ors |
MEDIUM NEUTRAL CITATION: | [2021] VSC 169 |
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CORPORATIONS – Application by administrators appointed to corporate group for extension of convening period for second meetings of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth) – Five companies in administration – Time needed for thorough assessment of financial position of the companies – Complex administration involving several property developments affected by restraining orders – Time needed for sale process to be conducted with maximum flexibility as afforded by the voluntary administration process – Extension of some 90 days sought and granted – Re Riviera Group Limited (2009) 72 ACSR 352.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Kohn | Frenkel Partners |
HER HONOUR:
Introduction
On 2 March 2021, the sixth and seventh plaintiffs, Sam Kaso and Barry Wight (‘Administrators’), were appointed as joint and several voluntary administrators to the second to fifth plaintiffs, pursuant to s 436A of the Corporations Act 2001 (Cth) (‘Act’). On the following day, the Administrators were also appointed as joint and several voluntary administrators to the first plaintiff.
The companies in administration are:
(a) the first plaintiff, Zeto 6 Malcolm Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the Zeto 6 Malcolm Unit Trust (ACN 619 256 969) (Zeto Malcolm);
(b) the second plaintiff, 79–81 KNG Templestowe Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the 79–81 KNG Templestowe Unit Trust (ACN 625 870 984) (KNG Templestowe);
(c) the third plaintiff, Twenty Seven Box Hill Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the Twenty Seven Box Hill Unit Trust (ACN 607 790 894) (Twenty Seven);
(d) the fourth plaintiff, 7–8 Blanche Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) in its own capacity and as trustee of the 7‑8 Blanche Unit Trust (ACN 623 132 990) (7–8 Blanche); and
(e) the fifth plaintiff, Zeto 8–10 Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) in its own capacity and as trustee of the Zeto 8–10 Toni Trust (ACN 619 068 816) (Zeto 8);
(together, the ‘Companies’).
By originating process filed 1 April 2021, the Administrators and the Companies applied for an order under s 439A(6) of the Act for an extension of the period within which the Administrators are required to convene the second meeting of creditors of the Companies to midnight on 7 July 2021. In addition, they applied for an order pursuant to s 447A of the Act so that the respective meetings of creditors of the Companies to be convened under s 439A of the Act may be convened at any time during the convening period as extended by the previous order, or within five business days thereafter.[1] Various other consequential orders were also sought, which are referred to further below.
[1]Commonly referred to as a Daisytek order, following the approach taken in Re Daisytek Pty Ltd (admin apptd) (2003) 45 ACSR 446 (‘Daisytek’).
Unless extended, the convening period for the second meeting of creditors for Zeto Malcolm would have ended on 9 April 2021 and for the other four Companies, on 8 April 2021, and would have required the second meetings of creditors to be held within five business days before or after the end of the convening period.[2]
[2]Section 439A(5) of the Act.
The plaintiffs rely on an affidavit of Mr Kaso affirmed 1 April 2021 (‘Kaso Affidavit’) in support of their application. They also rely on the written submissions of their counsel, Mr Kohn, dated 2 April 2021 (‘Written Outline’), along with oral submissions made at the hearing.
The originating motion, Kaso Affidavit (with exhibits), Written Outline and proposed orders were served on the Australian Federal Police, Commonwealth Bank of Australia, and National Australia Bank.[3]
[3]Affidavit of Service sworn by Bill Lambros 8 April 2021.
On 8 April 2021, I made orders and gave directions extending the convening period of the second meetings of creditors, along with ancillary orders, and indicated that I would provide reasons at a later time likely on 13 April 2021. These are those reasons.
Background
Relevant background information concerning the Companies is set out in the Kaso Affidavit. I have summarised this below.
The Companies were set up for the predominant purpose of undertaking various property and land development projects across the eastern suburbs of Melbourne. They each did so in their capacity as trustees of a certain trust, there being a separate trust for each company. The Companies and their respective trusts are all part of a group (‘Zeto Group’). The Companies share a number of common directors and shareholders, including Tommy Luong, King Chen Chong and Ziyang Liang.[4]
[4]Kaso Affidavit, [17].
Land/property developments
Mr Kaso summarises the land holdings and current status of property developments for the Zeto Group based on the Administrators’ investigations of the Companies’ affairs carried out to date:[5]
[5]Kaso Affidavit, [19].
(a) Twenty Seven is the registered proprietor of a parcel of vacant land situated at 27 Box Hill Crescent, Mont Albert North, Victoria 3129 (‘Mont Albert Property’) and became so on 14 April 2016. National Australia Bank Limited (‘NAB’) has registered mortgage on the Mont Albert Property, in respect of which approximately $1.4m is outstanding in respect of the loan facilities secured by that mortgage. The Mont Albert Property was earmarked for the construction of two townhouses. A planning permit for its subdivision has been issued. There are documents to suggest that the process of applying for a building permit has been commenced but there is no evidence of a permit having been granted.
(b) Zeto 8 is the registered proprietor of 10 lots of land situated at 8-10 Toni Street Doncaster Victoria 3108 (‘Toni Street Properties’) and became so on 23 November 2107. The subdivision into 10 separate lots was registered on 5 June 2020. Eight lots were sold off the plan between June and July 2017, for approximately $1m each, with deposits of about 10% for each sale taken for 7 of those 8 lots and caveats lodged by purchasers in some instances. According to the director, Tommy Luong, building works are approximately 60% complete and the building permits were extended to 20 March 2021, and building works will cost approximately $1.5m to complete/have been incurred to date. NAB has a registered mortgage over the Toni Street Properties, in respect of which approximately $6.4m is outstanding in respect of the loan facilities secured by that mortgage. According to Mr Luong, there may be foundation issues requiring rectification.
(c) Zeto Malcolm is the registered proprietor of one parcel of land situated at 6 Malcolm Crescent Doncaster Victoria 3108 (‘Malcolm Crescent Property’) and became so on 13 December 2017. According to the director, King Chuen Chong, the building works, which include the construction of four townhouses, are approximately 80% complete, the building permit has been extended to 4 April 2021 and two of the four sales have been rescinded. The Commonwealth Bank of Australia (‘CBA’) has a registered mortgage over the Malcolm Crescent Property, in respect of which approximately $3.2m is outstanding in respect of the loan facilities secured by that mortgage.
(d) 7-8 Blanche is the registered proprietor of two lots of land situated at 7 and 8 Blanche Court Doncaster Victoria 3108 (‘Blanche Court Properties’) and became so on 8 May 2018. According to the director, Mr Luong, building works for seven townhouses are approximately 50% complete, approximately $1.95m has been incurred on the build to date/will be required to complete, and building permits have been extended to 26 July 2021. NAB has a registered mortgage over the Blanche Court Properties, in respect of which approximately $2.7m is outstanding in respect of the loan facilities secured by that mortgage.
(e) KNG Templestowe is the registered proprietor of a parcel of vacant land at 79‑81 King Street Templestowe Victoria 3106 (‘Templestowe Property’) and became so on 29 August 2018. Building permits were issued with a condition that construction be commenced by 21 June 2020. The Administrators have not sighted any documentation to suggest that the building permit was extended. NAB has a registered mortgage over the Templestowe Property, in respect of which approximately $2.25m is outstanding in respect of the loan facilities secured by that mortgage.
Mr Kaso deposes that based on the Administrators’ investigations to date, the Companies’ main source of funds was amounts received from investors and funds borrowed from NAB and CBA, secured against the properties, for the purposes of acquiring the properties and assisting them with their developments.[6]
[6]Kaso Affidavit, [20].
Land developments impacted by restraining orders
The Administrators have been advised by the Companies’ directors that the progress of the land developments were halted as funding became inhibited by restraining orders and that the impetus for their appointment was the making of the various restraining orders.[7] This is explained further below.
[7]Kaso Affidavit, [23].
Work on Zeto Group’s land development projects became suspended in 2018 following the imposition of restraining orders made by Moore J on 21 September 2018 (‘2018 Restraining Orders’) in proceeding number S ECI 2018 01481 (‘POC Proceeding’) in this Court. The 2018 Restraining Orders were made in response to an application made by the Commissioner of the Australian Federal Police (‘AFP’) in the POC Proceeding under ss 18, 38 and 39(1) of the Proceeds of Crime Act 2002 (Cth) (‘POCA’).[8]
[8]Kaso Affidavit, [24].
The 2018 Restraining Orders prohibited the disposal of, or dealings in, all right title and interests held, directly or indirectly, by persons named in the order (including Paul Ngoc Ngo and Phuong Van Truong), ‘in any acquisition development interest or investment’ ‘facilitated developed or managed [amongst others] by King Cheung Chong (also known as King Chuen Chong), 79-81 King Pty Ltd and/or Kollins Corporation Pty Ltd’ ‘including any property acquisition development interest or investment described as the ‘Doncaster Investment’ or ‘Development Doncaster’ until further order.[9]
[9]Kaso Affidavit, [25]; Exhibit SK-1, pp 245-252.
On the AFP’s application, further orders were made:[10]
(a) on 9 November 2018, orders were made by the Court restraining any disposition of or any dealings with the Rile Property Group Pty Ltd, which is a shareholder of Zeto 8 and a unit holder of the relevant trust, including the further issue of shares; and
(b) on 2 December 2020, further orders were made by the Court in the POC Proceeding in respect of Mr Ngo and Mr Truong, specifically restraining any disposition of or any dealings (including any sale, mortgage or subdivision) relating to the following trusts and property, including any buildings, except with the prior written consent of the AFP Commissioner: Zeto 8, the Zeto Trust, the Toni Street Properties, the Blanche Trust, the Blanche Court Properties, the KNG Trust, the Templestowe Property, the 79‑81 King Trust, the Malcolm Trust and the Malcolm Crescent Properties (‘December Restraining Orders’).
[10]Kaso Affidavit, [27]; Exhibit SK-1, pp 253-265.
Mr Kaso deposes that the various properties referred to in paragraph 10 above, which the Companies own as trustees of the various unit trusts, are impacted by the 2018 Restraining Orders and the December Restraining Orders (together, the ‘Restraining Orders’).[11]
[11]Kaso Affidavit, [28].
Current status of the POC Proceeding
Prior to the appointment of the Administrators, on 10 February 2021, applications were issued in the POC Proceeding on behalf of the Companies seeking to be excluded from the December Restraining Orders under s 94 of the POCA, on the basis that the property the subject of those orders, in respect of Mr Ngo and Mr Truong, does not constitute proceeds or an instrument of unlawful activity.[12] That application has been adjourned to a directions hearing on 5 May 2021.[13] The Administrators have not yet decided whether the Companies will press their applications in the POC Proceeding.[14]
[12]Kaso Affidavit, [29].
[13]Kaso Affidavit, [30].
[14]Kaso Affidavit, [31].
Claim against builder in VCAT
Zeto 8 commenced proceedings in the Victorian Civil and Administrative Tribunal (‘VCAT’) on 12 October 2020, seeking orders for (amongst other things) damages against the builder in respect of the Toni Street Properties in the amount of some $1.54m and against the builder’s director and shareholder for (amongst other things) allegedly suspending building works contracted in 2017 to be completed by 1 December 2018 for a total cost of $2.85m. The Administrators have not yet decided how they will deal with this claim.[15]
[15]Kaso Affidavit, [32].
Appointment of receivers and managers to 7-8 Blanche and Zeto 8
On 19 March 2021, Craig Shepard and Lara Wiggins of KordaMentha were appointed by NAB as receivers and managers (‘Receivers’) of 7-8 Blanche and Zeto 8.[16]
[16]Kaso Affidavit, [35]. This followed an agreed extension between NAB and the Administrators of the decision making period, being the period which NAB had to exercise its property rights and appoint receivers and managers over those of the Zeto Group it had granted mortgages to: see Kaso Affidavit, [33]-[34].
Consequently, the Receivers are in control of the Toni Street Properties and the Blanche Court Properties and the Administrators consider it likely that the Receivers will realise those properties. The Administrators remain in control of the other properties of the Zeto Group referred to, being the Malcolm Crescent Properties, the Mont Albert Property and the Templestowe Property.[17]
[17]Kaso Affidavit, [36].
The external administration of the Companies
Work undertaken since appointment
Mr Kaso deposes that the Administrators and their staff have undertaken the following investigations and tasks since their appointment:
(a) held discussions with the Companies’ directors and other members of the Zeto Group’s management team to determine a key summary of events leading up to the appointment;[18]
[18]Kaso Affidavit, [37(a)].
(b) conducted a preliminary review of the Companies’ books and records, financial statements and financial documents which have been made available thus far;[19]
[19]Kaso Affidavit, [37(b), (c)].
(c) analysed the available books and records for the purposes of assessing their financial performance to identify the causes and date of insolvency and in order to identify any antecedent transactions that might be voidable, including making other like enquiries that are necessary for the Administrators to gather information required to prepare their report for the second meetings of creditors;[20]
[20]Kaso Affidavit, [37(h), (i)].
(d) conducted searches of publicly available databases, including ASIC, the Land Titles Office, the Personal Property Securities Register and Vicroads;[21]
[21]Kaso Affidavit, [37(e)].
(e) conducted searches to identify assets of the Companies;[22]
[22]Kaso Affidavit, [37(f)].
(f) requested information from statutory authorities, including the Australian Taxation Office;[23]
[23]Kaso Affidavit, [37(g)].
(g) carried out an urgent review of the Companies’ land holdings and status of the land development projects, including:[24]
[24]Kaso Affidavit, [37(j), (k), (l), (p)].
(i) collating all information and liaising with valuers and consultants regarding what information was required to complete accurate valuations of each of the developments;
(ii) instructing solicitors to liaise with the pre-sale purchasers of some of the properties regarding the administrations and their rights; and
(iii) securing all of the properties;
(h) commenced investigations into the Companies’ affairs generally;[25]
[25]Kaso Affidavit, [37(m)].
(i) commenced correspondence with all relevant stakeholders, including NAB and CBA;[26]
[26]Kaso Affidavit, [37(m)].
(j) communicated with secured creditors and the AFP regarding the appointment and steps for the immediate marketing for sale of the Zeto Group projects as a whole on an ‘as is where is’ basis to maximise the return to creditors;[27]
[27]Kaso Affidavit, [37(n)].
(k) liaised regularly with the AFP, who is supportive of the Administrators’ strategy, the proposed marketing campaign to realise the Companies’ assets and of the Administrators’ intention to seek an extension of the convening period;[28]
[28]Kaso Affidavit, [37(o)].
(l) taken steps, with the AFP’s consent, to commence an expression of interest campaign for the sale of the properties which the Administrators control (‘EOI Campaign’). As part of this, the Administrators are running a tender process to select an agent to manage the EOI Campaign on their behalf and expect to be in a position to select the preferred agent shortly;[29]
[29]Kaso Affidavit, [37(q)].
(m) commenced engaging with interested parties, including to discuss preliminary requirements of what a successful transaction would involve and what sale terms the Administrators would be prepared to consider. Preliminary meetings have been held with two interested parties, who are aware of the planned EOI Campaign, the Administrators’ obligation to maximise the return to all stakeholders. The Administrators carried out investigations to ensure that those interested parties were arm’s-length unrelated parties;[30]
(n) issued notices to creditors of the Companies of the Administrators’ appointment and of the first creditors meetings;[31] and
(o) conducted the first meetings of the Companies’ creditors on 16 March 2021. There was no quorum in attendance.[32]
[30]Kaso Affidavit, [37(r)].
[31]Kaso Affidavit, [38].
[32]Kaso Affidavit, [39].
The financial position of the Companies
Mr Kaso deposes that at this time there is limited financial information presently available to the Administrators, and that the Companies’ books and records provided thus far appear incomplete. Some of the electronic files provided do not appear to fully reflect bank statements, and further investigations are required.[33] The Administrators have not received management accounts to give an indication of the asset and liability position of the Companies as at the date of their appointment.[34]
[33]Kaso Affidavit, [40]-[41].
[34]Kaso Affidavit, [42].
The Companies’ primary source of revenue was anticipated to be receipts from the sales of the various units in the land developments. They have not been trading since the appointment of the Administrators.[35]
[35]Kaso Affidavit, [42].
Based on the information available, Mr Kaso’s view is that the Companies’ assets are comprised only of the properties identified above. The directors have advised that the Companies do not hold any other assets, and the Administrators’ investigations to date have not revealed any assets in the names of the Companies.[36]
[36]Kaso Affidavit, [43].
In terms of the Companies’ liabilities, secured creditors NAB and CBA are owed approximately $16.9m and unsecured creditors to date total approximately $5.7m.[37]
[37]Kaso Affidavit, [44]. All of the Companies have unsecured creditors.
The Administrators have not received any report as to affairs for any of the Companies from their respective directors.[38]
[38]Kaso Affidavit, [45].
Mr Kaso deposes that he is not able to ascertain an expected return to creditors at this stage, as the Companies’ financial positions are unclear based on the information available to him to date. He says that the recoverability of any monies from the assets of the Companies is primarily dependent upon the sale of the land developments.
Mr Kaso deposes that he has not yet received the directors’ deed of company arrangement (‘DOCA’) proposal for any of the Companies. His investigations of the Companies’ financial, business and other affairs are otherwise ongoing.[39]
[39]Kaso Affidavit, [47]-[48].
Potential sale of the properties
The Administrators will sell the properties that are registered in the names of Zeto Malcolm, KNG Templestowe and Twenty Seven. NAB, through the Receivers, will sell the properties registered in the names of 7-8 Blanche and Zeto 8.[40]
[40]Kaso Affidavit, [49].
The Administrators are in the process of obtaining land valuations and have commissioned an inspection and building report for the Malcolm Crescent Property to quantify building works required to rectify and complete construction of the four units. CBA has confirmed that it does not object to the Administrators application for an extension of the convening period in order to market and ready the Malcolm Crescent Property for sale with its consent and support.[41]
[41]Kaso Affidavit, [50].
The Administrators are also trying to determine whether there are any sale contracts in place for these units and the status of any such transactions. The previous lawyers for the Zeto Group in respect of those matters had not been cooperative with the Administrators, however on 30 March 2021 the previous lawyers gave the Administrators access to certain documents via a Dropbox link, but the Administrators have not yet had an opportunity to review them all.[42]
[42]Kaso Affidavit, [51].
Why the Administrators seek an extension of the convening periods
Mr Kaso deposes that it is necessary to extend the convening periods in order to:[43]
[43]Kaso Affidavit, [56].
(a) obtain valuations of the properties, including expert reports, if necessary;
(b) conduct the EOI Campaign and deal with interested parties;
(c) finalise any restructure proposals that may be forthcoming for creditors’ consideration, or otherwise transact a sale of the properties, with the support of the secured creditors and the AFP;
(d) continue to liaise with the AFP in compliance with the Restraining Orders to formulate and effect a transaction which produces the greatest possible return to stakeholders;
(e) liaise with various parties who are at various stages of entering or have entered into pre-sale contracts with certain of the Companies; and
(f) prepare a proper and informative report to creditors containing the opinions and the reasons for those opinions as required by s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (‘IPR’),[44] as to whether it would be in the creditors’ interest for the Companies to execute proposed DOCAs, for the administrations to end, or for the Companies to be wound up (‘Administrators’ Report’).
[44]Mr Kaso refers to the report as being required by s 439A(4) of the Act, however that section was repealed in 2016. The relevant reporting obligation, which is materially the same as that which previously applied, is now contained in s 75-225 of the IPR.
In particular, Mr Kaso deposes that:
(a) the Administrators have, amongst other things, started taking steps to market some of the land development projects and/or the Companies’ properties for sale for their recapitalisation through a DOCA. They consider that there is insufficient time in the convening periods under the Act to complete this process and seek the extension of the convening periods, in the expectation that it will likely give a greater return to all concerned, compared with a liquidation of the Companies;[45]
[45]Kaso Affidavit, [21].
(b) the Administrators have yet to receive the land valuations they commissioned on appointment. They are in the process of arranging, obtaining and compiling all documentation to support the costs associated with the rectification and building works required to complete the projects up to the issuing of the necessary certificate of occupancy, to enable the properties to be actively marketed and/or settlements to proceed;[46]
[46]Kaso Affidavit, [22].
(c) the Administrators do not have sufficient information to prepare the Administrators’ Report, for the reasons identified above;[47]
(d) if the convening periods are not extended, the likelihood is that the second meetings of creditors would have to be adjourned, however it is unlikely that the Administrators would have achieved the tasks required within the 45 day period for which a creditors meeting can be adjourned, which would necessitate a further application;[48] and
(e) the protections afforded by the voluntary administration would enable the Administrators to complete their enquiries and identify a restructure or sale in a way that is only available in an administration, including the possibility of a DOCA.[49]
[47]Kaso Affidavit, [58].
[48]Kaso Affidavit, [59].
[49]Kaso Affidavit, [60]-[61].
Mr Kaso deposes that he does not believe that there would be any material prejudice caused to anybody by the requested extension and the moratorium continuing. There is no lessor of any property in question to consider. He says that he does not believe any of the creditors would be prejudiced; rather, he considers that the opposite will apply, since no extension would prejudice sensible and constructive actions directed towards maximising the return to creditors.[50]
[50]Kaso Affidavit, [63].
Mr Kaso deposes that the AFP and CBA have informed him that they do not object to an extension. He says that NAB has informed him that it neither consents nor opposes the application.[51]
[51]Kaso Affidavit, [66]; See also Affidavit of Service of Bill Lambros sworn 8 April 2021, [6].
Applicable legal principles
As recently observed by Gardiner AsJ in Re Grocon Pty Ltd (admins apptd) (No 2):[52]
Since the introduction of Part 5.3A of the Act, applications for extensions of convening periods for the second meetings of creditors have been made frequently, particularly in administrations involving large corporate groups whose affairs are complex. In such administrations, the time period prescribed by s 439A(5) will often not be sufficient to enable administrators to perform the tasks required before the second meeting. On occasion, Courts have extended the convening period for up to several months to enable administrators to conduct the necessary enquiries and negotiations.
[52][2020] VSC 859, [18] (‘Grocon No 2’) (citations omitted).
In this regard, in Mighty River International Limited v Hughes,[53] Nettle and Gordon JJ observed:[54]
The period fixed by s 439A(5) for the convening of the meeting of the company’s creditors is designedly brief. As the Full Court of the Federal Court of Australia observed in Federal Commissioner of Taxation v Comcorp Australia Ltd, it may be gathered from the terms of the legislation and the words of the Explanatory Memorandum and the Second Reading Speech that the emphasis of Pt 5.3A is on informality and flexibility and on speed of action. The procedure is not designed to allow for the kind of indefinite administrations which can occur under the United States’ Ch 11 approach to corporate insolvency.
It is, however, recognised that it is not always practicable for an administrator to gather sufficient information within the convening period to form the requisite opinions under s 438A and communicate them in the notice given to creditors in accordance with ss 439A(3) and 439A(4). Accordingly, the courts are given specific power under s 439A(6), and also general power of varied application under s 447A(1), to extend the convening period. Consistent with the legislative intention of Pt 5.3A that the administration of a company be brought to an end within a short period of time, there is a presumptive expectation that extensions will be brief. But over time the courts have come to recognise that significant extra time may be required, and should be allowed, in complex cases. 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. As Barrett J rightly observed in Diamond Press Australia Pty Ltd:
The function of the Court on an application [for an extension under s 439A(6)] is ... to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.
[53](2018) 265 CLR 480 (‘Mighty River’).
[54]Mighty River, 511-512 (citations omitted). Nettle and Gordon JJ were in dissent in this case, but not on the issue under consideration here.
In Re Riviera Group Pty Ltd,[55] Austin J surveyed the relevant authorities and summarised the reasons given for extension of the convening period into the following categories:[56]
[55](2009) 72 ACSR 352 (‘Riviera Group’). Riviera Group was referred to with approval in Mighty River at 511.
[56]Riviera Group, 355.
(a) the size and scope of the business;
(b) substantial offshore activities;
(c) large number of employees with complex entitlements;
(d) complex corporate group structure and intercompany loans;
(e) complex transactions entered into by the company;
(f) complex prospects of recovery proceedings;
(g) lack of access to corporate financial records;
(h) the time needed to execute an orderly process for disposal of assets;
(i) the time needed for a thorough assessment of a proposal for a DOCA;
(j) whether the extension will allow the sale of the business as a going concern;
(k) generally, whether additional time is likely to enhance the return for unsecured creditors.
The authorities indicate that the Court tends to exercise its discretion to extend the convening period where there is a substantial issue in relation to any one of those categories.[57] The consent of the creditors to an extension is a relevant factor in the exercise of the Court’s discretion. The Administrators’ own opinion as to the need for an extension will also be given weight.[58] The interests of those whose claims are affected by the statutory moratorium are relevant, though not decisive.[59]
[57]Riviera Group, 355.
[58]Re Virgin Australia Holdings Ltd (No 2) (2020) 144 ACSR 347, 371 [68].
[59]Grocon No 2, [24].
In Re Australian Discount Retail Pty Ltd,[60] Barrett J said:
The second meeting of creditors is best held at a time when it is possible to give creditors fairly definitive financial information that will assist them in this decision making. In the present case, information about the financial consequences of a sale of the business is crucial, assuming such a sale eventuates. In addition, creditors’ decision-making will be much more difficult and more complicated if they are compelled to make a decision about the company’s future based on speculation about the possibility of a going-concern sale. Further time for the formulation and digestion of recommendations based on established realities will avoid the possibility of what might be a premature decision in favour of winding up as the only practically available option.
[60][2009] NSWSC 110, [21].
Consideration
When making orders extending the convening periods on the return of this application, I indicated that I considered that there are a number of substantial grounds to support the extension sought. Those grounds are set out below, referring to the categories set out in paragraph 38 above where appropriate.
First, the size and scope of the Zeta Group and the businesses carried on by them is substantial and complex. There are five companies with five trusts, each of which are undertaking property developments which are at various stages of completion.[61]
[61]Categories (a) and (e) referred to in paragraph 38 above.
Secondly, the administration of the Companies is itself complex. The existence of the Restraining Orders and their impact on the options available to the Administrators adds a level of complexity not often seen in voluntary administrations. There is the added complication of the Receivers having been appointed to two of the Companies, requiring ongoing liaison with them.[62]
[62]Categories (e) and (f) referred to in paragraph 38 above.
Thirdly, an extension is justified so as to give the Administrators the time needed to conduct the EOI Campaign and consider any DOCA proposal, so as to enable them to form a view as to the best course for maximising the return to creditors. As part of this, the Administrators need an extension so as to obtain valuations of the properties and negotiate with any interested parties, including any who come forward as a result of the EOI Campaign.[63]
[63]Categories (h), (i) and (j) referred to in paragraph 38 above.
Fourthly, the Administrators need an extension so as to adequately prepare the Administrators Report. As part of this, they need more time so as to obtain further financial information about the Companies and to formulate an opinion as to whether it is in the interests of creditors for the Companies to execute a DOCA or be wound up.[64]
[64]Categories (g) and (i) referred to in paragraph 38 above.
Fifthly, the Administrators are experienced insolvency practitioners, and their opinion is that it is in the best interests of creditors for the convening period to be extended for the time sought.[65]
[65]Category (k) referred to in paragraph 38 above.
Sixthly, if the convening period is not extended, the Administrators will need to convene the meetings and then adjourn them. This would be at significant additional cost and would likely not avoid the need for another application, as the time period for an adjourned meeting is shorter than the period of the extension sought.
Seventhly, it does not appear that any creditors impacted by the statutory moratorium would be prejudiced. In any event, the orders which I made gave liberty to apply to any creditor who may be so prejudiced to apply to vary or discharge the orders.
Eighthly, the extension of the convening period is not opposed by secured creditors NAB and CBA or by the AFP.
I also considered it appropriate to make a Daisytek order enabling the Administrators to convene the second creditors’ meetings at any time during the convening period as extended, or within five business days thereafter.
For completeness, I set out below the orders which I made on 8 April 2021:
1.Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (‘the Act’) the period in which the Plaintiffs must convene the second meeting of the creditors of:
(a)Zeto 6 Malcolm Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the Zeto 6 Malcolm Unit Trust (ACN 619 256 969) (‘Zeto Malcolm’);
(b)79–81 KNG Templestowe Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the 79–81 KNG Templestowe Unit Trust (ACN 625 870 984) (‘KNG Templestowe’);
(c)Twenty Seven Box Hill Pty Ltd (Administrators Appointed) in its own capacity and as trustee of the Twenty Seven Box Hill Unit Trust (ACN 607 790 894) (‘Twenty Seven’);
(d)7–8 Blanche Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) in its own capacity and as trustee of the 7–8 Blanche Unit Trust (ACN 623 132 990) (‘7–8 Blanche’); and
(e)Zeto 8–10 Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) in its own capacity and as trustee of the Zeto 8–10 Toni Trust (ACN 619 068 816) (‘Zeto 8’);
under s 439A(1) of the Act be extended up to and including 7 July 2021.
2.Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate such that the second meeting of creditors required by s 439A(1) may be held at any time during, or within five business days after the end of, the convening period as extended by Order 1, notwithstanding the operation of s 439A(2) of the Act.
3.By 4:00pm on 19 April 2021, the Plaintiffs are to inform all known creditors (including persons claiming to be creditors) of the companies named in Order 1 of these orders by means of:
(a) a circular posted on any website maintained by the Plaintiffs;
(b)sending such information electronically to the email addresses of the creditors for whom the Plaintiffs have an email address; and
(c)sending such information to the postal address or facsimile number, or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to creditors in respect of whom the Plaintiffs do not have an email address.
4. Liberty be granted to:
(a)the Plaintiffs to apply to the Court for any purpose connected with the administration of the Company, including but not limited to seeking any further extension or variation of the convening period under Order 1 above at any time prior to 7 July 2021; 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 these orders.
5.The costs of and incidental to this application be costs and expenses in the administration and be paid out of the assets of the Company.
SCHEDULE OF PARTIES
| S ECI 2021 00984 | |
| BETWEEN: | |
| ZETO 6 MALCOLM PTY LTD (ADMINISTRATORS APPOINTED) (IN ITS OWN CAPACITY AND ATF THE ZETO 6 MALCOLM UNIT TRUST) (ACN 619 256 969) | First Plaintiff |
| 79-81 KNG TEMPLESTOWE PTY LTD (ADMINISTRATORS APPOINTED) (IN ITS OWN CAPACITY AND ATF THE 79-81 KNG TEMPLESTOWE UNIT TRUST) (ACN 625 870 984) | Second Plaintiff |
| TWENTY SEVEN BOX HILL PTY LTD (ADMINISTRATORS APPOINTED) (IN ITS OWN CAPACITY AND ATF THE TWENTY SEVEN BOX HILL UNIT TRUST) (ACN 607 790 894) | Third Plaintiff |
| 7-8 BLANCHE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (IN ITS OWN CAPACITY AND ATF THE 7-8 BLANCHE UNIT TRUST) (ACN 623 132 990) | Fourth Plaintiff |
| ZETO 8-10 TONI PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (IN ITS OWN CAPACITY AND ATF THE ZETO 8-10 TONI TRUST) (ACN 619 068 816) | Fifth Plaintiff |
| SAM KASO IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATOR OF THE FIRST TO FIFTH PLAINTIFFS | Sixth Plaintiff |
| BARRY WIGHT IN HIS CAPACITY AS JOINT AND SEVERAL ADMINISTRATOR OF THE FIRST TO FIFTH PLAINTIFFS | Seventh Plaintiff |
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