CBCH New Zealand Limited (administrators appointed)

[2020] NZHC 1146

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-334

[2020] NZHC 1146

UNDER

the Companies Act 1003, Part 15A

IN THE MATTER OF

CBCH NEW ZEALAND LIMITED

(Administrators appointed)

AND

IN THE MATTER OF

an application by:

VAUGHAN NEIL STRAWBRIDGE SAM ANDREW MARSDEN and

JASON MARK TRACY of Sydney,

insolvency practitioners, as administrators of CBCH New Zealand Ltd

Applicants

On the papers:	28 May 2020
Appearances:	M D Arthur and J Marcetic for the Applicants
Judgment:	28 May 2020

RESERVED JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 28 May 2020 at 11am

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:
Chapman Tripp (Michael Arthur/Janko Marcetic), Auckland, for the Applicants

CBCH NEW ZEALAND LIMITED ex parte STRAWBRIDGE, MARSDEN and TRACY [2020] NZHC 1146 [28 May 2020]

[1]    On 31 January 2020 the applicants were appointed as administrators of CBCH New Zealand Ltd under Part 15A of the Companies Act 1993. It is the New Zealand subsidiary of the Collette By Collette Hayman group of companies which carries on business in Australia and New Zealand selling bags, jewellery and accessories in stores and online.

[2] There is an Australian holding company and Australian subsidiaries. The applicants were appointed administrators of the Australian companies under the Corporations Act 2001 (Cth) on 31 January 2020. In Australia, the applicants successfully applied to extend the convening period for the Australian companies to 27 May 2020. On a similar application in New Zealand, I made an order extending the convening period to 2 June 2020, with the watershed meeting to be held at any time within five working days after that date. I accepted the applicants’ main reason for extending the convening period, namely, to give time to sell the business of the group. The applicants did not expect the marketing and sale processes to be completed until the end of April 2020. Additional time was required to negotiate with interested parties and stakeholders to generate a potential sale as a going concern. This was a conventional reason for extending the convening period.

[3]    The applicants have now applied for a further extension of the convening period to 2 September 2020. There are two questions:

[a]Can the court extend the convening period a second time?

[b]Should the court extend the convening period?

Power to extend time again

[4] The applicants rely on ss 239AT and 239ADO of the Companies Act. Section 239AT allows an administrator to convene a watershed meeting within the convening period, which is 20 working days after the date on which the administrator

is appointed.  This  section  allows  the  court  to  extend  the  convening  period.  The application for extension may be made before or after the convening period has expired.1

[5] Under s 239ADO, the court has a general power to make any order that it thinks appropriate as to how Part 15 of the Companies Act is to operate in relation to a particular company. Administrators have standing to apply under this section.2

[6] Counsel advise that, despite looking, they have not found any decision of a New Zealand court on whether an application may be made for a further extension to the convening period. There are, however, Australian cases on the point. Australian courts have held that the Australian counterpart to s 239AT, s 439A(6) of the Corporations Act 2001 (Cth), does not allow a second extension of the convening period.3 Counsel point out, however, that the Australian provision differs from the New Zealand provision because in that the Australian provision requires that any application to extend the convening period must be made before the convening period expires. Instead, the New Zealand provision allows an application to be made before or after the convening period has expired. I accept the submission. The application can be considered under s 239AT. There is nothing in the section barring a second application for an extension of the convening period.

[7] While the Australian courts did not consider that s 439A(6) of the Corporations Act allowed a second application, they accept that such an application may be made under the counterpart to s 239ADO, namely, s 447A(1) of the Corporations Act. Similarly, I also accept that in New Zealand s 239ADO gives the court a general power to allow an application for a further extension of the convening period.

[8]    While counsel did not refer to it, there is another provision that allows the court to extend time on a second application in the current circumstances. The COVID-19 Response (Further Management Measures) Legislation Act 2020 came into force on

1 Companies Act 1993, s 239AT(4).

2 Companies Act 1993, s 239ADO(4).

3      Re Henry Walker Eltin Group Ltd [2005] FCA 984, (2005) 54 ACSR 383, and Re Australian Discount Retail Pty Ltd [2009] NSWSC 110, 27 ACLC 115.

15 May 2020. It made amendments to the Epidemic Preparedness Act 2006, including inserting Schedule 2:

Schedule 2 Provisions regarding COVID-19

1. Power of courts to extend or shorten time

(1)    In relation to a proceeding before it, a court may, in its discretion, extend or shorten the time appointed by rules of court or an enactment, or fixed by a court order, for doing an act or taking a step on the terms that the court thinks just if satisfied that it is necessary or desirable to do so because of circumstances relating to COVID-19.

(2)    In this clause, court includes a tribunal.

(Italics added)

[9]    For reasons that I will give below, I am satisfied an extension of the convening period is desirable because of circumstances relating to COVID-19.

Should the court further extend the convening period?

[10]   The Australian courts recognise that the principles applied on an application for a further extension are the same as those considered on an initial application to extend time.4 These require a balancing of the expectation of relative speed with the other need to ensure that undue haste does not prejudice sensible and constructive actions directed towards the objective of the voluntary administration regime, namely, maximising the returns to creditors.

[11]   One of the administrators, Mr Marsden, deposes that two New Zealand stores were closed before the COVID-19 lockdown because of under-performance. During the lockdown, a further six stores were closed because the administrators could not negotiate rent relief with the landlords. That left six stores.

[12]   At the beginning of March, the administrators were in discussion with a number of parties in relation to potential sales or recapitalisation. These parties started to express concern once it became apparent that COVID-19 would impact the

4      Re Acquire Learning & Careers Pty Ltd [2017] VSC 572.

business. After the Alert Level 3 was announced on 23 March 2020 and the country went into the Alert Level 4 lockdown at the end of 25 March 2020, essential businesses were closed. Employees were stood down. Work on sale and recapitalisation came to a halt. The remaining New Zealand stores remained closed until 14 May 2020. During the lockdown from 26 March 2020 to 14 May 2020, no income was generated.

[13]   In the week of 30 March 2020, another interested party came forward to consider buying the business. That party is carrying out due diligence.

[14]   The liquidators explain that they modelled different scenarios and assessed the outcomes for the creditors of the Collette group. They decided that the best option was the “mothballing” approach – that is, after a two month period in mothballs, there would be a four week trading period during which a sale of the businesses would be pursued. There would finally be a sale or deed of company arrangement.

[15]   The administrators have received wage subsidy payments for those staff who have been kept on. The success of continued trading will depend on the government not imposing any further COVID-19 restrictions. There are currently four parties interested in possibly buying the business. Mr Marsden’s affidavit also covers other steps taken during the administration. Aside from the secured creditor of the group (owed approximately AUD$10m), unsecured creditors of the New Zealand company are owed approximately AUD$142,000 for employees and AUD$144,000 for other unsecured creditors, exclusive of inter-company loans.

[16]   Mr Marsden says that if the convening period is extended, the administrators intend to continue investigations, continue trading in line with any COVID-19 restrictions, continue the sales process in line with the mothballing approach and close one New Zealand store by 28 July 2020. He anticipates that the sales process will conclude around June or July 2020. The additional time will allow the administrators to negotiate with interested parties and relevant stakeholders with a view to selling as a going concern. The administrators consider that rent deductions negotiated with landlords and wage subsidy payments will allow the stores to continue, if the post- COVID-19 recovery is slow. The administrators consider that if there is not enough time to follow the mothballing approach, or to carry out and manage wind-down, the

administrators will have to move to a fire sale of the stock which will be the least beneficial result for creditors.

[17]   The administrators made a similar application in Australia. Markovic J extended the convening period in Australia to 27 August 2020.5

[18]   In my minute of 26 February 2020, I accepted that the administration of the New Zealand company should be co-ordinated with the administration of the Australian companies. It is appropriate to follow the lead set in Australia. Those considerations apply equally here.

[19]   Aside from that, requiring the administrators to convene a watershed meeting by 9 June 2020 would hardly be in the general interests of the creditors, given the current general uncertainty in the commercial community as New Zealand comes out of the COVID-19 lockdown. This is a clear case for extending time to see if a better outcome can be obtained for creditors.

[20]   The other orders sought in the application are standard and follow as a matter of course. The originating application has been properly brought on a without notice basis. The applicants have provided for notice of the orders to be given to creditors, with leave to apply for further directions.

[21]   The time for convening the watershed meeting is extended to 2 September 2020 with the watershed meeting to be held within five working days after that date.

[22]   The applicants are to give notice of these orders to all known creditors and to advertise once in The New Zealand Herald.

[23]   The costs of the application are an expense incurred by the applicants in carrying out their work as administrators.

[24]Leave is reserved to apply for further orders.

5      Strawbridge (Administrator) In the matter of CBCH Group Pty Ltd (No 4) [2020] FCA 671.

……………………………..

Associate Judge R M Bell