Go to Collection Limited
[2022] NZHC 3471
•16 December 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-000590
[2022] NZHC 3471
UNDER Part 15A and Part 19 of the Companies Act 1993 IN THE MATTER
of GO TO COLLECTION LIMITED
(Administrators Appointed)
AND
of an application by MALCOLM GRANT HOLLIS and JOHN HOWARD ROSS FISK
as Administrators of GO TO COLLECTION LIMITED
Hearing: On the papers Counsel:
K M Paterson and M A Powell for Applicants
Judgment:
16 December 2022
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 16 December 2022 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
RE GO TO COLLECTION LIMITED [2022] NZHC 3471 [16 December 2022]
Introduction
[1] Go to Collection Ltd was placed into voluntary administration on 24 November 2022. The applicants, Malcolm Hollis and John Fisk (the administrators) were appointed joint and several administrators. They now apply on a without notice basis for orders:
(a)under section 239AT(3) of the Companies Act 1993 (the Act), extending the period by which the administrators must convene the watershed meeting for the company from 22 December 2022 to 31 January 2023; and
(b)under section 239Y(4) of the Act, extending the period within which notice of the termination of a contract of employment is required to be given from 22 December 2022 until 31 January 2023, with wages and salary to be treated as a cost of the administration.
Background
[2] The company operated restaurants around the country. It employed approximately 85 employees across these restaurants. The administrators have since ceased operations at three venues, and one had ceased trading prior to the administration.
[3] The company has significant secured and unsecured debts but the administrators’ current view is that the best possible outcome will be to sell the company's business(es) as this is likely to achieve a better outcome for creditors than an immediate liquidation. To this end, the administrators have continued to allow the company to trade at several venues.
[4] The administrators expect that the company will be able to continue to pay its employees and trade creditors for the period to 31 January 2023, and that the financial position of the company will not change significantly over the period. Rent in respect of the premises that are still operating is up to date.
[5] The administrators have called for offers for the purchase of the assets of the company, which are principally the restaurant businesses. Offers have been received and are being assessed.
[6] There is a requirement in s 239AT of the Act that the administrators convene a watershed meeting. Under s 239AV of the Act the watershed meeting must be held within five working days following the “convening period” for the company. In this case, the convening period is from 24 November 2022 to 22 December 2022.
[7] The administrators say that while they have endeavoured to progress the administration as quickly as possible, and still hope to have the watershed meeting before Christmas, there is a risk that will not be achievable. They have taken the precaution of seeking an extension of the timeframe for holding the watershed meeting in case this becomes necessary. They say that if no extension is granted, they may need to either:
(a)hold a watershed meeting before Christmas, even though they may not be in a position to present a viable deed of company arrangement (DOCA) which may therefore result in the company facing liquidation; or
(b)hold a watershed meeting early in the New Year, which may prejudice creditors as a result of the holiday season (and may also not allow sufficient time to present a viable DOCA in any event, again because of the holiday period).
[8] They say that the extension sought is in the best interests of creditors who will suffer significant losses if the company is liquidated compared to if the businesses are sold or a DOCA put in place.
[9] Insofar as the administrators are also seeking an order extending the period within which notice for the termination of the company’s employment contracts is required to be given under s 239Y of the Act, the Court has already granted one
extension from 8 December 2022 to 22 December 20221 so as to align with the administrators’ expectation that the watershed meeting would take place prior to Christmas (which may now not be possible).
[10] The administrators say that if a further extension is not granted, then they will be required to give notice of termination to employees by 22 December 2022, which will not be in the interests of the company’s creditors or the employees.
Without notice application
[11] This application is made under pt 15A of the Act. Rule 19.2(2)(c) of the High Court Rules 2016 provides that such applications are to be made using the originating application procedure. Rule 19.10 provides that certain rules concerning interlocutory applications apply to proceedings commenced by originating application. These include r 7.46 concerning the determination of applications without notice.
[12] The administrators submit this is an appropriate case for the application to be determined on a without notice basis under r 7.46(3)(a) and (e). Those provide that a Judge may determine that an application can properly be dealt with without notice if the Judge is satisfied that requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant, or that the interests of justice require the application to be determined without serving notice of the application.
[13] I am satisfied that requiring the administrators to proceed with the application on notice would cause undue delay or prejudice to them, and would not be in the interests of justice, because:
(a)the extensions of time that are sought are short;
(b)requiring personal service of the application on what I understand are approximately 85 employees, 25 secured creditors, and 120 unsecured creditors would be a significant expense in the administration;
1 Re Go To Collection Ltd (Administrators Appointed) [2022] NZHC 3225.
(c)it is very unlikely the application could be served and the Court to convene a contested hearing (if any objection was received) within the statutory timeframes;
(d)on what is before me, I do not see that the company’s employees and creditors will suffer any prejudice if service is dispensed with because:
(i)they will, in accordance with directions I shall make, be notified of the orders; and
(ii)they will have the right to apply to vary them.
Extension – watershed meeting
The Act and principles
[14]The voluntary administration provisions are set out in pt 15A of the Act.
[15]The objects of voluntary administration are explained in s 239A of the Act as:
The objects of this Part are to provide for the business, property, and affairs of an insolvent company, or a company that may in the future become insolvent, to be administered in a way that –
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.
[16] Section 239AT of the Act requires an administrator to call a “watershed meeting”. The term “watershed meeting” is defined by s 239B of the Act as:
watershed meeting means the creditors’ meeting called by the administrator to decide the future of the company and, in particular, whether the company and the deed administrator should execute a deed of company arrangement.
[17] A watershed meeting must be held within five working days after the end of the convening period or any extended convening period. The term “convening period” is defined in s 239AT(2) and in this case is the period from 24 November 2022 to
22 December 2022. Under s 293AT(3) of the Act, the Court may on the administrator’s application extend the convening period. The application may be made before or after the convening period has expired (s 239AT(4) of the Act).
[18] As noted, the watershed meeting is to decide the future of the company, and, in particular, whether the company and the deed administrator should execute a deed of company arrangement (s 239AS). The deed of company arrangement is defined in s 239B as "the deed that is executed by the company and its creditors providing for payment towards the creditors' debts".
[19] Counsel for the administrators highlighted that an administrator appointed under the Act has a very short statutory time frame to try to agree on a rehabilitation plan for the company and in the best case, the administrator will be able to put forward a proposal (a DOCA) for consideration by the company’s creditors to rescue and rehabilitate the insolvent company.
[20]At the watershed meeting, the creditors may:2
(a)resolve that the company execute a deed of company arrangement specified in the resolution;
(b)resolve that the administration should end (ie hand back control of the company to its directors); or
(c)by resolution appoint a liquidator (unless the company is already in liquidation).
[21] The administrator must, not less than five working days before the watershed meeting, give written notice of the meeting to as many of the company’s creditors as reasonably practicable, and advertise the meeting in accordance with s 3(1)(a) of the Act.3 A number of detailed documents must accompany the notice of the watershed meeting that is sent to the company’s creditors. They are:4
2 Companies Act 1993, s 239ABA.
3 Section 239AU.
4 Section 239AU(3).
(a)A report by the administrator about:
(i)the company’s business, property, affairs, and financial circumstances;
(ii)any other matter material to the creditors’ decisions to be considered at the meeting;
(b)a statement setting out the administrator’s opinion, with reasons for that opinion, about each of the following matters:
(i)whether it would be in the creditors’ interests for the company to execute a deed of company arrangement;
(ii)whether it would be in the creditors’ interests for the administration to end;
(iii)whether it would be in the creditors’ interests for the company to be placed in liquidation; and
(c)if a deed of company arrangement is proposed, a statement setting out the details of the proposed deed.
[22] There have been several decisions of this Court that have considered the proper approach to be taken to applications for an extension under s 239AT(3). In the leading case of Re Nylex (New Zealand) Limited, Heath J discussed the use of s 239AT(3) as follows:5
[18] It is clear from the strict time limits contained in the legislation and the need to keep a moratorium against the exercise of certain creditors' rights in place for the least time practicable, that Courts should take care in determining whether to grant applications to extend the convening period.
[19] There will be cases (though this is not one) where such an application is only made for the purpose of delay and extension of the moratorium. But, in a case where complexity reigns and an Administrator cannot, in the time prescribed, conduct a proper investigation to form opinions to put to creditors
5 Re Nylex (New Zealand) Limited HC Auckland CIV-2009-404-1217, 11 March 2009.
at a watershed meeting, it is appropriate (and indeed necessary) to extend the convening period so that the Administrator can perform his or her functions properly and creditors, at the watershed meeting, can make informed decisions.
…
[22] … an application to extend time requires a balance to be struck between the expectation that an administration will be relatively speedy and the need to ensure that undue haste does not prejudice sensible and constructive actions directed towards the object of the regime, namely maximising returns for creditors.
[23] In Re Grenfell,6 the High Court confirmed that the appropriateness of an extension will be a "fact specific determination," with six months regarded as a "significant period" and at the top of the range.7 The Court endorsed the non- exhaustive list of factors in Re Riviera Group Pty Limited,8 which included factors that are relevant here, namely:
(a)size and scope of the business;
(b)large number of employees with complex entitlements;
(c)complex corporate group structure and intercompany loans;
(d)the time needed to execute an orderly process of disposal of assets;
(e)the time needed for a thorough assessment of a proposal for a deed of company arrangement;
(f)the possibility that the extension will allow a sale of the business as a going concern; and
(g)where additional time is likely to enhance the return for unsecured creditors.
6 Re Grenfell [2016] NZHC 36.
7 At [15].
8 Re Riviera Group Pty Limited [2009] NSWSC 585, (2009) 72 ACSR.
[24] Other cases have granted extensions to the convening period from two months, three months, four and a half months, six months and 180 days and, in one case, 18 months.9
Disposal of this application
[25] I am satisfied that it is appropriate to grant an extension of time for the administrators to convene a watershed meeting for the following reasons:
(a)the extension sought is short being a period of one month;
(b)the administrators have formed the view that the option that will provide the best return to creditors is for the businesses of the company to be sold as going concerns where possible. They have only recently received offers for purchase and need more time to consider them;
(c)the holiday period will make it difficult to progress the administration with creditors, as at least some creditors (or their advisors) are likely to be unavailable over the holiday period;
(d)the alternative to a sale or DOCA is likely to be liquidation and the administrators consider that will involve a worse outcome for creditors;
(e)the extension is likely to be in the best interests of the creditors as a whole, because it maximises the chances of the businesses being sold as a going concern;
(f)the company expects to continue to pay its employees and trade creditors over the extension period; and
(g)the administrators do not expect the existing creditors' position to deteriorate over that period.
9 See authorities cited in Re Grenfell, above n 6, at [15].
[26] I am also in agreement with counsel’s submission that the alternatives to extending the convening period are impractical. If no extension is granted the administrators could be forced to hold the watershed meeting and then have it adjourned under s 239AZ of the Act. As they would not, in all likelihood, have sufficient time to properly prepare for the watershed meeting (in particular to put forward a proposed DOCA in advance of the watershed meeting), that would be a pointless and wasteful approach.
Extension – employment contracts
The Act and principles
[27] Under s 239Y(3) of the Act, the administrators are personally liable for wages and salary that accrue under a contract of employment unless the administrators lawfully give notice of termination within 14 days of appointment. Under s 239Y(4) of the Act, the administrators may apply to the Court to have the 14-day period extended on any terms and conditions that the Court deems appropriate.
[28] The applicants seek a further extension of the period within which notice of termination is to be given under s 239Y(3) of the Act. The extension sought is for the same period as the convening period (pursuant to s 239AT of the Act): that is, until 31 January 2023.
[29] As noted above, the Court previously granted the administrators an extension to 22 December 2022 in anticipation of the watershed meeting being held by that date. As that may now not be possible, the administrators seek a further corresponding extension to the time period.
[30] In WGL Retail Holdings an application for directions under both ss 239Y(4) and 239AT(2) of the Act was made by the administrators and determined together.10 The Court granted both extensions of time, because:
10 Re WGL Retail Holdings Ltd [2011] NZCCLR 22.
(a)the extensions would promote continuity of employment relationships, which was likely to be in the best interests of both creditors and employees;
(b)the extensions would allow the applicants to continue their "business as usual" approach; and
(c)the risks of not extending time under s 239Y of the Act were that the administrators may feel constrained to terminate employment, reducing the chances of a successful administration.
[31] Counsel has drawn to my attention that similar orders have been made in other cases, likewise aligning with an extension to the convening period.11
Disposal of this application
[32] When Associate Judge Lester previously considered the administrators’ application for an extension of time under s 239Y(3) he found it was appropriate to grant the application for five reasons, stating:12
(a)Unless an extension is granted, notice of termination would be given to the approximately 85 employees by 8 December 2022 in order for the Administrators to avoid personal liability for their employment contracts.
(b)The Administrators would then need to re-employ the Company’s employees, which would incur significant legal and Administrators’ costs. Offers of re-employment might be declined by the Company’s employees and attract adverse media attention.
(c)An extension would assist the Administrators in achieving their objective of attempting to sell the businesses of the Company as a going-concern, because it would minimise stress and inconvenience to the Company’s employees and preserve the Company’s goodwill with them, maximise the prospects of continuity of employment and avoid the possibility of adverse publicity.
(d)There is a significant risk that, particularly in respect of the restaurants located in Queenstown, employees may look for alternative employment if faced with having their employment terminated, even if presented with an immediate offer of re-employment.
11 Re Kumfs Group Ltd [2019] 2552; Re Postie Plus Group Ltd [2014] NZHC 1337; Ruapehu Alpine Lifts Ltd [2022] NZHC 2738.
12 Re Go To Collection Ltd (Administrators Appointed), above n 1, at [13].
(e)The Company’s employees will not be materially prejudiced, since they remain free to resign, and their wages and salary which accrue during the relevant period to 22 December 2022 will be treated as an expense in the administration under sch 7, cl 1(1)(1)(b) of the Act.
[33] Those same considerations apply to this further application for an extension, and I am satisfied it is appropriate to make the orders sought.
Result
[34]I make orders in terms of the draft orders filed as follows:
(a)the convening period as defined in s 239AT(2) of the Companies Act 1993 (Act) in the administration of Go To Collection Ltd is extended under s 239AT(3) of the Act to an end date of 31 January 2023 instead of 22 December 2022;
(b)the period of time in which the applicants are required to give notice of termination of a contract of employment under s 239Y(3) of the Act is extended under s 239Y(4) of the Act to an end date of 31 January 2023, instead of 22 December 2022, with any wages or salary that accrue under such contracts being an expense of the administration under sch 7, cl 1(1)(b) of the Act.
(c)as soon as possible, and no later than five working days of the Court’s orders, the applicants must:
(i)post a copy of the Court’s orders on the website of PricewaterhouseCoopers Christchurch partnership; and
(ii)email a copy of the Court’s orders to each creditor’s email address by which the company normally communicates with that creditor (to the extent such an address is available); and
(d)the applicants’ reasonable costs of this application will be paid out of the assets of the company.
(e)leave is reserved to apply further.
O G Paulsen Associate Judge
Solicitors:
Buddle Findlay (Kelly Paterson), Christchurch
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