Pumpkin Patch Limited (in receivership and adminstrators appointed)
[2016] NZHC 2771
•18 November 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-2957 [2016] NZHC 2771
UNDER Part 19 of the High Court Rules and Part
15A of the Companies Act 1993
IN THE MATTER OF
PUMPKIN PATCH LIMITED (In Receivership and Administrators Appointed)
PUMPKIN PATCH ORIGINALS LIMITED (In Receivership and Administrators Appointed)
TORQUAY ENTERPRISES LIMITED (In Receivership and Administrators Appointed)
PUMPKIN PATCH DIRECT LIMITED (In Receivership and Administrators Appointed)
PATCH KIDS LIMITED (In Receivership and Administrators Appointed)
AND
IN THE MATTER OF
A J GRENFELL, C J McELHINNEY and
J D HAYES Applicants
Hearing: (on the papers) Counsel:
J C Caird for Applicants
Judgment:
18 November 2016
JUDGMENT OF HEATH J
This judgment was delivered by me on 18 November 2016 at 2.00pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
RE PUMPKIN PATCH LTD [2016] NZHC 2771 [18 November 2016]
The application
[1] Administrators of a number of companies of (what has been called) the
Pumpkin Patch Group1 (the Group) have applied on a without notice basis for orders:
(a) Extending the period within which they may convene a watershed meeting, from 23 November 2016 to 28 February 2017, and
(b)Varying the notice requirements for documents that must be provided to creditors for the watershed meetings.
[2] I am satisfied that the applications are properly made without notice. There is urgency in relation to the extension of time to convene the watershed meetings. Without an order they must be convened on or before 23 November 2016. No prejudice will be suffered by any affected party. Indeed, in relation to the variation to service requirements, the interests of affected creditors may well be promoted.
Background
[3] Pumpkin Patch Ltd, Pumpkin Patch Originals Ltd, Torquay Enterprises Ltd, Pumpkin Patch Direct Ltd and Patch Kids Ltd were each put into voluntary administration on 26 October 2016. The previous day, Duffy J had made an order entitling the proposed administrators, Messrs Grenfell and McElhinney, to be appointed notwithstanding that their firm had a prior and continuing business relationship with the companies’ major secured creditor.2
[4] Following a resolution of the board of directors of each company, Messrs Grenfell and McElhinney (both of whom are based in Auckland) were appointed as joint and several administrators of each of the five companies. Mr Hayes, who is
based in Sydney, was also appointed as a joint and several administrator in respect of
1 The companies are named at para [3] below.
2 Without exploring whether the provision necessarily applies, I draw counsel’s attention to r 24.61 of the High Court Rules 2016, the purpose of which is to ensure applications in respect of a particular administration are maintained on a single Court file.
Pumpkin Patch Originals Ltd. That company operates in both New Zealand and
Australia.
[5] On the same day that administrators were appointed, 26 October 2016, Messrs Jackson and Gibson were appointed by ANZ Bank New Zealand Ltd and/or Australia and New Zealand Banking Group Ltd as joint and several receivers and managers of each of the companies.
[6] Pumpkin Patch Originals Ltd is the primary trading company within the Group, with branches in both New Zealand and Australia. It carries on business as a retailer and wholesaler of children’s apparel. Established in New Zealand in 1990, the Group now trades also in Australia, the United Kingdom, the Republic of Ireland and the United States of America. It also offers goods on-line.
[7] In respect of the five companies in administration:
(a) Pumpkin Patch Ltd is the parent company. It is the ultimate beneficial owner of shares in the remaining companies. While listed on the New Zealand Stock Exchange, trading in its shares was suspended following the appointment of administrators.
(b) Pumpkin Patch Originals Ltd is the main trading company in New
Zealand and Australia.3
(c) Torquay Enterprises Ltd owns the intellectual property for the
Pumpkin Patch Group.
(d) Pumpkin Patch Direct Ltd operates the Group’s on-line business.
(e) Patch Kids Ltd is the holding company for entities involved in the Group’s business in the United States. It has two subsidiary companies based in that jurisdiction: Pumpkin Patch LLC and
Pumpkin Patch Wholesale LLC.
3 The nature of its business is set out in para [9] below.
[8] In addition, two Australian companies within the Group have been put into both administration and receivership in Australia: Pumpkin Patch Australia Pty Ltd and Pumpkin Patch Australia Properties Pty Ltd. Mr Hayes, who is one of the joint and several administrators of each of those companies, has advised a similar application to the present is being made to the Federal Court of Australia in relation to the Australian administrations.
[9] Mr Grenfell deposes that, at the date of appointment of administrators, Pumpkin Patch Originals Ltd:
(a) Undertook the retail business in New Zealand, accounting for
approximately 22% of Pumpkin Patch Originals Ltd’s revenue;
(b)Undertook the retail business in Australia, accounting for approximately 73% of Pumpkin Patch Originals Ltd’s revenue;
(c) Procured all inventory on behalf of the Pumpkin Patch Group, selling some of that inventory to Pumpkin Patch Group’s wholesale, Irish retail and on-line businesses;
(d) Employed most of the employees within the Pumpkin Patch Group
(other than employees in the Irish, UK and US businesses);
(e) Held all of the leases in respect of the New Zealand retail stores, totalling 45, and employed 341 employees in New Zealand;
(f) Held approximately 75% of the leases in respect of the Australian retail stores, totalling 119, and employed 1,050 employees in Australia; and
(g) Owned a significant portion of the Pumpkin Patch Group’s assets in
New Zealand and Australia, including the store fit-outs and inventory.
(h)Had approximately seven secured creditors, including one or other of the ANZ bank entities; and
(i)Had approximately 1,617 unsecured creditors, consisting of employees, lessors, suppliers and other trade creditors.
(j) Owed approximately $7.4 million to its unsecured creditors.
[10] Because Pumpkin Patch Originals Ltd has a branch in Australia, an order was sought from the Federal Court of Australia recognising the administration in New Zealand as a foreign main proceeding. An order to that effect was made by Jagot J, on 10 November 2016.
Extension of time to convene a watershed meeting
[11] The administrations have been commenced under Part 15A of the Companies Act 1993 (the Act). The object of Part 15A is (generally speaking) to provide for an opportunity for the business of an insolvent company to be administered in a manner that is designed to maximise the prospects of the continuation of its business and to provide a better return for the company’s creditors and shareholders than would result from a liquidation.4
[12] Following the commencement of an administration, the administrator must call a first meeting of creditors at which time a committee of creditors may be elected.5 The next meeting is the “watershed meeting”.6 The purpose of that 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”.7
[13] In general terms, an administrator must convene the watershed meeting within 20 working days after the date of his or her appointment.8 The High Court is
given power to extend the convening period.9 The meeting must be held within five
4 Companies Act 1993, s 239A.
5 Ibid, s 239AJ(a).
6 Ibid, s 239AJ(b).
7 Ibid, ss 239B and 239AS.
8 Ibid, s 239AT(1) and (2).
9 Ibid, s 239AT(3).
working days after the end of the convening period, or any extended period authorised by the Court.10
[14] In general terms, an extension of time is sought because of the size and complexity of the individual administrations,11 the need to await the outcome of the realisation of assets presently being undertaken by the receivers and the desirability of maintaining the benefit of the moratorium while the realisation process is underway. The moratorium prevents steps being taken by certain classes of creditors to enforce debts during the period of the administration.12
[15] In considering this aspect of the application, I adopt the approach that I took in Re Nylex (New Zealand) Ltd (Administrators Appointed and in Receivership).13
The application must be considered having regard to the purposes of the voluntary administration regime, the duties cast upon an administrator (both private and public) and the need to ensure that full information is available to all creditors at the watershed meeting, so that they may make informed decisions about the fate of the business enterprises with which they have been dealing.14 The Court must also bear in mind the need to restrict a moratorium of creditors’ rights to the minimum period necessary to achieve the purposes of the legislation.15 In general terms, that
approach was adopted in later New Zealand decisions.16
[16] A useful collection of factors which, either individually or collectively, may justify an order extending time is contained in Austin J’s judgment in Re Riviera Group Pty Ltd.17 They include, the size and scope of the business; the existence of off-shore activities, the number of employees and the nature of their entitlements; and the complexity inherent in enabling administrators to identify the most efficient
way to realise assets for the benefit of creditors and to report to them at the
10 Ibid, s 239AV.
11 See para [9] above.
12 Companies Act 1993, ss 239ABC–239ABG and 239ABK–239ABT.
13 Re Nylex (New Zealand) Ltd (Administrators Appointed and in Receivership) HC Auckland CIV-
2009-404-1217, 11 March 2009 (Reasons).
14 Ibid, at paras [13]–[16].
15 Ibid, at paras [18] and [19].
16 For example, see Re WGL Retail Holdings Ltd HC Auckland CIV-2011-404-1117 at paras [7]– [10] (Associate Judge Bell), Re Gourmet Food Holdings New Zealand Ltd [2012] NZHC 3606 at paras [22]–[25], Re Postie Plus Group Ltd [2014] NZHC 1337 at paras [20] and [21] and Re DSE (NZ) Ltd [2016] NZHC 36 at paras [9]–[13].
17 Re Riviera Group Pty Ltd (2009) 72 ACSR 352 (SCNSW) at para [13].
watershed meeting. While acknowledging the helpful nature of Austin J’s summary, like other New Zealand Judges have done, I emphasise the non-exhaustive nature of the factors identified.
[17] I am satisfied that this is a case in which an extension of time to convene the meetings is both necessary and appropriate. I have reached that conclusion based on a combination of factors, the most significant of which are:
(a) The nature of each company’s business and its interrelationship with others in the Group is such that further time is required for the administrators to undertake an appropriate review of the financial and other information before reporting to creditors with any recommendation.
(b)There is a need for the receivers to continue realisation of assets so that the administrators can assess whether it is feasible to continue trading, and whether that is in the best interests of creditors. Importantly, from a trading perspective, the Christmas retail period is approaching and it would be wise to continue the businesses into the New Year before final decisions are made as to the viability of the businesses.
(c) The ability for the business activities to be continued over the Christmas/New Year period is unlikely to cause prejudice to creditors who are subject to the moratorium.
(d)The creditors were told at the first meeting that an extension of time was likely to be sought for convening the watershed meeting. There was no dissent from any creditor represented at that meeting. In addition, an extension is expressly supported by both the receivers and their appointors.
[18] For those reasons, I shall make orders extending the period for convening watershed meetings from 23 November 2016 to 28 February 2017, as sought. I shall
also declare that s 239ADO applies so that the administrators may convene such a meeting at any time within the extended period, notwithstanding s 239AV of the Act.18
Service of documents for watershed meeting
[19] The administrators seek specific orders in relation to the provision of documents for the watershed meetings. This issue arises out of the terms of s 239AU of the Act:
239AU Notice of watershed meeting
(1) The administrator must convene the watershed meeting by—
(a) giving written notice of the meeting to as many of the
company’s creditors as reasonably practicable; and
(b) advertising the meeting in accordance with section 3(1)(b). (2) The administrator must take the steps in subsection (1) not less than 5
working days before the meeting.
(3) The following documents must accompany the notice of the watershed
meeting that is sent to the company’s creditors:
(a) a report by the administrator about—
(i) the company’s business, property, affairs, and
financial circumstances; and
(ii) any other matter material to the creditors’ decisions
to be considered at the meeting; and
(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.
18 The orders are set out at para [31](b) and (c) below.
[20] Section 239ADO(1) provides a general jurisdiction for the Court to make “any order that it thinks appropriate about how [Part 15A] is to operate in relation to a particular company”. While adopting a case-by-case approach to this issue, Courts in this country have tended to follow examples set in Australia,19 under comparable legislation, to provide alternative ways for notice to be given in appropriate cases.
[21] Mr Caird, for the administrators, properly referred me to Katz J’s judgment in Re Gourmet Food Holdings New Zealand Ltd20 on this issue. In that case, Katz J declined to make an order departing from the “normal practice” captured in s 239AU of the Act.21 In particular, Her Honour appears to have been influenced by (what she regarded) as a “not particularly large” number of creditors and modest “estimated cost savings”. There were 120 creditors and the savings were estimated at
$AUD8,000, plus GST. The Judge concluded that it “would not be unduly burdensome to provide creditors with hard copies of the relevant documents”.22
[22] A variation to the statutory requirements for giving notice of the “first and subsequent creditors’ meetings” was made by Duffy J on 25 October 2016. Her Honour’s orders extend to the watershed meeting, as they relate to “first and subsequent creditors’ meetings under s 239AO of the Act”. The administrators do not seek any further adjustment in relation to those orders. The present application directly concerns the requirement to provide the accompanying documents to which
s 239AU(3) of the Act refers.23 That variation is sought only in respect of Pumpkin
Patch Ltd and Pumpkin Patch Originals Ltd.
[23] Mr Grenfell explained why the variation is sought in respect of the accompanying documents:
56.The Accompany Documents in respect of [Pumpkin Patch Ltd] and [Pumpkin Patch Originals Ltd] are likely to be lengthy (in the region of approximately 50 pages, and possibly significantly more), and I would need to engage the services of an external provider to provide
19 For an early example of the exercise of a jurisdiction of this type, see Re Ansett Australia Ltd
(2002) ACSR 419 (FCA).
20 Re Gourmet Food Holdings New Zealand Ltd [2012] NZHC 3606 at paras [29]–[34].
21 Ibid, at para [34]. Section 239AU is set out at para [19] above.
22 Ibid.
23 Section 239AU is set out at para [19] above.
printing and mailing support and to assist in sending the
Accompanying Documents to creditors.
57.Given that [Pumpkin Patch Ltd] has approximately 247 creditors and [Pumpkin Patch Originals Ltd] has approximately 1,617 creditors in New Zealand and Australia, the cost of posting a hard copy of the Accompanying Documents to creditors will be substantial.
[24] With respect, I take a different approach to this issue than is evident from the reasons for judgment given by Katz J in Re Gourmet Food Holdings New Zealand Ltd.24 It is unclear whether the point was put to Katz J in this way, so my comments should not be taken as a criticism of the result that the Judge reached in that case, or her reasoning.
[25] In my view, the Court’s approach to this issue should be guided by the need to achieve an outcome that accords with the overall objectives of the voluntary administration regime.25 Viewed in that way, the question becomes: what is the best method by which the accompanying documents can be provided to ensure creditors have an adequate opportunity to consider them before the meeting? The purpose of providing the accompanying documents is to enable creditors to consider the content and to make an informed decision on the important questions to be debated at such a meeting.26 That means that, when exercising the discretion, the Court’s focus is on promotion of the interests of creditors and ensuring that the objectives of Part 15A are met.
[26] Contrary to what may have been assumed in other cases, s 239AU(3) does not prescribe any particular method by which notice should be sent to the company’s creditors. For present purposes, the relevant concepts are those of “written notice” of the meeting and the need to “send” the accompanying documents to the creditors.
[27] The requirements of s 239AU must be read in the context of the Electronic Transactions Act 2002. That statute provides that a legal requirement that information be in writing is met by information that is in electronic form if the
information is readily accessible so as to be usable for subsequent reference.27
24 Re Gourmet Food Holdings New Zealand Ltd [2012] NZHC 3606. See para [21] above.
25 See para [11] above.
26 See paras [12] and [13] above.
27 Electronic Transactions Act 2002, s 18.
Further, a legal requirement to give information in writing is met by giving the information in electronic form, whether by means of an electronic communication or otherwise, if the information is readily accessible so as to be usable for subsequent reference; and the person to whom the information is required to be given consents to the information being given in electronic form and by means of an electronic
communication, if applicable.28 That rule applies even if that information is required
to be given in a specified manner; for example, by sending, serving, delivering, lodging, or posting it.29
[28] Those provisions of the Electronic Transactions Act create default rules to apply to situations in which private individuals or companies are dealing with each other. That is the reason why “consent” is needed before a legal requirement that information be given in writing will be met through the use of electronic means.30 If consent were available, the notice requirements of s 239AU could be met by electronic means without the need for a Court order. An order from the Court
enables notice to be given in such alternative manner as may be directed, whether by electronic means or otherwise. The issue will always be whether the order sought promotes the interests of creditors and is consistent with the objectives of Part 15A.
[29] The administrators seek orders that accompanying documents be sent to creditors of Pumpkin Patch Ltd and Pumpkin Patch Originals Ltd in the following way:
(a) The Accompanying Documents are to be uploaded and published to
the administrators’ website and
(b)Creditors will be provided with a covering letter, together with the notices of the watershed meeting:
(i)Referring them to the website to access the Accompanying Documents; and
28 Ibid, s 20(1).
29 Ibid, s 20(2) and (3).
30 Ibid, s 20(1).
(ii)Advising creditors that copies of the Accompanying Documents can be emailed or posted to creditors upon request to the administrators.
[30] The following factors persuade me that orders in the form proposed by the administrators should be made:
(a) The administrators require sufficient time to assess the outcome of the realisation process being undertaken by the receivers. It is possible (perhaps even likely) that the notices and accompanying documents that must be sent by the administrators to creditors under s 239AU(1) and (3) of the Act would be dispatched close to the end of the extended convening period. That would mean a meeting would need to be held within five working days from that date.
(b)If the accompanying documents were provided in paper based form, it is possible that some creditors would not receive them until shortly before the proposed meeting. Provision in an electronic form will ensure ability to access the documents as soon as they are posted on a website.
(c) The proposals made by the administrators will maximise the likelihood that creditors will have sufficient time to consider the documents before the watershed meeting and make provision for the supply of paper copies to creditors who expressly request them following receipt of email notice given pursuant to Duffy J’s orders.
(d)The interests of creditors will be promoted by minimising compliance costs.
Orders
[31] For those reasons, I make the following orders:
(a) Leave is granted for the applications to be made on a without notice basis.
(b) The convening period for watershed meetings is extended from 23
November 2016 to 28 February 2017 in respect of Pumpkin Patch Ltd, Pumpkin Patch Originals Ltd, Torquay Enterprises Ltd, Pumpkin Patch Direct Ltd and Patch Kids Ltd (the companies).
(c) The administrators may convene a watershed meeting in respect of any of those companies at any time within the period for which the extension has been granted.
(d) In respect of Pumpkin Patch Ltd and Pumpkin Patch Originals Ltd:
(i)Notices of the watershed meetings shall be sent to creditors of each company in the manner directed by Duffy J in her orders of 25 October 2016.
(ii) The accompanying documents to which s 239AU(3) of the Act
refer shall be uploaded and published on the administrators’
website with the notices, the administrators of each company shall provide a letter to each of the creditors of each company referring those creditors to the website to obtain access to the accompanying documents and advising that copies of the accompanying documents can be sent by post or email to a particular creditor upon request (in any form) made to the administrators.
(e) Within five working days of the date of this order, notice of the making of these orders shall be given to each known creditor of the companies by:
(i)Emailing a copy of the orders to the email address by which the companies normally communicate with that creditor;
(ii)Where an email address for a creditor is not known, or at the creditor’s request, by posting copies of the orders to the physical address by which the companies normally communicate with that creditor;
(iii)Circulating a copy of the orders to employees of the companies through the ordinary communication channels used by the companies;
(iv) Emailing a copy of the orders to the creditors’ committees of
Pumpkin Patch Ltd and Pumpkin Patch Originals Ltd;
(v) Posting copies of the orders on the applicants’ website
once in The New Zealand Herald, The Dominion Post, The Press, The Otago Daily Times and The Australian, in accordance with s 3(1)(b) of the Act;
(f) Leave is granted to any person who can demonstrate a sufficient interest to apply to modify or discharge these orders on appropriate notice being given to the applicants;
(g)Leave is reserved to the applicants to apply further in respect of any ancillary issues arising out of the orders made.
[32] Any further applications shall be referred to me, as Civil List Judge, in the
first instance.
P R Heath J
Delivered at 2.00pm on 18 November 2016
Solicitors:
Simpson Grierson, Auckland
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