Re Postie Plus Group Ltd

[2014] NZHC 1337

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2014-404-001392 [2014] NZHC 1337

IN THE MATTER

of Part 15A of the Companies Act 1993

IN THE MATTER

of POSTIE PLUS GROUP LIMITED (ADMINISTRATORS APPOINTED)

BETWEEN

DAVID JOHN BRIDGMAN and COLIN THOMAS McCLOY

Applicants

Hearing:	On the papers
Counsel:	LA O'Gorman for Applicants
Judgment:	13 June 2014

JUDGMENT OF ASHER J

This judgment was delivered by me on Friday, 13 June 2014 at 4.30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Buddle Findlay, Auckland.

BRIDGMAN and McCLOY [2014] NZHC 1337 [13 June 2014]

Background to this application

[1]      On  3  June  2014  David  John  Bridgman  and  Colin  Thomas  McCloy, insolvency practitioners and partners in the firm of PricewaterhouseCoopers, were appointed as administrators of Postie Plus Group Ltd (Postie Plus).  They apply for an extension of the time periods under ss 239AT and 239Y of the Companies Act

1993 on a without notice basis.  The extensions are 61 days (to 1 September 2014) and 82 days (to 1 September 2014) respectively.  Mr McCloy has filed an affidavit in support of the application.

[2]      Postie Plus is a retail business specialising in men’s, women’s and children’s apparel and health and beauty products.  It has over 100 years of history and is one of the country’s largest retail chains.   It operates over 80 stores throughout New Zealand and employs approximately 650 staff nationwide.   It is listed in the New Zealand  Stock  Exchange.    Trading  in  the  shares  of  Postie  Plus  is  currently suspended.

[3]      On 4 June 2014 the administrators entered into a heads of agreement with potential purchasers of Postie Plus.   A statement was released to the media announcing the intended purchase.   The parties will endeavour to complete on or about 2 July 2014.

[4]     As administrators of Postie Plus, Messrs Bridgman and McCloy (“the administrators”) must convene a watershed meeting within the “convening period” for Postie Plus.1   The convening period is stated in s 239AT(3) to be the period of 20 working days after the date on which administrators are appointed.

[5]      Given the large number of employees and sites, and the fact that there are 20 secured creditors and about 230 unsecured creditors, the administration of Postie Plus is complex.  The administrators are concerned that the requirements to provide notices and reports for the watershed meeting by 1 July 2014 would significantly distract  them  from  their  immediate  goal  of  completing  a  sale  of  the  business.

Mr McCloy asserts that the sale of the business will be the best outcome for creditors

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

and employees of Postie Plus, and that the next four weeks will be critical if they are to complete such a sale.   For example, there is the  potential for some creditor liability to be assumed by the potential purchaser given that the business has been sold as a going concern.  Further, there is the possibility that the estimated timeframe for completion of the sale will be delayed.

[6]      If the sale is not completed by the time of the watershed meeting it would be impractical for the creditors at the watershed meeting to consider Postie Plus’s affairs and whether it would be appropriate to end the administration.  It would be far more practical for there to be more time to finalise a report and post the notice to all creditors and employees.  If the sale did not go ahead there would be more time to consider alternative options and report on those.

[7]      For these reasons the administrators seek the extension to the convening period  to  1  September  2014.    This  period  will  allow  the  due  diligence  and negotiation process to be completed, and for informed reports to be provided.

[8]      The same period of extension is sought in relation to the period of time set out in s 294Y(3) of the Companies Act in which the administrators are required to give notice of termination of contracts of employment.   So if an extension is not granted the administrators will have to give notice of termination to every employee by Tuesday, 17 June 2014.  At the same time formal offers of re-employment would have to be made to each employee, with the necessary documentation.

[9]      Mr McCloy deposes that this would be difficult to achieve within the 14 day period given the number of employees involved.  It would also add further disruption to the sale process.   Further, if a sale is confirmed it would be a pointless and wasteful exercise to carry out these steps when Postie Plus would be required to terminate their employment again in a transfer of business scenario a short time later.

[10]     The administrators have advised the employees of their intention to seek an extension of the 14 day period by a letter of 4 June 2014.  To date there has been no notice of any opposition to the extension.

[11]     I consider the application against this background.

Without notice application

[12]     The issue is whether it is appropriate to determine these applications without notice, and in particular without service on creditors and employees.

[13]     I am satisfied that it would be a considerable expense and cause delay to carry out such service.  Further, it is unlikely that any of the employees or creditors would be adversely affected by the extensions of time sought for reasons that I will elaborate on below.

[14]   The administrators undertake to notify the creditors of Postie Plus by advertisements and by notification on a webpage on the PricewaterhouseCoopers website.   I am informed that the Bank of New Zealand, the first ranking secured creditor, supports the application.

[15]     Given these practical realities, and the urgency of the situation, I am prepared to consider the application on a without notice basis.

Application for the extension of the convening period

[16]     The object of voluntary administration in Part 15A is set out in s 239A of the

Act:

239A   Objects of this Part

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.

[17]     While  Postie  Plus  is  in  administration  there  is  a  statutory  moratorium imposed by subpart 9 of Part 15A against enforcement action from creditors.  This maximises the chances of Postie Plus remaining in business.

[18]     Administrators may however need additional time to carry out their tasks.  In recognition of this the legislature has  provided for extensions of the  convening period for the watershed meeting,2  and for an extension of the time period within

which notice of termination of contracts of employment is required to be given.3

[19]     Orders for the extension of time are not made as a matter of course and are the exception rather than the rule.4    However, they will be more frequently granted where the company structure is complex. Any application for an extension has to be supported by detailed information about the affairs of the company so far as they are known, and the reasons for the extension must be clearly stated.

[20]     In deciding whether to grant an extension, the Court’s function has been

described by Barrett J in Re Diamond Press Australia Pty Ltd as:5

[striking] 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.

[21]     A Court must be wary of the possibility of the administration processes being exploited  by  a  company  that  seeks  to  delay  enforcement  action  by  creditors. However, when the statutory moratorium is properly imposed it can maximise a company’s  chances  of  remaining  in  business  and  improve  creditors’ chances  of recovery. As Heath J commented in Re Nylex (New Zealand) Ltd:6

… 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 at a watershed meeting, it is appropriate (and indeed necessary) to extend the convening period so that the Administrator can perform his or her

2      Companies Act 1993, s 239AT(3).

3      Companies Act 1993, s 239Y(4).

4      Re All Build Construction Co Pty Ltd; ex parte Featherby [2000] WASC 227.

5      Re Diamond Press Australia Pty Ltd [2001] NSWSC 313.

6      Re Nylex (New Zealand) Ltd HC Auckland CIV-2009-404-1217, 11 March 2009 at [19].

functions  properly  and  creditors,  at  the  watershed  meeting,  can  make informed decisions.

[22]     Extensions of the convening period of four and a half months,7  six months8

and 180 days9 have been made.

[23]     I consider it appropriate to grant an extension of the convening period for the following reasons:

(a)      The  administration  is  complex  and  involves  a  large  number  of employees,   multiple   sites   and   multiple  secured   and   unsecured creditors.  It is understandable that the administrators wish to focus on the all important issue of a constructive sale of the business at this point.   A sale  is  likely  to  be  the  best  outcome  for  creditors  and employees.

(b)It is possible that a sale may not be completed at the time when the watershed meeting would be held within the statutory timeframe.  If that was so it would be difficult for the creditors to consider the best commercial way forward for Postie Plus.   If there was a sale there would be little time to finalise a report and for that to be considered by creditors and employees.

(c)      The alternative to sale would be a restructure of the business, that would take time to formulate.

[24]     I am prepared to grant the extension sought of the convening period.

Extension of the time for terminating contracts of employment

[25]     The principles applied in considering an extension of the 14 day period of notice  of  termination  to  employees  are  closely  related  to  those  relating  to  an

extension of the convening period.    The Court will be concerned to facilitate a

7      Re Nylex, above n 6.

8      Re WGL Retail Holdings Ltd [2011] NZCCLR 22.

9      Re Gourmet Food Holdings New Zealand Ltd [2012] NZHC 3606.

constructive outcome of the administration which will ensure that the business survives and contracts of employment can be maintained to the advantage of both employees and creditors.  In complex administrations a Court will be concerned to ensure that the administrators will have time to identify all employment contracts and make informed decisions concerning those contracts.   They will then have to communicate any discussions to the relevant employees.

[26]     The administrators depose that if the extension of the 14 day period is not granted they will give notice of termination to every employee by Tuesday, 17 June

2014.  At the same time formal offers of re-employment would have to be made to each  person  with  the  necessary  documentation  being  prepared,  checked  and executed.

[27]     The administrators believe the task of carrying out these tasks within 14 days would be difficult to achieve, and could further disrupt the sale process.  Further, if a sale was confirmed the termination would have been a pointless and wasteful exercise, when Postie Plus would be required to terminate employment in a transfer of business scenario a short time later.

[28]     There is some indication that the extension is not against the interests of employees that can be taken from the lack of any expressed opposition, despite the fact that notice has been given of the proposal.

[29]     For these  reasons  I am  prepared  to  grant  the  extension  of the notice of termination period.

Other factors

It is relevant to a decision to grant extensions that the proposed orders will be advertised with leave to apply in the application.   Leave will be granted for any person who can demonstrate a sufficient interest to apply to modify or discharge the orders.

Result

[30]     I make the following orders:

(a)      the applicants are granted leave to commence this proceeding without notice;

(b)      the period defined in s 239AT(2) of the Companies Act is extended by

61 days up to and including 1  September 2014, under s 239AT(3) of the Act;

(c)      the period defined in s 239Y(3) of the Act is extended by 82 days up to and including 1 September 2014, under s 239Y(4) of the Act;

(d)within seven days of the date of these orders, notice of these orders is to be:

1. Made     available     on     PricewaterhouseCoopers’     website:

   once in the New Zealand Herald, The Dominion, The Press and the Otago Daily Times;

(e)      leave  to  apply  is  granted  to  any  person  who  can  demonstrate  a sufficient interest to modify or discharge either the above orders upon appropriate notice being given to the applicants; and

(f)      the  applicants’ solicitor/client  costs  of  this  application  will  be  an expense incurred  by the  applicants  in  carrying  out  their duties  as administrators of Postie Plus.

……………………………..

Asher J