Renaissance Brewing Limited
[2017] NZHC 2744
•9 November 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-Ā-TARA ROHE
CIV-2017-485-939 [2017] NZHC 2744
IN THE MATTER OF RENAISSANCE BREWING LIMITED
(administrator appointed)
AND
IAIN BRUCE SHEPHARD JESSICA KELLOW Applicants
on the papers Appearances:
J D Haig for the Applicants
Judgment:
9 November 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] Renaissance Brewing Limited (RBL) is in voluntary administration under Part 15A of the Companies Act 1993 (the Act). The applicants, Mr Shephard and Ms Kellow, were appointed administrators by director’s resolution made on 9 October
2017.
[2] Under Part 15A of the Act, administrators are required to call a first meeting of creditors. That meeting was held on 19 October 2017. The administrators are also required to convene a meeting called a “watershed meeting”, within “the convening period”.
[3] The watershed meeting is intended to be a meeting where substantial decisions are made by the creditors about the future of the company: the creditors
may vote to end the administration (effectively handing control of the company back
RENAISSANCE BREWING LIMITED v SHEPHARD & KELLOW [2017] NZHC 2744 [9 November 2017]
to its board of directors), put the company into liquidation, or enter into a deed of company arrangement.
[4] The convening period is the period of 20 working days after the date on which the administrator is appointed, and it includes any period for which it is extended.1
[5] In this case, the convening period was scheduled to expire on 6 November
2017. However, on that date the administrators filed an application seeking the following orders:
(a) For leave to commence this proceeding and bring this application without notice.
(b) Extending the maximum convening period for the watershed meeting in the voluntary administration of [RBL] for a period of 90 days from 7 November 2017 to 5 February 2018.
(c) That the administrators inform the creditors of [RBL] of the extended convening period by way of email and publication on their website.
(d) That their solicitor/client costs of this application are an expense incurred by the applicants in carrying out their duties as administrators of [RBL].
[6] In a memorandum filed with the application, counsel sought an (additional)
order that:
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 administrators] and the Court.
[7] The application is made on a “without notice” basis, as the administrators contend that requiring them to proceed on notice would cause undue delay or prejudice, and the interests of justice require the application to be determined without serving the notice.
[8] I now give judgment on the administrators’ application.
1 The Court may, on the administrator’s application, extend the convening period. Any such extension application may be made before or after the convening period has expired (Companies Act 1993, s 239AT).
Background
[9] RBL is a producer and supplier of craft beer, based in Blenheim. It has won a number of awards for its beer over the years since it was founded in 2005.
[10] In 2014, it raised $700,000 in new capital through a crowdfunding scheme. There were 300 new shareholders at that point.
[11] RBL currently employs seven staff across its two leased brewery premises.
[12] RBL operated at a loss in 2016 and 2017, but it was able to reduce the loss in the 12 months to 31 August 2017. The administrators reckon that the value of its assets is now approximately $1.018 million. There are two secured creditors, the ANZ Bank, which is owed $895,000, and NZ Hops, which is owed $5,000. Preferential creditors as at the date of the commencement of the administration are estimated at approximately $88,000, and unsecured creditors at $317,000.
[13] In his affidavit, Mr Shephard says that it appears that RBL can cover its weekly and monthly costs, including rent, wages and trade creditors, at least while there is an effective moratorium on historical creditor payments. The ANZ Bank has agreed to extend its facility to RBL to cover any shortfall in trading while RBL remains in administration. Having regard to those factors, RBL has continued to trade while in administration, and it is continuing to produce craft beers (the decision to continue trading has been reinforced by the fact that the busy summer season is now commencing – historically, RBL’s turnover has been greatest in the October- December period each year). The administrators also consider that continuing to trade will give RBL the best possible chance of a successful sale, thus maximising the return to creditors. To that end, it will be important to keep creditor and customer relationships intact, and keep key staff employed.
[14] Mr Shephard says that six creditors attended the first meeting in the administration, and eight provided proxies. One of the agenda items was the prospect of applying for an extension of time to hold the watershed meeting. That was discussed during the meeting, and while some creditors had questions over the effect of the extension, none were opposed to an extension.
[15] The administrators have placed advertisements in major New Zealand newspapers seeking expressions of interest in respect of a going concern sale of RBL. Thirty-seven expressions of interest have so far been received. The period for prospective buyers to express their interest closed on 27 October 2017.
[16] The administrators now propose to ask for letters of offer from parties who remain interested in purchasing RBL, by mid-November 2017. Thereafter, those parties will need to complete due diligence, and there will need to be time for negotiations to proceed. The administrators reckon they will need an additional 90 days before they can be in a position to properly report to the creditors at the required watershed meeting.
[17] Mr Shephard says that the discussions with prospective purchasers are at an early stage, and that the administrators are unfortunately not in a position to make a recommendation to creditors at a watershed meeting if one were convened now. At this stage the administrators cannot accurately forecast what interested parties or investors would be willing to pay.
[18] Mr Shephard provided in his affidavit three possible sale scenarios (asset only sale, breakup sale with some value attributed to intellectual property, and sale on a going concern basis). The sale as a going concern scenario would clearly provide the best prospects for some return being made to unsecured creditors.
The application for leave to bring the application without notice
[19] Applications under Part 15A of the Act are brought by way of originating application under Part 19 of the High Court Rules 2016.2
[20] An application may be made without notice, where requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant,3 or where the interests of justice require the application to be determined without serving
notice of the application.4
2 Rule 19.2(c).
3 High Court Rules, r 7.23 (2)(a)(i).
4 Rule 7.23(2)(a)(v).
[21] I am satisfied that this is a proper case for the application to be made without
requiring service on the creditors. According to Mr Shephard’s affidavit, there are
88 creditors affected, and any requirement that they all be served, and have the opportunity to be heard on the application to extend the convening period, would risk undermining the purpose of the application to extend the convening period (primarily, to allow the administrators to work through a process by which RBL may be sold as a going concern, or at least to achieve a sale of RBL’s assets for the best possible price). Leave is accordingly granted to the applicants to proceed on a “without notice” basis, although (as proposed by counsel) I will reserve leave to any person who can demonstrate a sufficient interest to apply to modify or discharge the orders to be made on this application, on appropriate notice being given to the applicants and the Court.
The law applicable to the substantive application
[22] Section 239A outlines the general purpose of Part 15A 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.
[23] Section 239AT of the Act provides:
239AT Administrator must convene watershed meeting
(1) The administrator must convene the watershed meeting within the convening period.
(2) The convening period is the period of 20 working days after the date on which the administrator is appointed, and includes any period for which it is extended under subsection (3).
(3) The court may, on the administrator’s application, extend the
convening period.
(4) The application to extend may be made before or after the convening period has expired.
[24] In the first New Zealand case involving the exercise of the Court’s discretion under s 239AT(3), Nylex New Zealand Ltd, Heath J made the following remarks:5
[13] The s 239AT(3) discretion to extend time to convene a watershed meeting is expressed in unfettered terms. However, I consider that it must be exercised having regard to the purposes of the voluntary administration regime and the duties cast upon an Administrator. The Court must also be mindful that applications of this type will, necessarily, be made without notice. Accordingly, there is a duty on the Court to scrutinise any application carefully.
[25] Heath J emphasised the need to keep administration time to a minimum:6
[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 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.
[26] However, His Honour also recognised that additional time might be necessary to maximise creditor returns:7
… 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 of the creditors.
[27] In Re WGL Retail Holdings Ltd, Associate Judge Bell similarly noted that an extension may be necessary to give effect to the purpose of Part 15A.8
5 Nylex New Zealand Ltd CIV-2009-404-1217 HC Auckland, 11 March 2009 at [13].
6 Above n 5 at [18]-[19].
7 Above n 5 at [22].
8 Re WGL Retail Holdings Ltd HC Auckland CIV-2011-404-001117, 16 March 2011 at [25].
[28] Associate Judge Bell also referred to a list of relevant factors used by the
Australian Courts under their equivalent section:9
(a) Size and scope of the business; (b) Substantial offshore activities;
(c) Large number of employees with complex entitlements;
(d) Complex corporate group structure and inter-company loans;
(e) Complex transactions entered into by the company (for example, securities lending or derivatives transactions);
(f) Lack of access to corporate financial records
(g) The time needed to execute an orderly process of disposal of assets; (h) The time needed for a thorough assessment of a proposal for a deed
of company arrangement;
(i) Where the extension will allow sale of the business as a going concern;
(j) More generally, additional time is likely to enhance the return for unsecured creditors.
[29] In Re WGL Retail Holdings Ltd itself, Associate Judge Bell allowed a six month extension, in part due to the fact that a sale process was partially under way.10
Discussion and conclusions
[30] I consider that an extension of the convening period should be granted as sought. The principal reason for the extension is to allow the administrators to complete the sale process that is currently under way. This will provide the best chance of an increased return for the creditors, and Mr Shephard’s assessment is that RBL should be able to continue to cover its ongoing weekly and monthly costs if the convening period is extended for the proposed 90 days. I take into account also that RBL is now in its peak annual selling period.
[31] I consider that allowing time for the completion of the sale process is sufficient reason to grant the extension for the following reasons:
9 Above n 8 at [9].
10 Above n 8 at [19].
(a) while steps required to be taken in a Part 15A voluntary administration are clearly intended to be taken expeditiously, the broad purpose of the voluntary administration regime is to enable creditors to achieve a better outcome than they would achieve on an immediate liquidation. That broad purpose would be undermined if the administrators were not permitted to take the present sale process at least to the point where they can provide a meaningful report to the watershed meeting;
(b)although the administration in Re WGL Retail Holdings Ltd was more complicated than the one presently before the Court,11 the relevance of the sale process in that case was a significant factor weighing in support of the extension;
(c) finally, completion of a sale process is expressly identified as a relevant factor by the Australian case law on the matter.12
Result
[32] I make the following orders:
(a) Leave is granted to make the application without notice;
(b)The convening period is extended under s 239AT(3) of the Act up to and including 5 February 2018;
(c) 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 administrators and the Court;
(d) The administrators’ solicitor/client costs of the application are an
expense incurred by the administrators in the administration of RBL;
11 It was described at [12] as “the largest administration to date under Part 15A”.
12 See paragraph [28](g) of this judgment. Factors (h) – (j) listed by Associate Judge Bell in Re
WGL Retail Holdings Ltd are also likely to be applicable in this case.
(e) Notice of these orders is to be (i) made available on the administrators’ website (ii) emailed to RBL’s creditors at their last known email addresses, and (iii) advertised once in the Dominion Post newspaper.
Associate Judge Smith
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