Algeri; Re Colorado Group Limited (No 2) [2012] VSC 22 (17 February 2012)

2 An earlier extension had been granted on 4 May 2011 to expire on 3 February 2012. As with the earlier extension, orders were made on 30 January 2012 to ensure that the landlords of properties occupied by the group, along with creditors, were made aware of the orders and of their right to apply to the Court to vary the orders.

3 The background to the administration of the Colorado Group is set out in the reasons for judgment delivered 20 June 2011 in respect of the earlier extension.[1] There is no doubt that the court may grant multiple extensions of the convening period under s 447A(1) of the Act.[2]

4 Prior to the appointment of the administrators and receivers, the Colorado Group operated 428 stores in Australia and New Zealand which sold apparel and footwear. Following their appointment the receivers continued to operate the businesses. They commenced a sale process for the businesses as a going concern and received approximately 60 expressions of interest and 17 non-binding indicative offers. None of the offers were acceptable.

5 In about June 2011 the receivers proposed a restructuring plan to the senior lenders to the group whereby key operating assets, including goodwill, fixtures and fittings, key contracts, intellectual property and its interest in shop leases would be sold to a company owned by the senior lenders and financed through a debt for equity swap. The restructure took effect on 17 September 2011, when the Colorado Group sold assets to Fusion Retail Brands Pty Ltd. By that time the business had been reduced in size by the closure of 139 underperforming stores.

6 The restructure involved the senior lenders advancing new banking facilities to Fusion. Part of the Colorado Group debt was discharged, reducing the group debt by $125 million. Thus, under the restructure the senior lenders have written off almost half of their debt, converting it to equity. As a consequence, they remain the largest unsecured creditor due to the shortfall in the value of security.

7 One of the administrators, Salvatore Algeri, deposed that under the restructure the senior lenders were exposed to a remaining unsecured debt of $106 million. Trade creditors are owed around $19 million, representing a decrease from $28 million at the time of his appointment. Mr Algeri deposed that if the Colorado Group were to be placed in liquidation at the conclusion of the first extension period, it was unlikely that unsecured creditors would receive any material dividend. He said that the extension maximised the opportunity for the business to continue, and thus advantaged creditors. Importantly, it also gave continuity of employment to those who accepted employment with Fusion.

8 All landlords were given notice of this application by letter from the administrators dated 20 January 2012. Only two responded. There was no objection to the orders sought. A letter was received from the solicitors for the Westfield Group, dated 27 January 2012, in which Westfield reserved its rights to make further application for possession of specific premises were leases had expired. There is no doubt that Westfield has such a right. Westfield is the single largest landlord with 66 store premises. The Westfield Group has already taken steps to recover possession of two premises. Following an application to an associate judge[3] the parties negotiated an outcome whereby Westfield will resume possession of another store at Carousel. There is one further store at Burwood that Westfield wants vacated. That has been agreed by Fusion.

9 Should any other landlord, affected by the moratorium under the Act, wish to discontinue negotiations regarding an assignment or new lease, it may make application for leave to take possession under s 440C of the Act.

10 On 23 January 2012, Mr Algeri convened a meeting of creditors at which they were informed of the application to be made on 30 January 2012. Mr Algeri deposed that there was no opposition. Understandably, the representatives of secured lenders supported the application as did a significant landlord, Queensland Investment Corp. No creditor or landlord expressed opposition.

11 The success of the sale to Fusion depends upon successfully negotiating the assignment of existing leases or new leases for the operating stores. Negotiations for the assignments or new leases are continuing and will take some time. The negotiations are complicated by the number of landlords and their differing commercial approaches and practices.

12 I am satisfied that the restructure has created a new opportunity for landlords, suppliers and other creditors of the group to achieve a more satisfactory outcome than by liquidation. Importantly, the restructure has preserved the employment of 1,947 employees who transferred to Fusion following the restructure. Offers of employment had been extended to all 2,313 employees. The continuity of staff, product lines and premises is a feature of the restructure that the administrators and receivers consider will provide Fusion and the unsecured creditors of the Colorado Group with the best opportunity for recovery of some or all of their entitlements.

13 Having regard to the number of assignments and new leases to be negotiated and the complexity of negotiating with so many disparate groups, I am satisfied that the estimates given of the time that is required are reasonable.

14 The administrators and receivers have applied to protect the confidentiality of some of the evidence advanced in support of their application for an extension of time. They do so on the basis that to disclose certain sensitive commercial information would prejudice their ability to successfully conclude negotiations or to conclude negotiations within a reasonable time. I am satisfied that some of the information identified by them as commercially sensitive requires protection so as to facilitate the completion of negotiations as soon as possible. I have made orders protecting that information, subject to further order of the Court.

15 Set out below are the orders made on 30 January 2012:**

1. Until further order, paragraphs 14 to 36 and the second and third sentences of paragraph 39 of the Confidential Affidavit of Andrew Keeble sworn 24 January 2012, together with exhibits AJK-1 and AJK-2 to that affidavit, be kept confidential.
2. The Confidential Affidavit of Andrew Keeble sworn 24 January 2012, redacted for confidentiality in accordance with paragraph 1, be filed forthwith.
3. The unredacted Confidential Affidavit of Andrew Keeble sworn 24 January 2012 together with exhibits AJK-1 and AJK-2 to it be marked confidential, filed forthwith and kept in a sealed envelope on the Court file and not be opened without further order of the Court, no such further order to be made without first giving the Plaintiffs and the receivers and managers a reasonable opportunity to object.
4. Until further order, paragraphs 18 to 26 of the Confidential Affidavit of Tom Coleman sworn 24 January 2012, together with exhibit TC-2 to that affidavit, be kept confidential.
5. The Confidential Affidavit of Tom Coleman sworn 24 January 2012, redacted for confidentiality in accordance with paragraph 4, be filed forthwith.
6. The unredacted Confidential Affidavit of Tom Coleman sworn 24 January 2012 together with exhibit TC-2 to it be marked confidential, filed forthwith and kept in a sealed envelope on the Court file and not be opened without further order of the Court, no such further order to be made without first giving the Plaintiffs and the receivers and managers a reasonable opportunity to object.
7. Until further order, paragraphs 28 and 29 of the Second Affidavit of James Stewart sworn 24 January 2012, together with exhibits JS-8 and JS-9 to that affidavit, be kept confidential.
8. The Second Affidavit of James Stewart sworn 23 January 2012, redacted for confidentiality in accordance with paragraph 7, be filed forthwith.
9. The unredacted Second Affidavit of James Stewart sworn 24 January 2012 together with exhibits JS-8 and JS-9 to it be marked confidential, filed forthwith and kept in a sealed envelope on the Court file and not be opened without further order of the Court, no such further order to be made without first giving the Plaintiffs and the receivers and managers a reasonable opportunity to object.
10. Until further order, exhibits AJM-1 and AJM-2 to Affidavit of Alan James Mitchell sworn 30 January 2012 be kept confidential.
11. Exhibits AJM-1 and AJM-2 to Affidavit of Alan James Mitchell sworn 30 January 2012 be marked confidential and kept in a sealed envelope on the Court file and not be opened without further order of the Court, no such further order to be made without first giving the Plaintiffs and the receivers and managers a reasonable opportunity to object.
12. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act) the period within which the Plaintiffs must convene the second meeting of the creditors of Colorado Group Limited (administrators appointed) (receivers and managers appointed) (ACN 004 327 566) and each of the companies listed in the attached schedule (Companies) be further extended up to and including 3 August 2012.
13. Pursuant to s 447A(1) of the Act the second meetings of the creditors of each of the Companies required by s 439A of the Act may be held together or separately and at any time during, or within five business days after the end of, the convening period as extended by the Court by reason of order 12 above, notwithstanding the provisions of s 439A(2) of the Act.
14. The applicants have liberty to apply for any purpose connected with the administration of the Companies including but not limited to seeking a further extension of the convening period prior to 30 June 2012.
15. Any person having a sufficient interest may apply to the Court to vary any of orders 12 or 13 above.
16. With respect to those landlords (or their representatives) referred to in Exhibit AJM-1 of the Affidavit of Alan James Mitchell sworn 3 May 2011, the Plaintiffs (or their solicitors) inform these landlords of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of orders.
17. With respect to all other creditors:
    1. the Plaintiffs inform those creditors of these orders by making the orders available on the 'Colorado Group Ltd' section of the website maintained by the Plaintiffs' firm Deloitte Touche Tohmatsu (http://www.deloitte.com/view/en_AU/au/services/corporatereorganisation/businessesunderadmin/colorado%20%20%20/index.htm) within seven days after the making of orders; and
    2. the Receivers inform those creditors of these orders by making the orders available on the 'Colorado Group' section of the website maintained by the Receivers' firm Ferrier Hodgson (http://www.ferrierhodgson.com/en/Current%20Matters/Corporate%20Recovery%20Matters/Colorado%20Group.aspx) within seven days after the making of orders.
18. The costs of and incidental to this application be costs and expenses in the administration of and be paid out of the assets of the Companies.

[1] [2011] VSC 260.

[2] Re ABC Learning Centres (No 8) [2009] FCA 915; Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110.

[3] Re Colorado Group Ltd [2011] VSC 552.