REASONS FOR JUDGMENT
1 On 17 January 2011, the plaintiffs issued an application under s 439A(6) and s 447A of the Corporations Act 2001 (Cth) ('the Act') seeking an order that the convening period prescribed by s 439A(5) of the Act be extended until 24 March 2011 in respect of Aqa Oysters Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 120 978 172 ('the company') and, pursuant to s 447A of the Act, an order that the plaintiffs be at liberty to hold the second meeting of creditors of the company within the convening period extended by the Court, and, to that extent, an order dispensing with the requirements of s 439(2).
2 On 19 January 2011, I made orders to that effect and said that I would deliver reasons for making the orders. These are my reasons.
3 On 27 October 2010, the directors of the company held a meeting, and at that meeting, they resolved that in their opinion, the company was insolvent or was likely to become insolvent at some future time and that an administrator of the company should be appointed. They resolved that Mr George Divitkos and Mr Gregory Wiese be appointed by the Board as joint and several administrators of the company under Pt 5.3A of the Corporations Act to take effect as of 27 October 2010. For convenience, I will simply refer to the administrators. On the same day, the National Australia Bank Limited appointed receivers and managers to the company. Mr Robert Michael Kirman and Mr Samuel Charles Davies were appointed to be jointly and severally the receivers and managers of all of the company's mortgage property. For convenience, I will simply refer to the receiver. The bank had from time to time made certain advances and granted financial accommodation to the company at its request. In order to secure repayment of the advances, the bank sought and obtained a registered fixed and floating charge over all of the company's undertaking and all its present and future property assets.
4 In evidence before me, the receiver gives a general description of the company's business which is sufficient for present purposes:
AOL operates a complex oyster-growing business through five oyster farms located at Coffin Bay, Cowell and Ceduna in South Australia, and Pittwater and St Helens in Tasmania. AOL employs approximately 75 casual and full-time staff at its head office in Wingfield, South Australia and across the five oyster farms. AOL's oyster-growing businesses are conducted in accordance with aquaculture leases and licences granted by the South Australian and Tasmanian governments. Further, AOL's land base at St Helens is conducted on land leased to AOL by the Tasmanian government pursuant to two crown leases. The crown leases were granted to a third party, Locklow Nominees Pty Ltd and subleased by Locklow Nominees to AOL.
5 The first meeting of creditors of the company was held on 8 November 2010 and a committee of creditors was appointed. That committee consisted of two members. The company's report as to affairs prepared and submitted by its directors revealed that in addition to the bank's fixed and floating charge over the assets of the company, Elders Rural Services Australia Ltd ('Elders') held a fixed and floating charge over the assets of the company. It revealed that the bank held numerous fixed charges over aquaculture leases and licences in South Australia and over Marine Farming Planning Act 1995 (Tas) leases in Tasmania. It revealed that the bank's security interests secured a liability of approximately $13.2 million of the company to the bank and that the company also owed a sum of approximately $11.2 million to Elders, of which approximately $2.5 million plus interest was secured by the Elders charge. It was stated in the report as to affairs that the assets of the company had an estimated realisable value of approximately $17.1 million. The report as to affairs also disclosed details of claims by employees, third tranche deferred acquisitions, creditors and unsecured creditors.
6 The receivers and managers commenced a marketing campaign on 11 November 2010 in an effort to sell all of AOL's business and assets as a going concern.
7 On 15 November 2010, the administrators met with representatives of Elders and were told that Elders was looking to propose a deed of company arrangement.
8 On 17 November 2010, the plaintiffs applied for an order that the convening period prescribed by s 439A(5) of the Act be extended until 24 February 2011 in respect of the company and, pursuant to s 447A of the Act, that the applicants be at liberty to hold the second meeting of creditors of the company within the convening period extended by the Court and, to that extent, that the requirements of s 439A(2) be dispensed with. That application came on for hearing before a Registrar of this Court on 18 November 2010. The Registrar made the orders sought by the plaintiffs save and except that she extended the convening period to 25 January 2011 rather than the date sought in the application.
9 On 17 January 2011, the plaintiffs issued the application which was the subject of the orders I made on 19 January 2011. The application was supported by three affidavits. Two affidavits were sworn by the receiver (Mr Robert Kirman) and one was sworn by the administrator (Mr George Divitkos).
10 The receiver deposes to the marketing campaign he has undertaken in an effort to sell the company's assets. Initially, the receiver tried to sell the company's business as a whole but in late December 2010 or early January 2011 the receiver decided to proceed to sell AOL's assets on a 'break up' basis to several different purchasers. He sets out the details of various draft sale contracts issued by the company between 23 December 2010 and 13 January 2011. He deposes to the fact that there are a number of other assets of AOL in respect of which he is negotiating offers. He deposes to the fact that the end of the convening period, that is to say, 25 January 2011, will occur before completion of the majority of sale contracts and that this, in his opinion, may disrupt settlement of certain of the sales under the contracts. He deposes to the fact that he understands that Elders may be putting forward a proposal for a deed of company arrangement. He puts forward reasons for a second extension of the convening period to 25 March 2011. Those reasons are as follows:
1. If the second meeting of creditors is held on 25 January 2011 without a proposal for a deed of company arrangement, the company will almost certainly be wound up, which would mean that any creditor of the company may commence proceedings against the company thereby potentially jeopardising the receiver's capacity to sell the company's assets to third parties.
2. While the administration continues, the owners and lessors of the company's assets, including the landlord of the company's head office, are not able to retake possession of their property. However, if the landlord was able to do so, the receiver's ability to trade on the company's business in its current form whilst finalising sale of its assets would be inhibited. All rent and other amounts payable have been paid to the landlord.
3. On the termination of the administration, the company will have no further entitlement to use important intellectual property and the company will no longer be able to trade on its business in the current form.
4. The point as is made in paragraph 3 is made with respect to software used by the company. The receiver deposes to the fact that all rent and other amounts payable have been paid to the owner of the software.
5. There is uncertainty as to the final recoveries from the sale process which means that the administrator cannot yet properly assess the ongoing balance of the bank debt. Outcomes for employees are uncertain. The administrator may not be able to provide to creditors details or ranges of recoveries to creditors without the outstanding debts of the bank and other priority creditors being known, particularly if there are other assets, for example, in the liquidation available to the liquidator.
6. Any proposal for a deed of company arrangement will be uncertain unless and until the balance level of any debt to the bank and entitlements of priority creditors is known for the same reasons as are referred to in paragraph 5.
7. There is little or no harm to the creditors of the company if there is a second extension of the convening period. The receivers continue to have control of all of the assets of the company and there is little or no cost being incurred by the administrators in the completion of sales.
11 The receiver also deposes to the fact that the bank consents to the proposed extension of the convening period.
12 In his second affidavit, the receiver refers to s 433 of the Act and the effect of that section in giving priority to employee entitlements over the chargee under a floating charge. The material in the affidavit is confidential and I will make no further reference to it in these reasons. It is sufficient to say that the receiver considers that if the administration of the company ends before the settlement of the sales for the company's assets, then employee entitlements may increase or the floating charge realisation reduce, or both. The effect of the receiver's evidence is that he considers that it is in the interests of the creditors that the company continue to trade up to the settlement of the sales.
13 The administrator refers to a draft proposed deed of company arrangement forwarded to him by Elders. The administrator expresses the opinion that figures contained within the proposed deed have not yet been settled and can only be settled once the likely outcome of the receivership is known and, in particular, once it is known, what assets have been realised and the manner in which the proceeds of realisation of those assets has been determined.
14 The administrator spoke to representatives of Elders concerning the proposed deed on 21 December 2010. He states that Elders said that they were looking to provide a real return to ordinary unsecured creditors of the company and that in order to enable it to finalise the proposed deed Elders intended to wait until the likely outcome of the receivership was known in connection with employee entitlements, and in particular, what, if any, priority employee entitlements will not be dealt with in the receivership and therefore will need to be addressed in the proposed deed. Elders proposes to negotiate with the bank to determine whether it will agree to not proving in the administration for any shortfall not recovered in the receivership or for any funds provided under the indemnities given by the bank in connection with the fees and expenses incurred in the administration of the company.
15 The administrator states that the committee of creditors agrees with the extension of the convening period. The administrator states that until the likely estimated outcome of the receivership is known he is unable to compare accurately the returns to the unsecured creditors in liquidation as opposed to a deed of company arrangement. The administrator states that he believes it is in the interests of the creditors to allow Elders further time in which to finalise the proposed deed of company arrangement because, if the company is put into liquidation, it is unlikely that there will be any return to creditors.
16 The administrator also states that if the convening period is not extended he will recommend that the meeting of creditors be adjourned. That means that the administration would incur additional costs that would not be likely to benefit the creditors and may impact on the priority entitlement of the employees. The additional costs would relate to preparation of an additional report pursuant to s 439A(4)(a) of the Act which must be sent to the creditors prior to the reconvened meeting and calling and holding an additional creditors' meeting.
17 The administrator expresses the view that the creditors of the company will not be disadvantaged by an order extending the convening period which he believes is likely to result in a greater return to creditors.
18 In the great majority of cases a company will be placed into administration by the company's directors on the directors resolving that in their opinion the company is insolvent, or is likely to become insolvent at some future time and that an administrator of the company should be appointed (s 436A). The object of Pt 5.3A is for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the company's creditors and members than would result from an immediate winding up of the company (s 435A). The effect of an administration is to place a moratorium on a proceeding against the company or its property and on any enforcement process in relation to the property of the company (s 440D, s 440F). The effect of an administration is to place the decision as to the company's future in the hands of the company's creditors, who may decide that the company should execute a deed of company arrangement or that the administration should end or that the company should be wound up (s 439C). The administrator is in control of the company during the administration (s 437A-s 437D) and he or she plays an important role in providing information to the creditors so that they can make a fully informed decision about what should happen to the company (s 439A(4)).
19 The first creditors' meeting is to be held within eight business days after the administration begins (s 436E(2)) and the second creditors' meeting at which the decision as to the company's future is made is to be held within five business days before or after the end of the convening period, which is a period of 20 business days (subject to some exceptions not presently material) (s 439A). The second creditors' meeting may be adjourned from time to time but not for a period exceeding 45 business days (s 439B).
20 As has been noted in the authorities, the time limits apply whether the company is big or small, or its affairs complex or simple (Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 ('Riviera')). The time limits suggest that administration is generally to be a short-term state or condition. However, the Court's power to extend the convening period and the great variety of circumstances which might arise means that there is no presumption or predisposition against extending the convening period (Re Diamond Press Australia Pty Ltd [2001] NSWSC 313). The Court will require a good or sound reason for exercising its power to extend the convening period and will do so having regard to, among other things, the objects of Part 5.3A.
21 In Riviera, Austin J helpfully set out by reference to the authorities the types of cases where the convening period has been extended (at [13]). I have regard to that decision. I have also found helpful the discussions in Sims, Re Destra Corporation Limited [2008] FCA 2002 at [21]-[25]; Silvia, Re FEA Plantations Ltd (Administrators Appointed) [2010] FCA 468.
22 In this case there is no prospect of the administration being brought to an end by resolution of the creditors. The creditors will either resolve to accept a deed of company arrangement or will resolve that the company be wound up. There is a prospect of a deed of company arrangement being put to the creditors. Should the convening period be extended to see if that occurs?
23 I formed the opinion that it should. There has been no unreasonable delay in the receivership, nor is it unreasonable for the creditor thinking of proposing a deed to await the outcome of the receivership. The receiver has had to change tack in terms of his sales campaign but there is nothing to suggest that his original decision as to the sale of the assets was inappropriate. There seems to be a sufficient prospect of a deed of company arrangement to warrant an extension of the convening period. The committee of creditors agrees to an extension of the convening period. The administrator's views are to be given weight. He is not in a position to prepare the report and statement under s 439A(4) and he states that if the convening period is not extended he will recommend that the second creditors meeting be adjourned. That will add to the costs and expenses of the company. Finally, the company is meeting its ongoing obligations and, so far as I can see, there are no parties prejudiced by the moratorium associated with the administration.
24 It was for these reasons that I made an order extending the convening period.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.