Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd

JUDGE: DERRINGTON J DATE OF ORDER: 5 JULY 2018

The plaintiffs are the administrators of:

1. 15 Norman Ave Pty Ltd ACN 167 795 299 (Administrators Appointed);
2. Graded Investments & Developments Pty Ltd ACN 127 617 083 (Administrators Appointed);
3. Derpatayl Pty Ltd ATF Edgar Family Trust ACN 136 650 121 (Administrators Appointed);
4. 15 Alice Pty Ltd ACN 167 837 390 (Administrators Appointed);
5. 19 Side Street Pty Ltd ACN 160 593 528 (Administrators Appointed);
6. 7 Railway Pty Ltd ACN 161 700 545 (Administrators Appointed);
7. Living on Lee Street Pty Ltd ACN 141 262 357 (Administrators Appointed); and
8. Sherwood Apartments Pty Ltd ACN 607 589 408 (Administrators Appointed). (Collectively "the Companies").

1. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period as defined in s 439A(5), be extended for the Companies to 17 August 2018.
2. Pursuant to s 447A(1) of the Act, pt 5.3A of the Act is to operate such that the second meetings may be held, together or separately, at any time during or within five business days after the end of the convening period as extended by paragraph 1 above, notwithstanding the provisions of s 439A(2) of the Act, provided that the plaintiffs are to give notice of the meeting in accordance with s 439A(3) of the Act, at least five business days before the meeting.
3. The plaintiffs give notice of these orders to the Companies' creditors by means of a circular to be posted to the Companies' creditors by ordinary post sent no later than 13 July 2018.
4. Any person having a sufficient interest may apply to the court to vary these orders upon 48 hours written notice to the plaintiffs.
5. The costs of and incidental to this application be costs and expenses in the administration of the companies and be paid out of the assets of the Companies. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

DERRINGTON J: 1 The application before the court today is made by Mr Stephen Dixon and Mr Ahmed Bise. 2 They are administrators of eight related companies, all of which were prior to their administrations under the control of a Mr Edgar. The companies were engaged in property development and whilst some appear to have been asset rich they were lacking in sufficient cash flow to maintain their solvency. 3 The administrators seek an extension of the convening period for the holding of the second meeting of creditors in respect of each of the companies pursuant to s 439A(6) of the Corporations Act 2001 (Cth) and various ancillary orders under s 447A. They were appointed as administrators of the eight companies on 8 June 2018 and have already undertaken some substantive steps in relation to performing their obligations under the Act. On the material before the Court no criticism can be made of the nature and extent of the work they have performed to date. The initial meeting of creditors was adjourned on 20 June 2018 for a week to 27 June 2018, although that is of no real consequence for the purposes of this application. 4 As mentioned, the companies in question are property development companies and six of them own real property. Four properties, which are owned by Sherwood Apartments Pty Ltd, are subject to contracts of sale and the administrators have sought various marketing proposals to assist with the sale of other properties. Valuations have been obtained for the properties owned by Sherwood Apartments Pty Ltd and 15 Norman Avenue Pty Ltd. 5 The administrators depose that to date their investigations have not revealed any unfair preference payments; although, numerous intercompany loans have been identified. Happily in this matter, the companies have no employees, and there are no unpaid employee entitlements to consider. 6 On 27 June 2018, the plaintiffs received what might be referred to as details of a proposed Deed of Company Arrangement (DOCA), in relation to the eight companies. That proposed DOCA emanated from Mr Edgar. Its elements are relatively simple and involve the potential contribution of funds by Mr Edgar through one or more of his companies which will be used to meet some part of the claims of the creditors of all eight companies. Mr Coveney, for the administrators, submitted that the intent of the proposed DOCA was to "pool" the creditors of the various companies and for the funds contributed to be divided amongst them all. Presently, the administrators are considering whether the effect of the proposed DOCA will provide a more favourable outcome to the creditors than will liquidation of the companies. 7 The primary unsecured creditor of the companies is the Commissioner of Taxation. He has recently commenced winding up proceedings against 15 Norman Avenue Pty Ltd. I am informed by Mr Coveney that officers of the Australian Taxation Office are aware of today's proceedings, and they apparently agreed to adjourn the winding up application because this application was being made. No doubt the officers of the Commissioner are acutely aware of or interested in the circumstances of this matter and I am satisfied that their non-attendance today, which is not an omission by any means, is not an indication that the Commissioner is not cognisant of these proceedings. The Commissioner is entitled to wait and see whether an acceptable DOCA actually materialises. 8 In any event, the power to extend the convening period under s 439A(6) is dependent upon a relevant application being brought by the administrators and that has occurred. It has been brought within the convening period, so no issue arises about extending the time after the convening period had expired. Mr Coveney has provided very helpful written submissions, as is his wont, and I accept the statements of law as he has recited them. It is clear that the Court's discretion in relation to the exercise of power under s 439A(6) needs to have regard to the statutory scheme, and, in particular, that administrations should proceed in a relatively expeditious way, although that will be balanced against the need to give administrators time to assess the circumstances of the company and to reach an informed conclusion such as they might provide meaningful choices to the creditors at a second meeting. This, as Mr Coveney accurately identifies in his written submissions, enhances the objectives of s 439A. 9 Another relevant consideration in the exercise of the discretion is that the statutory objects of the administration procedure is to give a company an opportunity to enter into an arrangement with its creditors so as to maximise the chances of the company continuing in existence, alternatively, if that cannot be achieved, to attempt to secure a better return for the company's creditors and members than would otherwise result from an immediate winding up of the company: Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (2014) 283 FLR 471; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) (2013) 97 ACSR 227. 10 The locus classicus concerning the exercise of the discretion in s 439A is the decision of Austin J in Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352. I need not set out the categories of reasons which might be relied upon to excite the Court's discretion to extend the convening period as were identified by the learned judge in that case. It suffices for present purposes to note that his Honour mentioned that a suitable reason is that time is needed for a thorough assessment of a proposed deed of company arrangement or that the additional time is likely to enhance the return for secured creditors. Those criteria are relevant in the present matter where the administrators have control of a number of development companies, all with various assets, although mostly real property. In order to assess any proposed deed or ascertain whether immediate winding up is an appropriate step, the corporate assets need to be valued. As the affidavit of Mr Dixon demonstrates, steps are presently being undertaken for the purposes of obtaining valuations. In the circumstances of this case, these factors alone are probably sufficient to warrant the extension sought. 11 It is also relevant to the exercise of discretion that the proposed extension of the convening period is for a relatively short period and the administrators are obviously cognisant of the importance of having the administration completed reasonably quickly. In this case, Mr Dixon's affidavit identifies a number of reasons why he perceives the extension is required. I accept that within those, there are sufficient reasons to support the exercise of the Court's discretion, including that valuations are required so as to allow the administrators to reach an informed view as to the appropriateness of the proposed DOCA. 12 Mr Coveney very properly points out in his submission that this application has not been served on the creditors. That is not essential on an application of this nature, although it is probably preferable. However, the circumstances of this case appear to warrant the bringing of the matter without notice to those parties. In any event, Mr Coveney has included in his proposed orders an order that any person with any interest in the administration may apply to the Court for orders varying those which are made today. Mr Coveney refers to similar orders being made in Crawford, In the Matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [25]. In the circumstances of this case, it is therefore appropriate to make the orders sought by the administrators. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.