Australian World-Wide Proprietary Limited v Christopher John Palmer

Judgment (ex tempore) 1The third plaintiff Christopher John Palmer was appointed voluntary administrator of the first plaintiff Australian Worldwide Proprietary Limited and the second plaintiff Australian Worldwide Exports Proprietary Limited on 22 January 2014. Secured creditors Dynamesh and TCA had previously, in December 2013, appointed receivers. Following the appointment of the administrator, those receivers retired on 30 January and 3 February 2014 respectively. The first meeting of creditors for each company was held on 4 February 2014 when a committee of creditors for each was appointed. 2The first plaintiff operates a wholesale trading business selling household and grocery items including bottled water, bottled juices, other bottled beverages and nappies and nappy wipes to various entities, and in particular to Metcash in Australia and an entity overseas in Nauru. The second plaintiff is wholly owned by the first plaintiff and holds various licences including an export licence and a liquor licence, the first of which is necessary to enable the first plaintiff to carry on its export activities and the second, though not used to date, may permit an expansion of the business. 3The second plaintiff is remunerated by the first plaintiff by a licence fee for use of its licences, and it pays the first plaintiff a management fee. For this reason, the administrator has formed the view that the businesses of the two companies is inextricably linked and that their affairs cannot sensibly or commercially be separated for the purposes of the administration. 4The principal asset of the companies is stock apparently worth in the order of $800,000, which is currently held in a number of warehouses, the owners of which assert liens over it. 5The first plaintiff appears to have liabilities in the order of $6.3 million; of them, $3.8 million are claimed to be secured, but it is at least possible that the security interests claimed by some of them were not registered within time and may be void against the administrator. The second plaintiff has creditors of approximately $2.8 million, almost all of which are secured but a substantial amount of which is the same debt as is owed by the first plaintiff. 6The convening period under (Cth) Corporations Act 2001, s 439A for the second meeting of creditors, will, if not extended, expire on 20 February 2014. By the originating process filed in court today, the administrators seek an order pursuant to s 439A(6) extending the convening period up to and including 21 May 2014 and associated relief. 7On an application for an extension of the convening period under s 439A(6), the Court no longer, if it ever did, approaches the matter with a presumption against extending the convening period. 8In Carter v Global Food Equipment Proprietary Limited [2007] NSWSC 901; (2007) 25 ACLC 1173, White J explained that on such an application: On any application under s 439A(6), the Court's task is to balance the need for the administration of a company to be carried out as efficiently and expeditiously as practicable so as to minimise the effect on those persons who are subject to the moratorium imposed by Pt 5.3A, against the need to give the administrators time to present meaningful choices to the creditors at their meeting. 9His Honour referred to Re Pan Pharmaceuticals [2003] FCA 598 (at [41]) (Lindgren J); and Re New Horizons Pty Ltd [2004] NSWSC 253 (at [5]). 10To those observations might be added two considerations also suggested by the cases, one in each direction: on the one hand, the expectation established by the legislation that administrations will be carried out relatively swiftly so that creditors can make their own decision at a relatively early point of time; and on the other, objects of Pt 5.3A which may in some cases be better served by allowing the administrators time to see if the business of the company can be continued or a better return secured for creditors than upon an immediate winding up. 11Austin J expressed a similar view in Re Riviera Group [2009] NSWSC 585 2009; (2009) 72 ACSR 352, citing (at [15] to [16]) what had been said by Barrett J (as his Honour then was in Re Diamond Press Australia Proprietary Limited [2001] NSWSC 313 (at [10]): The function of the Court on an application such as this is, as I see it, to strike 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 12Austin J continued (at [16]): This "balancing test" has been applied frequently in later cases: For example Re Georges, Midas Australia Pty Ltd (admin apptd) [2009] FCA 38; Re Hayes; Estate Property Group Ltd [2007] FCA 935. If the approach is to "balance" the expectation of speedy administration against the risk of prejudice, there cannot be any predisposition in favour of speedy administration, for that would skew the balancing process. Rather, the cases suggest that where the administrator proves a substantial ground in any of the categories that I have set out, and there is no specific evidence of prejudice, an extension commensurate with the administrator's task will be granted, notwithstanding that the explanatory memorandum suggested that extensions would not be granted frequently. 13The categories of grounds to which his Honour referred included, relevantly, the size and scope of the business; substantial offshore activities; complex transactions entered into by the company; complex prospective recovery proceedings; the time needed to execute an orderly process of disposal of assets; the time needed for thorough assessment of a proposal for a deed of a company arrangement; where the extension will allow sale of the business as a going concern; and, more generally, that additional time is likely to enhance the return for unsecured creditors. 14In this case, unless the companies are enabled to trade on, so as to sell their stock, the stock will be seized and sold by the warehouse creditors, and perhaps the first ranking secured creditor, and there will not likely be anything available for the unsecured creditors, even priority creditors such as employees. The administrator has deposed to the view that unless trade is resumed, there will be no funds available to any secured or unsecured creditors of the company, that if the companies are wound up, or the secured creditor appoints a receiver, creditors should expect to receive a nil dividend. The administrator explains that much effort to date has been invested in negotiations with the warehouse creditors and other parties who control assets, including information systems of the companies, to enable it to resume trading; and with customers, to ensure that there is a continued market for the stock. While these negotiations have not yet resulted in every case in a perfected agreement, they have done so in some cases, and in others they are well advanced and the administrator is confident that they will result in perfected agreements in the near future. Once this is done, the companies will be enabled to resume trading to realise their stock and significantly to improve their cash position over the next two to three months. 15A number of creditors have indicated interest in proposing a deed of company arrangement but their interest is contingent upon the trading results over the next few months and, in particular, the reliability of the projections that the administrator has prepared in respect of that trading. Essentially, it is perceived as necessary to experience some months of trading in order to test and validate the projections, but that if they are validated there is then at least a reasonable prospect that a deed of company arrangement will be proposed. If no deed of a company arrangement is proposed, it is difficult to see that resuming trade and selling the stock could produce a worse result for creditors than an immediate liquidation. 16The administrator has formed a very preliminary view at this stage, without having investigated the director's statutory declaration of his assets and liabilities, that if what the director has declared is correct, then it would not be commercial to consider prosecuting claims against the director in respect of insolvent trading or breach of directors' duties. 17The extension sought by the administrator would enable the resumption of trade of the company's stock, and allow those creditors who have expressed some interest in proposing a deed of company arrangement to be better satisfied as to the reliability of the trading results and thus to decide whether to propose a deed of company arrangement and, if so, on what terms. Should the extension not be granted, then the alternative is, practically inevitably, that the company would be wound up, in which event it is unlikely that unsecured creditors would receive any dividend. 18This extension sought will potentially enhance the return to creditors; and in particular, it may permit a deed of company arrangement to be propounded. It will enable the administrator to make the requisite recommendation to creditors much better informed than at present, and it will not prejudice the return to creditors. If a deed of company arrangement is proposed, it may result in the business of the companies continuing. 19The period of the extension sought, while relatively lengthy, will enable two or three cycles of the business' trade to occur; afford the administrator time to analyse the trading results and fully report to creditors; better equip him to provide an opinion to creditors with respect to the viability of the business; enable TCA in particular to confirm its position in relation to a DOCA, and also enable other potential funders of DOCAs to do so; and enable the administrator to complete his investigation of the affairs of the company and the likely outcomes for creditors in the alternative events of a winding up and any DOCA. 20The creditors have been notified of the administrator's intention to make this application. Nine of them, with a total value of approximately $1.018 million, have responded formally indicating support for the extension sought. A joint meeting of the two committees of creditors held on 17 February 2014 resolved that the administrator should proceed with this application to seek an extension of the convening period to 21 May 2014. 21The first ranking a security creditor, TCA, has agreed to provide funding of $175,000, of which it has already paid $73,000, to fund the resumption of trade in the meantime. No creditor has, at least formally, indicated opposition to the extension of the convening period. While the evidence discloses that one of the secured creditors may oppose the extension, it has not given any formal notice of that opposition, and it is not evident how it will be prejudiced in any event as, not being the first ranking secured creditor, it appears unlikely that it would receive a dividend in any event. 22ASIC has been notified of the proposed application and has not responded, but in so doing has not indicated any opposition to it. 23So far as concerns those affected by the moratorium imposed by Pt 5.3A, the companies are not subject to any winding up application. The only court proceedings on foot are proceedings in which the first plaintiff is a plaintiff on an application under (Cth) Corporations Act 2001, s 459G, to set aside a creditor's statutory demand, which proceedings currently stand adjourned to 17 March 2014. No enforcement process is believed to be pending against either plaintiff. The position of the secured creditors has already been mentioned; as it presently appears, only the warehouse creditors with whom the administrator has concluded or practically concluded negotiations, and the first ranking secured creditor TCA, would potentially recover anything in the event of an immediate winding up, and TCA evidently supports the extension. 24The rent of the premises occupied by the company is up to date, and in any event the administrator is personally liable on the lease. 25In those circumstances, it does not appear that the extension sought will occasion unacceptable prejudice to any person. However, lest a creditor who has not been heard on this ex parte application be adversely affected, I will make an order of the type that was made by White J in Global Food Equipment Proprietary Limited, reserving liberty to any person to apply to vary the order on appropriate notice to the plaintiffs. 26As his Honour said [at (25)]: Such an order is appropriate because the application is made ex parte. It would also protect the creditors' position if, unknown to the administrators and the Court, a potentially advantageous proposal for a deed of company arrangement is under consideration by someone who has not yet come forward but which would be pre-empted by a sale, or if a potential purchaser of a particular company's assets preferred to propound a deed of company arrangement rather than an outright cash purchase. Such a reservation of liberty to apply has been made in appropriate cases (see in particular in the matter of Re Henry Walker Eltin Group Ltd [2005] FCA 316 at [5]-[7] per Hely J.) Although any application pursuant to the liberty to apply to vary the order would be made outside the time prescribed by s 439A(6) for extending the convening period, that should not defeat any such application, particularly as s 447A could be called in aid if it were necessary to do so. 27To that I would add that because the present application is made ex parte, there would prima facie be jurisdiction under the rules to set aside or vary such an order on application by a party affected in any event. 28As is now more or less ordinary practice on applications such as these, I would also make an order under s 447A permitting the administrators to hold (as distinct from convening) the second creditor's meeting at any time during the extended convening period - that is to say, earlier than the period of five days before and up to five days after the end of the convening period, as s 439A(2) would otherwise require: see Re Daisy Tek Australia Pty Limited [2003] FCA 575; (2003) 45 ACSR 446, [14]; Global Food Equipment Proprietary Limited, [28]; Re Riviera Group Proprietary Limited, [20]. 29Accordingly, the Court orders that: (1)Pursuant to Corporations Act, s 439A(6), the period within which the third plaintiff must convene a second meeting of creditors of the companies within the meaning of s 439A(1) of the Act be extended up to and including 1 May 2014. (2)Pursuant to Corporations Act, s 447A(1), the meetings of the creditors of the companies required to be held by s 439A of the Act may be held at any time during or within five business days after the end of the convening period as extended by order 1, notwithstanding the provisions of s 439A(2) of the Act. (3)Leave be granted to any person affected by these orders including any creditors of both of the companies to make any such application as he or she may be advised to vary these orders on forty-eight hours notice to the plaintiffs and to the Court. (4)The third plaintiff is entitled to be indemnified out the assets of each the companies for the costs of and incidental to this application pursuant to Corporations Act, s 443D. (5)The third plaintiff provide a copy of these orders to each of the creditors, the companies and to the Australian Securities and Investments Commission. (6)These orders are to be entered forthwith. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 August 2014