1 Mr Lombe and Mr Cathro are the administrators of Australian Discount Retail Pty Limited and 38 wholly-owned subsidiaries under Part 5.3A of the Corporations Act 2001 (Cth). They were appointed on 20 January 2009.
2 The group of 39 companies, which I shall call the "ADR Group", conducts several discount or variety retailing businesses under the names "Crazy Clark's", "Go-Lo", "Sam's Warehouse" and "Chickenfeed".
3 On 16 February 2009, the administrators approached the court seeking a substantial extension of the convening period for the second meeting of creditors in each of the Part 5.3A administrations. A solicitor representing a lessor of premises to one of the companies appeared on that occasion and opposed any extension. The court made an order effecting a short extension until 9 March 2009 and stood the matter over to 2 March 2009, at the same time making directions with a view to a contested hearing on that occasion.
4 When the matter came back before me on 2 March 2009, the lessor's solicitor informed the court that the lessor no longer opposed the grant of the extension the administrators sought. The lessor was given leave to withdraw and counsel for the administrators then made submissions in support of a further extension of the convening period until 18 August 2009 - to achieve what will be effectively a total extension of six months.
5 On the day on which the administrators were appointed to the 39 companies in the ADR Group, secured creditors appointed receivers of the assets and undertakings of the several companies. Those receivers thereupon took steps towards selling the assets and undertakings as a going concern, on the footing that the property might be sold more advantageously in that form than in a piecemeal fashion.
6 Read on the administrators' application on 2 March was an affidavit of Mr Melluish, one of the receivers. Mr Melluish deposes that the receivers consider an extension of the convening period to 18 August 2009 to be "necessary in order to maximise the chances of achieving a going concern sale of the business of the ADR Group and is in the best interests of creditors of the ADR Group as a whole."
7 Referring to the possibility of extension only until 30 March 2009, Mr Melluish said that this "may seriously prejudice and possibly thwart the receiver's strategy for achieving a going-concern sale". Mr Melluish went on to give several reasons for this assessment. In particular, he referred to steps taken by the receivers towards sale up to 27 February 2009.
8 The receivers undertook a program of advertising between 27 January and 4 February. A significant number of persons expressed interest and signed confidentiality agreements. An information memorandum was distributed. As at 24 February, a number of persons had submitted nonbinding indicative offers. Further discussions are now under way with several interested parties who have commenced due diligence.
9 The expectation of Mr Melluish and his co-receiver is that a successful bidder will be chosen and will enter into a sale and purchase agreement around the end of March 2009.
10 It is at that point that a potentially time-consuming process will begin in accordance with special provisions which it is envisaged will be included in any sale and purchase contract. The receivers expect that the successful tenderer will require the assurance of a substantial period within which to make appropriate arrangements with lessors of premises.
11 The retail and associated operations of the ADR Group, such as warehousing, are conducted mainly in leased premises. There are no less than 300 leases from 277 lessors in respect of 360 properties, being sites occupied by companies within the ADR Group. The receivers apprehend that it will be necessary for the successful tenderer to negotiate separately with each of the 277 landlords to obtain either consent to assignment of the relevant lease or leases or the grant of a replacement lease or leases.
12 Mr Melluish expresses the understandable opinion that no purchaser will commit to pay a large purchase price without reserving a contractual ability to withdraw if the leasehold premises (or the bulk of them) cannot be secured.
13 Mr Melluish goes on in his affidavit to refer to the benefits of a going-concern sale, not the least of them being that the employment of most of the 10,000 employees is likely to be preserved and suppliers and other contractors will have the opportunity of continuing to do business with the new owner.
14 The matters concerning leased premises are but one aspect of the complexity of the ADR Group. There are, as I have said, 10,000 employees. There are 6,750 unsecured creditors owed $91.7 million and 2,689 former and current employee creditors owed about $10 million. The combined administration of the companies in the group is a substantial undertaking.
15 It has taken the directors of the ADR Group longer than expected to prepare their statement about the group's business, property, affairs and financial circumstances. This is because of the complicated nature of the Group's affairs and operations, the need for more work on the computation of possible unrecorded and contingent liabilities and the fact that key personnel have been preoccupied in assisting the receivers with the sale process. The administrators have extended the time for submission of the directors' statement to 18 March 2009.
16 The approach to be taken to applications for an extension of the convening period for the second meeting of creditors in a Part 5.3A administration has been discussed in a number of cases. I do not need to refer to them. It is sufficient to say that the general expectation is that the time limits generally applicable are expected to prevail and that the court will not allow them to be departed from unless good cause is shown. That good cause must be such as to promote the objects of Part 5.3A, as stated in s 435A, that is, to maximise the chances of the company or as much as possible of its business continuing in existence or, if continuation is not possible, to achieve a better return for creditors and members than would result from an immediate winding-up.
17 These objects and their attainment must, however, be weighed against the expectation that voluntary administration will be a reasonably speedy affair. The need for expedition comes from the fact that various persons interested in the company are subjected by Part 5.3A to enforced inaction in the pursuit of self-help and other remedies while administration continues. It is to the circumstances of such persons that I now turn.
18 Each of the 39 companies in administration has a committee of creditors. In 38 out of 39 cases, the committee resolved unanimously to support the administrators' application for an extension of the convening period to 18 August 2009. In the one remaining case, there are 8 members of the committee and 6 of them voted in favour of supporting the administrators' application for an extension until 18 August 2009. One was in favour of an extension until May 2009 and one creditor, being a trade creditor, did not support any extension. The receivers are continuing the business and landlords are not prejudiced.
19 The administrators' intention to make an application for an extension of the convening period was notified to creditors in a letter which accompanied the notice convening the first meeting of creditors.
20 In the circumstances as they now exist, it would, in a real sense, be counterproductive for the administrators to be compelled to bring on the second meeting of creditors quickly. The purpose of that meeting is to decide the company's future - whether the administration should end, whether the company should pass into liquidation or whether any deed of company arrangement proposal should be accepted (there is, I might say, no deed of company arrangement proposal in this case, at least at this stage).
21 The second meeting of creditors is best held at a time when it is possible to give creditors fairly definitive financial information that will assist them in this decision making. In the present case, information about the financial consequences of a sale of the business is crucial, assuming such a sale eventuates. In addition, creditors' decision-making will be much more difficult and more complicated if they are compelled to make a decision about the company's future based on speculation about the possibility of a going-concern sale. Further time for the formulation and digestion of recommendations based on established realities will avoid the possibility of what might be a premature decision in favour of winding up as the only practically available option.
22 At the same time, however, the court must be conscious of the need for creditors not to be left waiting unduly for some resolution of their position. But in the present case the creditors, through their committees, are content for additional time to be taken with a view to achieving a more certain and hopefully more favourable outcome.
23 The total extension sought in this case, that is the short extension I granted on 16 February plus the further extension now applied for, is six months. Mr Finch SC, who appeared for the administrators on the hearing of the application yesterday, has given me details of the periods involved in a number of extension cases. He acknowledges that six months is, as it were, at the upper end of the scale. While that is so, I do not consider it particularly productive to make comparisons. Each case must be approached according to its own circumstances. The balancing of a prompt outcome for creditors against a beneficial outcome for creditors will involve different considerations in every case. In the present case, the considerations to which I have referred indicate that creditors' interests will be best served by the extension of the convening period as the administrators seek, rather than by forcing on the meeting at an early date. The extension will therefore be granted.
24 It remains to consider the statutory basis for effecting the extension, bearing in mind that the court's power of extension under s 439(6) was exercised on 16 February when I made an order extending the convening period until 9 March.
25 It has been held in a number of cases that s 439A(6) allows only one extension of the convening period. In Re Henry Walker Eltin Group Ltd [2005] FCA 984; (2005) 54 ACSR 383, Hely J was of that view and quoted the decision of Davies J in Watson v Uniframes Ltd & Trumbull (1994) 55 FCR 556 and that of Branson J in Bernsteen Pty Ltd v Newmore Pty Ltd (1995) 13 ACLC 1608 in support of it. Hely J also referred to cases in which s 447A had been used to effect the second extension, being Re Western National Earthmoving Corporation Pty Ltd (1997) 141 FLR 121 and Re Envirostar Energy Ltd [2002] NSWSC 1246.
26 All the cases I have mentioned were decided under s 439A(6) as it stood before 31 December 2007 when the Corporations Amendment (Insolvency) Act 2007 (Cth) came into operation:
"The Court may extend the convening period on an application made within the period referred to in paragraph (5)(a) or (b), as the case requires."
27 Section 439A(5), as it existed before 31 December 2007, fixed as the convening period either a period of 28 days referred to in its paragraph (a) or a period of 21 days referred to in its paragraph (b), depending on the circumstances of the particular case. The amending Act of 2007 altered s 439A(5), but without disturbing its basic structure under which either paragraph (a) or paragraph (b) sets the convening period. The amending Act also altered s 439A(6) and added subsections (7) and (8). Sections 439A(6), (7) and (8) in their present form are as follows:
"(6) The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires.