MATTER : In the matter of WESTGEM INVESTMENTS PTY LTD (Receivers and Managers Appointed)

BETWEEN : BRIAN KEVIN HUGHES as Administrator of WESTGEM INVESTMENTS PTY LTD (Receivers and Managers Appointed)

Corporations - Voluntary administration - Whether leave to extend time for convening second creditors' meeting should be granted

Corporations Act 2001 (Cth), s 439A(6)

Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947

Re Allbuild Construction Co Pty Ltd (Administrators Appointed); Ex parte Featherby [2000] WASC 227

Re Diamond Press Australia Pty Ltd [2001] NSWSC 313

Re Evans & Tate Ltd (Administrators Appointed) (Receivers & Managers Appointed); Ex parte Jones [2007] WASC 235

Re Guerra Transport Pty Ltd (admin apptd); Ex parte Jay [2004] NSWSC 245

Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110

Re Pan Pharmaceuticals [2003] Corporations Act 2001 FCA 598; 21 ACLC 1144

Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2009] NSWSC 585

Saraceni v Mentha [2011] WASC 94

1 The circumstances in which the plaintiff was appointed administrator of Westgem Investments Pty Ltd (Westgem) are briefly referred to in Saraceni v Mentha [2011] WASC 94. Shortly stated, at the time of his appointment:

(a) Westgem was undertaking a project to develop land located in the Perth CBD known as Raine Square.

(b) Funding for the project was provided by the Bank of Western Australia Ltd and BOS International (Australia) Ltd (the Financiers). The funding was secured by, among other things, a charge (the Charge) and mortgages granted by Westgem to BOSI Security Ltd (BOSI), as security agent for the Financiers.

(c) BOSI and the Financiers had alleged that Westgem was in default of the facility agreement pursuant to which they provided funding. On 11 January 2011, BOSI appointed receivers and managers to Westgem.

(d) Luke Saraceni was the sole director of Westgem. He appointed the administrator as administrator of Westgem on the same day as the receivers and managers were appointed.

2 Mr Saraceni and a company with which he is associated, Saracen Project Management Pty Ltd (Saracen), contend that the appointment of the receivers and managers to Westgem was invalid, alternatively that the Charge was ineffective to charge all or some of the assets and undertaking of Westgem. He seeks declarations to that effect under s 418A and s 447B of the Corporations Act 2001 (Cth) (the Act): COR 22 of 2011; Saraceni and Another v Mentha and Others (COR 22 of 2011). The administrator is a party to those proceedings. A substantive hearing of the originating process in the matter has yet to be held.

3 This matter was commenced by originating process dated 3 February 2011. The primary relief sought in the application was an order that the period within which the administrator must convene a second meeting of the creditors of Westgem under s 439A of the Act be extended to 9 May 2011. On 4 February 2011, Master Sanderson made an order in the terms sought by the administrator.

4 The administrator now applies for a further extension of the time within which to convene a second creditors' meeting to 21 October 2011. I have decided that the application should be granted.

5 The administrator swore an affidavit in support of his initial application to extend time for the second creditors' meeting (the Administrator's Affidavit). I summarised aspects of that affidavit in Saraceni v Mentha. In granting leave under s 440D of the Act to BOSI to maintain a counterclaim against Mr Saraceni, Saracen and Westgem in COR 22 of 2011, I concluded that the determination of the issues raised by Mr Saraceni and Saracen in that matter was fundamental to the administration of Westgem. I reached that conclusion having regard to, among other things, statements made in the Administrator's Affidavit about the effect of the dispute over the validity of the Charge on the administration of Westgem. I considered that the administrator was unable to provide a meaningful report and opinion as required by s 439A(4) of the Act until the dispute had been resolved. At issue in COR 22 of 2011 is the extent and effect of the securities granted to BOSI and consequently, who controls what assets of Westgem.

6 In Saraceni v Mentha, I stressed that the issues raised in COR 22 of 2011 needed to be determined expeditiously given the status of Westgem. According to the Administrator's Affidavit, as at 3 February 2011 proofs of debt from persons claiming to be creditors of Westgem had been received for approximately $426.5 million.

7 The interlocutory processes in COR 22 of 2011 have not been completed. Despite the obvious need for expedition, I anticipate that the matter will not be ready for a substantive hearing for at least three months having regard to the complexity of the issues raised. The matter has not been listed for hearing and it is inevitable that my decision will be reserved. It is in those circumstances that the administrator seeks to extend the period for convening a second creditors' meeting until mid-October 2011.

8 The administrator stated in the Administrator's Affidavit that the creditors of Westgem were:

(b) Saracen and other entities associated with Mr Saraceni - $44,407,845;

(c) Hossean and Jenny Pourzand as trustees for the Helen Trust and Oakcure Pty Ltd - $38,634,292;

9 In an affidavit sworn in support of a further extension of time, the administrator confirmed the accuracy of that list of creditors. He further stated that the Financiers, Mr Saraceni and the entities associated with him and Mr Pourzand and the entities associated with him all favoured an extension of the time within which to convene the second creditors' meeting. The administrator also stated that he had notified the remaining creditors of Westgem of the orders that had been made for the initial extension of time and he had not received a response from any of the creditors.

10 Section 436E and s 439A(5) of the Act provide for only short periods within which an administrator is to convene the first and second meetings of creditors. The sections express a legislative intent that the creditors of a company in voluntary administration are to be placed in a position of making a quick decision about the future of the company. As Emmett J observed in Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947, '[a]n important objective of Pt 5.3A is that creditors be informed as soon as possible about a company's position and be put in a position to vote on the future of the company as soon as possible' [8].

11 The factors that have been regarded as relevant to the court's discretion under s 439A(6) to extend the time for convening a second creditors' meeting are summarised in HAJ Ford, RP Austin & IM Ramsey, Ford's Principles of Corporations Law (Butterworths 2002) at [26.201]. It is not necessary to refer in detail to those matters for the purpose of determining this application. It is sufficient to note the following:

(a) It has been said in several cases that the function of the court is 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 hand, 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: see for example, Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 [10]; Re ABC Learning Centres [8].

(b) The starting point for any application to extend the time for convening creditors' meetings must be that generally, the court will expect that administrators adhere to the specified times limits: Re Evans & Tate Ltd (Administrators Appointed) (Receivers & Managers Appointed); Ex parte Jones [2007] WASC 235 [20]. However, as the learned editors of Ford's Principles of Corporations Law [26.201] observe:

More recently, confronted with cases involving large corporate groups and complex businesses, or the prospect of successful realisation of assets through negotiations with third parties (such as receivers) if given more time ... courts have tended to recognise that the statutory timeframe, appropriate though it may be for small businesses, is in some cases unworkable.

(c) The degree of complexity of the administration is the key to understanding the court's approach. There is no place for a predisposition against an extension of time where there is evidence of complexity, such as in large corporate groups, complex funding arrangements or complex business transactions: Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2009] NSWSC 585 [17] - [18].

(d) It is not necessary that the administrator shows special grounds for the extension being sought: Re Evans & Tate [21]. However, the administrator is required to particularise the problems that make an extension of time necessary: see the comments of Owen J in Re Allbuild Construction Co Pty Ltd (Administrators Appointed); Ex parte Featherby [2000] WASC 227 regarding the need for the court to be provided with sufficient information concerning the affairs of the company and the investigations that have been made into those affairs to enable it to properly exercise its discretion.

(e) One relevant matter for the exercise of the court's discretion is the attitude of the creditors and others who may be affected by the extension sought: Re ABC Learning Centres Ltd (No 5) [9]; Re Evans & Tate [21]. Another relevant matter is whether an extension is necessary to enable an administrator to prepare and provide the report and statements and in particular, to arrive at the opinion contemplated by s 439A(4): Re ABC Learning Centres (No 5) [9]; Re Pan Pharmaceuticals [2003] Corporations Act 2001 FCA 598; 21 ACLC 1144 [41].

12 I consider that an extension of time should be granted in the circumstances of this matter for the following reasons:

(a) As explained in Saraceni v Mentha, the administrator is not in a position to make an informed and commercially sensible recommendation to the creditors of Westgem given the challenge by Mr Saraceni and Saracen to the securities granted to BOSI. Evidence adduced in an interlocutory application in COR 22 of 2011 indicated that the administrator had formed a preliminary view that the Charge might be vulnerable, alternatively that it may only charge certain assets of Westgem. It is implicit in the administrator's application in this matter that he considers that it is in the interests of the creditors that the question of the validity of the Financiers' security be resolved prior to further decisions being made about the future of the company. I accept that this is a reasonable view for the administrator to have formed; indeed, it is difficult to see how he could have reached any other conclusion.

(b) Similarly, the creditors are not in a position to make an informed commercial decision about the administration of Westgem given the uncertainty about the Financiers' security. There may be significant assets available to them that might form the basis for a deed of company arrangement or the Financiers may have security over everything. The significance of the effect of the security granted by Westgem is obvious and overwhelming.

(c) The position of third parties with possible claims against Westgem will not necessarily be prejudiced by granting an extension of time within which to convene a second creditors' meeting and there are other ways in which any prejudice might be addressed. There are two other claims in this court involving Westgem: CIV 1447 of 2010 and CIV 1542 of 2010; Salta Constructions Pty Ltd v Westgem. Salta Constructions has not made any application following the appointment of the administrator but rather, has indicated that it is prepared to await the outcome of COR 22 of 2011.

(d) Extending time for the second creditors' meeting of Westgem is, in my view, consistent with the principles that can be discerned in the examples referred to in Ford's Principles of Corporations Law at [26.201] where an extension of time has been granted in other cases. In addition to the matters that have already been identified, it is relevant that the issues surrounding the securities granted by Westgem to BOSI are complex and require time to be finally resolved and that the administration of Westgem involves very large amounts of money reflecting the magnitude of the project that is its principal undertaking.

13 I further consider that the period of the extension sought by the administrator is appropriate given the time that is likely to be required to litigate the issues raised in COR 22 of 2011.

14 There is an unresolved issue as to whether the court has power under s 439A(6) to further extend the period for convening a creditors' meeting where an extension has been granted previously: see Ford's Principles of Corporations Law at [26.201] and Re Guerra Transport Pty Ltd (admin apptd); Ex parte Jay [2004] NSWSC 245; see also, Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110. I do not propose to further consider the issue as the court can grant an extension of time beyond the first extension under s 447A of the Act and I will make the orders sought by the administrator under that section.