Cameron Shaw and Richard Albarran, in Their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd

BANKS-SMITH J: 1 The plaintiff, Peter Quigley, is the administrator of Pittsberg Holdings Pty Ltd. He was appointed on 11 October 2018 pursuant to a resolution of the company's directors. 2 The directors of the company are Michael McPhee and Sam McPhee. Michael McPhee is a lawyer and principal of the practice known as MJ McPhee Barrister & Solicitors. The company provided services to MJ McPhee Barristers & Solicitors. It ceased trading in July 2018. 3 The plaintiff seeks an order on an urgent basis extending the convening period for the second meeting of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth). The convening period is due to expire today. The plaintiff seeks an extension until 13 December 2018. 4 The application is supported by Mr Quigley's affidavit of 7 November 2018. 5 Mr Quigley says that he requires an extension order on the basis that: (1) he needs to facilitate lodgement of amended income tax returns and BAS statements for the company at the Australian Taxation Office (ATO) for the purpose of establishing the true amount of the debt due to the ATO; (2) he needs to investigate certain transactions over the period 2014-2018 involving director loan accounts to confirm whether they are correctly stated; and (3) he needs to consider whether recovery proceedings might be brought against the directors for any insolvent trading or voidable transactions under Div 2 of Pt 7B of the Corporations Act. 6 Mr Quigley says he needs to complete these steps for the purpose of preparing his report for the second meeting of creditors, a report which is intended to provide sufficient information to creditors so that they may make an informed decision about the future of the company. 7 Mr Quigley also says that based on discussions he has had with the directors, he understands that they intend to propose a deed of company arrangement (DOCA) which would involve contributions into a fund by them. Mr Quigley says that the directors have indicated that they will be in a position to submit a proposal for a DOCA once he has determined the likely dividend to creditors in a liquidation scenario as 'they are mindful of the fact that a proposed DOCA must provide a better return for creditors than would be the case under a liquidation scenario'. 8 The objects and scheme of Pt 5.3A of the Corporations Act including with respect to extension applications have been outlined in a number of cases and are well recognised: see, in particular, Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [7]-[10] (Barrett J); Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers & Managers Appointed) [2009] NSWSC 585; (2009) 72 ACSR 352 at [8]-[11] (Austin J). 9 The following principles were usefully collected by Beech J in Cameron Shaw and Richard Albarran, in Their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 at [18]: (1) The short time frames are an element of the scheme of the Act, the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible. (2) However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under 439A(6) involves a balancing of these considerations. (3) In considering an application for an extension, the court must take into account the detriment to third parties including the suspension of rights and remedies of secured creditors, lessors and others. (4) An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed of company arrangement, for the administration to end, or for the company to be wound up. (5) Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, wind up the company or end the administration. 10 The categories and situations in which extensions of time have been granted have been the subject of various decisions, including Re Riviera Group Pty Ltd at [13] and Parbery, in the matter of NewSat Limited (Administrators Appointed) (Receivers and Managers Appointed) [2015] FCA 435 at [63] (Beach J). The factors taken into account in justifying an extension, particularly in a complex administration, include the size and scope of the business, where there are a large number of employees with complex entitlements, where there is a complex corporate group structure and intercompany loans, where the company has entered into complex transactions and there are complex recovery proceedings, where there is a lack of access to corporate financial records, where time is needed to execute an orderly process of disposal of assets, where time is needed for a thorough assessment of a proposed DOCA, where time is needed for a timely disposal of assets and more generally, where additional time is likely to enhance the return for unsecured creditors. 11 There is no suggestion that this is a complex administration and ordinarily one would expect such an administration to proceed quickly and within the usual time parameters. 12 Mr Quigley submits that the reason the extension is sought falls within the final recognised category for relief listed above, that is, that additional time is likely to enhance the return for unsecured creditors. He also points to problems caused by a lack of complete accounting and financial records as justifying an extension, referring to Sims, in the matter of Destra Corporation Limited [2008] FCA 2002 at [10]-[12] and [23] (Emmett J) (a complex administration of a group of companies) and Re Fincorp Group Holdings Pty Ltd [2007] NSWSC 363; (2007) 62 ACSR 192 at [12] (Barrett J) (a complex administration of a group of 21 companies). 13 In my view, the evidence in support of the application in this case is somewhat thin. 14 This is not on its face an example of a complex corporate structure or business. It is a single company that apparently does no more than provide services to a law practice. As winding up proceedings were issued in July 2018, the directors have had quite some time to ensure the financial records are in order. There is no suggestion a draft DOCA has been put to Mr Quigley for his consideration as yet. 15 Despite the fact that Mr Quigley deposes to the fact that he has received profit and loss statements and balance sheets for the company for the years 30 June 2013-2018, there is no disclosure of the asset position of the company and there is no disclosure about creditors or liabilities, save to disclose that the ATO previously commenced the winding up proceedings against the company and has lodged a proof of debt in the sum of $406,128.18. Mr Quigley says that 'at the present time' he is not aware of any other significant non related party creditors. 16 Ordinarily, the Court on such an application is provided with better evidence as to the assets and creditors of the company, at least on a preliminary basis, for the benefit of assisting it in the exercise of its discretion. 17 I am mindful that Mr Quigley has taken steps to collect business records and financial information about the company, and he has communicated with the accountant responsible for preparing the company's tax returns. It appears that the accountant is unable to progress amendments to the tax returns for some weeks. 18 I also have concerns at the suggestion that the directors are not in a position to make any proposal until the administrator has completed a range of investigations, including with respect to voidable transactions. The timeframe within which administrations are anticipated to proceed does not always permit finalisation of detailed investigations before a DOCA can be propounded. There is no reason that the directors, who are best placed to have a sense of the level of debt owing to creditors, could not be putting forward a DOCA proposal sooner rather than later. 19 However, the proposed extension period is short and the ATO has indicated that it neither consents to nor opposes the application. Therefore, in the circumstances of this case I am willing to grant the extension despite the fact that there is little information about the company before me and no DOCA has yet been provided to the administrator for his consideration. Accepting that the ATO is the only relevant third party creditor of any significance, then I do not consider there is material prejudice to its position. In this context I take into account that the company is not trading and that there is value in a report being prepared by the administrator that might anticipate more accurately the final debt due to the ATO. However, should the administrator require a further extension, the Court will require more detailed and adequate evidence. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.