Carson, in the matter of Hastie Group Limited [2012] FCA 626

REASONS FOR JUDGMENT 1 The plaintiffs, Messrs Ian Carson, David McEvoy and Craig Crosby (the Administrators), together with Hastie Group Limited and 43 other companies which are subsidiaries of Hastie Group Limited, seek orders under s 447A of the Corporations Act 2001 (Cth) (the Corporations Act). On 28 May 2012, the Administrators were appointed under Part 5.3A of the Corporations Act as joint and several administrators of those companies, which are generally referred to as the Hastie Group. On the same day, Messrs Anderson, Hays, Preston and Caddy (the Receivers) were appointed as receivers and managers of 11 members of the Hastie Group. The Receivers are aware of the present application, and do not oppose the orders sought. 2 In the days leading up to their appointment on 28 May 2012, and following their appointment, the Administrators have had only limited opportunity to conduct investigations into the financial affairs of the Hastie Group. However, during that time they have gained some understanding of the corporate structure of the Hastie Group and its financial affairs. They have participated in discussions and meetings with the directors and some employees of the Hastie Group. 3 Part 5.3A of the Corporations Act deals with the administration of a company's affairs with a view to executing a deed of company arrangement. The object of Part 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way which maximises the chances of the company, or as much as possible of its business, continuing in existence, or, if it is not possible for the company or its business to continue in existence, which results in a better return for the company's creditors and members than would result from an immediate winding up of the company. 4 Section 447A, which is within Part 5.3A, provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. The Court may make such an order subject to conditions, and such an order may be made on the application of the company, a creditor of the company or, in the case of a company under administration, the administrator of the company. 5 The Administrators and the members of the Hastie Group seek orders under s 447A in relation to the operation of s 443B(2), s 443B(3) and s 436E of the Corporations Act. Section 443B applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor. Section 443B(2) provides that the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period that begins more than five business days after the administration began, and throughout which the company continues to use or occupy, or to be in possession of, the property, and the administration continues. 6 Under s 443B(3), the administrator may, within five business days after the beginning of the administration, give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise rights in relation to the property. Under s 443B(4), despite s 443B(2), the administration is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under s 443B is in force. However, such a notice does not affect the liability of the company. Further, under s 443B(8), s 443B(2) does not apply insofar as a court, by order, excuses the administrator from liability. Again, however, such an order does not affect the liability of the company. 7 Section 436E(1) of the Corporations Act provides that an administrator must convene a meeting of the company's creditors in order to determine whether to appoint a committee of creditors and, if so, who are to be the committee members. Under s 436E(2), the meeting must be held within eight days after the administration begins. Section 436E(3) provides that the administrator must, at least five business days before the meeting, convene the meeting in the manner specified. The manner specified is the giving of written notice of the meeting to as many of the company's creditors as is reasonably practicable, and the causing of notice of the meeting to be published in a national newspaper, or in a daily newspaper that circulates generally in each state or territory in which the company has its registered office or carries on business. 8 In the present proceeding, the Administrators seek orders under s 447A varying the time limits in those provisions, and varying the manner in which notice of the meeting should be given to creditors. In order to place the application in context, it is necessary to say something about the Hastie Group. 9 In addition to the companies to which I have referred, the Hastie Group also has overseas subsidiaries that operate in the United Kingdom, the Republic of Ireland, the Middle East, China, South America and the Caribbean. No orders are sought in relation to any of the companies that are not incorporated in Australia. The companies in the Hastie Group carried on a diverse engineering business with a focus on mechanical, electrical, plumbing, refrigeration and ventilation services. In the last financial year, Hastie Group Limited had revenue of approximately $1.9 billion. 10 The business of the Hastie Group was split into three operating divisions, being the international division, the servicing division and the mechanical, electrical and plumbing division. The mechanical, electrical and plumbing division is under the sole control of the Administrators. That division is not currently trading. The Administrators have formed the view that it is not possible for that division to continue trading because there are insufficient funds available to do so. The servicing division is under the control of the Receivers. The international division is limited to the activities of its holding company, Hastie Group Limited. 11 The Hastie Group is a large and complex group. At the time of the appointment of the Administrators, it had approximately 1,600 projects underway throughout Australia, and was engaged on approximately 1,000 sites. It had approximately 6,100 employees, and operated from premises at up to 40 different locations in each state and territory of Australia. The Administrators estimate that the Hastie Group operated approximately 1,000 vehicles, of which approximately 50 are under their control. The Hastie Group appears to be in possession of thousands of items of property, including machinery, plant and equipment belonging to third parties. The Hastie Group presently has no available cash. 12 The Hastie Group operated on a largely decentralised basis, in that each entity within the Hastie Group managed a large part of its own affairs. Thus, asset registers were held by each individual entity, contracts were held by each individual entity, and day-to-day operational decisions appear to have been made by each individual entity. There was no centralisation of general administration functions, and each company had a separate payroll, separate records, separate offices and separate management, although some entities shared premises. The most recent annual report of the Hastie Group indicates that the total annual leasing obligations of the Hastie Group amount to approximately $26 million. That figure does not include operational hire expenses, and it is not clear to the Administrators which particular entity owns which property, or to what arrangements each property is subject. 13 An inspection of the Personal Property Securities Register discloses that there are approximately 1,000 registered interests in respect of property in the name of the Hastie Group. Further, the Administrators have been approached by numerous persons alleging an interest in property presently in the possession of the Hastie Group. The Administrators have not yet had an opportunity to consider those claims. Because of the decentralised nature of the business of the Hastie Group, the Administrators expect that the higher level of management of the Hastie Group will not be in a position to provide substantial guidance in relation to the financial position of individual entities. 14 The members of the Hastie Group have been unable to continue paying the wages of approximately 2,700 staff, and staff members have been stood down. That has led to a significant loss of knowledge that would otherwise have been available to the Administrators in establishing the financial position of the Hastie Group. In addition, the chief executive officer of the Hastie Group Limited recently informed the Administrators that there are significant accounting irregularities in the records of the Hastie Group. The Administrators are, therefore, concerned that the books and records may not be reliable. 15 In the circumstances that I have briefly described, the Administrators are concerned that they will face particular difficulty in coming to understand the affairs of the Hastie Group, and, in particular, what property is in the possession of the Hastie Group and whether the Administrators should exercise any rights in respect of such property. The Administrators effectively have approximately 50 staff working full-time on the affairs of the Hastie Group. They propose that they and their staff continue to make inquiries to determine what property is in the possession of the Hastie Group, and what arrangements apply to such property. 16 Given that the Administrators were appointed only on 28 May 2012, they are concerned that they will not be in a position to identify, by Friday, 1 June 2012, all property that is owned or leased by third parties. They will also not be in a position to form a view within that time as to whether it is necessary or desirable to exercise rights over such property for the purpose of maximising the chances that some or all of the members of the Hastie Group can continue in existence, or, alternatively, maximise the return to creditors. The Administrators have formed the view that it may take three to four weeks to identify the relevant property and make appropriate assessments for the purpose of considering issuing notices under s 443B of the Corporations Act. 17 Under s 436E(2) of the Corporations Act, the Administrators are required to convene the first meeting of creditors by Thursday, 7 June 2012. In order to satisfy s 436E(3), notices must be issued and advertisements must be placed not less than five business days before that meeting, being Wednesday, 30 May 2012. At present, the information relating to the creditors is limited. The Administrators have identified only employee creditors and major financiers. The creditors identified so far represent only approximately 25 per cent to 30 per cent of the likely number of total creditors. The Administrators expect that there could be more than 50,000 individual creditors. In the circumstances, because of the decentralised nature of the Hastie Group, it will be difficult and time-consuming to obtain the information necessary for the purposes of giving notice to creditors. 18 Since the Hastie Group has operations throughout Australia, it is likely that it will be necessary to have meetings of creditors in each capital city. The Administrators do not have the capacity to send formal notices to all the creditors, and, accordingly, have engaged Link Market Services Limited to assist in sending notices to creditors. Link Market Services Limited provides specialist administrative support, including mass mailings. The estimated cost of issuing notices to creditors for the first meeting, assuming that there are some 50,000 creditors, would be in the vicinity of $160,000. However, at present, there are no funds available to the Administrators to fund the costs of such notices. 19 The Administrators therefore consider that the appropriate approach would be to advertise the first meeting of creditors through the print media and by emailing notices to creditors who have provided an email address to the members of the Hastie Group. They consider that that course would provide sufficient notice to creditors, particularly given the extremely high level of publicity that has been associated with the insolvency of the Hastie Group. Accordingly, they seek an order that the first meeting of creditors will be validly convened if notice is given to creditors electronically by email where the email address is known, by causing notice of the meeting to be published in The Australian newspaper, and by placing notice of the meeting on the website that is maintained by the Administrators. 20 The power contained in s 447A is a wide one, and extends to altering times fixed by the provisions of Part 5.3A. While some provisions of Part 5.3A, in terms, contemplate extension, it is generally accepted that s 447A, being a remedial provision, authorises a wide discretion for the Court in ensuring that Part 5.3A operates in the manner contemplated by s 435A, the terms of which I have set out above. 21 The Administrators have formed the view that it will be in the best interests of creditors and the orderly administration of the Hastie Group for further time to be afforded to them to effect the necessary advertisements and communications to creditors for the purpose of convening a first meeting of creditors. The first extension contemplated by them is that the five business day limit fixed in s 443B(2)(a) and s 443B(3) be extended to 20 business days. They also seek that the period of eight business days referred to in s 436E(2) be extended to 13 business days. 22 As I have said, some considerable publicity has been given to the appointment of the Administrators. In the circumstances, having regard to the considerable saving of costs and the difficulty in identifying creditors, it is appropriate that the proposed modification of s 436E(3) be ordered. I also consider that it is appropriate to modify the operation of Part 5.3A, and, in particular, of ss 443B(2)(a), 443B(3) and 436E(2). I therefore propose to make orders accordingly. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

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