Carter, in the matter of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 (No 2) [2009] FCA 419

INTRODUCTION 1 This is an application by the administrators of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 (SFM) and Timber Creek Pine Sawmill Pty Ltd (Administrators Appointed) ACN 131 828 487 (Timber Creek) to join Timber Creek as a second applicant, and by the administrators of both companies to extend the convening period for the meeting of creditors of SFM and Timber Creek pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act) to a date no later than 1 July 2009. There is no reason why I should not make the joinder order sought. It is obviously convenient that I should do so.

BACKGROUND 2 The administrators were appointed as administrators of SFM and of Timber Creek in accordance with the provisions of Pt 5.3A of the Act on 25 March 2009. 3 On 2 April 2009, pursuant to s 447A and 447D of the Act, I made orders on the application of the administrators of SFM modifying the operation of Pt 5.3A of the Act in relation to SFM so that the repayment of moneys due under a loan made to the administrators of SFM pursuant to a Cash Facility Agreement (the Agreement) between SFM and SFM Carbon Trading Limited be debts incurred by the administrators in the performance of their functions and powers as administrators of SFM, limiting their personal liability under the Agreement, and extending their right of indemnity under s 443D of the Act in respect of their liability under the Agreement. I also made orders in part approving the terms of the Agreement: Carter, in the matter of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 [2009] FCA 360. Those reasons describe in some detail the nature of the business of SFM, and its assets and liabilities. I will not repeat that material. 4 Timber Creek's operations are much more limited than those of SFM. It employs about 40 people in a sawmill operation located on Kangaroo Island in South Australia. The owner of the sawmill is SFM. The welfare of the two companies is, in effect, interdependent to that extent. Timber Creek is a wholly owned subsidiary of SFM. It has outstanding liabilities to its employees of about $190,000 and a debt to SFM of some $958,000, and it has a shortfall of assets over liabilities in excess of $1.1m. 5 The administrators indicated on the application that I first heard in this matter that they believe there is an opportunity to restructure SFM's affairs and to dispose of certain of its assets, which they say are not core assets, including its assets on Kangaroo Island, to the benefit of its creditors but that they needed time to determine how best to proceed, and then to ensure the best recoverable price for assets to be sold by their orderly realisation. The assets on Kangaroo Island would include the sawmill. The intention of entering into the Agreement was to make funds available to the administrators of SFM for the purpose of enabling SFM to continue to trade, whilst the administrators considered what options are available to the creditors of SFM pursuant to the provisions of Part 5.3A of the Act to secure the best return to its creditors. 6 The administrators say that they will not be in a position to provide a report to creditors pursuant to s 439A of the Act on the options available to them by the end of the prescribed convening period of 1 May 2009. This is because by that stage the sale of any of the assets of SFM or the sale of the assets of Timber Creek will not have been completed, and the restructure of the remaining Australian and New Zealand assets of SFM will not have progressed in any significant detail, including any proposals for a Deed of Company Arrangement. 7 Hence, the present application for an extension of time within which to convene the next meeting of creditors. 8 Section 439A relevantly provides: (1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6). … (5) The convening period is: (a) if the day after the administration begins is in December, or is less than 25 business days before Good Friday - the period of 25 business days beginning on: (i) that day; or (ii) if that day is not a business day - the next business day; or (b) otherwise - the period of 20 business days beginning on: (i) the day after the administration begins; or (ii) if that day is not a business day - the next business day. (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. 9 There was a meeting of creditors of SFM and Timber Creek held on 6 April 2009. The effect of s 439A(5) of the Act is that the meeting of creditors for the purposes of deciding the future of SFM and of Timber Creek is required to be held on or before 1 May 2009. The administrators are required to provide to the creditors a report on the companies' affairs and their opinion about the course of action which is in the best interests of the creditors, as well as detail of any proposed Deed of Company Arrangement. Section 439A(6) permits the Court to extend the convening period. As the application is made within the period fixed in s 439A(5), I do not need to consider the matters set out in ss 439A(7) and (8). 10 In the course of the initial meeting of creditors of SFM and Timber Creek, the creditors attending were informed that it was likely that an extension would be sought in respect of the convening period for the meeting of creditors required by s 439A(1) beyond the then required date of 1 May 2009. No creditor expressed opposition to that course of action. 11 Immediately after the first meeting of creditors, the administrators convened a meeting of the committee of creditors of SFM (the committee was appointed at the initial meeting of creditors). Two creditors were represented at the meeting of the committee of creditors. Both creditors agreed with the proposal that the administrators should apply to this Court for an order extending the convening period until 30 June 2009. 12 Since entering into the Agreement, the administrators have taken further steps to assess the value of the assets of SFM and Timber Creek. They consider it is likely that there will be a significant return to the unsecured creditors of SFM after payment of the secured creditors' debts, provided the administrators can continue their administration or during the operation of any Deed of Company Arrangement, provided the procedure secures the orderly realisation of its assets. In that process, at present, they have the support of the secured creditors and the unsecured creditors. They also have the benefit of funds made available under the Agreement. The counterparty to the Agreement also supports this application to extend the convening period. The secured creditors are aware of the application, and have not objected to it. 13 There are good reasons to accede to the application. The administrators indicate that it is likely that the sale of particular assets and operations may not be completed for at least some weeks, and perhaps longer if the advice from professional farm consultants, marketing agents and valuers retained by the administrators is that better prices may be achieved for the sale of these properties if delayed until after the spring cropping season. That includes some of the Kangaroo Island assets, and associated with them the ongoing operations of Timber Creek. 14 In addition to taking the above steps, the administrators have been running a concurrent expression of interest program to determine whether parties are interested in acquiring SFM's carbon sequestration interests and farming assets in Australia and New Zealand, which could result in the group being restructured through a Deed of Company Arrangement whilst the other assets are divested. The administrators note that final bids are due on or before 27 May 2009, with completion proposed prior to 30 June 2009. 15 In relation to the New Zealand assets, they have been advertised and included as part of the corporate divestment plan. But the administrators believe that this restructuring is unlikely to be achieved prior to the expiry of the convening period, and may even be delayed further in the event that an interested party cannot be found under the current divestment plan. 16 In my view, this is a clear case where the convening period should be extended. The administrators have been appropriately active to date, but it is clear that they will be in a much better position to provide a useful report to creditors pursuant to s 439A(3) and (4) of the Act if a longer period than that specified is allowed. Indeed, it is apparent that insistence on the period fixed by the Act would serve little purpose, as the report to creditors would simply be premature and so of not sufficient utility to them in deciding the future course of either company. There is nothing to suggest there will be any detriment to any creditor by granting the extension sought - the unsecured creditors support the application and the secured creditors do not oppose it and are apparently generally supportive of the administrators' strategy. 17 For the reasons given, I make the order sought under s 439A(6) of the Act. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.