Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635

Judgment (6 paragraphs)

[1]

Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening period within which the plaintiffs must convene the second meeting of creditors of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) ACN 109 224 697 and NQ Group Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) ACN 089 193 493 (together, the Companies) under s 439 of the Act (Second Meetings) be extended from 5 June 2017 to 5 October 2017.
Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the Second Meetings may be held, together or separately, at any time during, or within five business days after the end of, the convening period as extended by paragraph 2 above, notwithstanding the provisions of s 439A(2) of the Act. Service and Notices
The plaintiffs, within seven business days of making these orders, are to take all reasonable steps to give notice of the orders to the Companies' creditors (including the persons claiming to be creditors), by means of a circular: (a) to be sent by email transmission to creditors for whom the plaintiffs have a current email address; or (b) to be sent by ordinary post to creditors for whom the plaintiffs have only a postal address.
Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the requirement on the plaintiffs to issue notices under s 439A(3) of the Act be modified such that notice of the Second Meetings will be validly given to any creditors by, not less than five business days prior to the date of the proposed meeting: (a) giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Companies for whom or which the plaintiffs hold an email address; (b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Corporations Regulations 2001 (Cth), to any creditors not being a creditor referred to in sub-paragraph (a); and (c) causing such notice to be published in The Insolvency Notices website located at:

BACKGROUND 3 The background to this application can be shortly stated, although in doing so I do not intend to oversimplify the business that NQ and NQHHS operate and the current position in which they find themselves. Those companies operate a business of heavy haulage, crane hire and specialist equipment rental to the mining, oil and logistics industry across Australia. They have branches located in Brisbane, Mount Isa, Mackay and Nebo. Their head office is located in Brisbane. 4 Of relevance to this application and to the position in which the companies find themselves is that, just prior to the appointment of the administrators, Messrs Derrick Craig Vickers and Gregory Winfield Hall of PriceWaterhouseCoopers were appointed as receivers and managers of NQ (Receivers). The appointment was made by the entity that Mr Connelly, who has sworn the affidavit in support of the application, understood to be the companies' principal secured creditor, Isa Sun Pty Ltd (Isa Sun), pursuant to powers contained in a general security interest over all present and after acquired property of NQ. 5 The administrators have undertaken investigations pursuant to their obligations under the Act. Those investigations reveal that NQ is the primary trading entity of the companies' business and that NQHHS is an asset-holding company which makes its equipment available to NQ. NQHHS owns a large portion of the equipment that is utilised by NQ to enable it to carry out its operations. NQ also owns some equipment and operates the companies' logistics and heavy haulage operations and leases both its own equipment and the equipment supplied to it by NQHHS to customers. NQ employs the employees that conduct the business of the companies. 6 In a number of limited instances NQHHS has entered into equipment hire agreements directly with third-party customers. Presently, NQHHS has three assets on lease to third-party customers, while NQ has approximately 17 assets on lease to third-party customers. 7 NQHHS has funded its purchase of the equipment that is used in the companies' operations through asset financing from a number of financiers, the identities of which I do not propose to set out. According to Mr Connelly, as at 2 June 2017 approximately $9 million remained outstanding to those financiers under the various asset finance facilities. 8 Relevantly, Mr Connelly also notes that, given the structure of the companies' operations and the fact that NQ is the primary trading entity, its operations have been exclusively managed by the Receivers following their appointment. NQ has continued to pay NQHHS amounts due to it, calculated and paid on a daily basis. Those payments to NQHHS have been made at the direction of the Receivers. At the time Mr Connelly swore his affidavit, that payment arrangement remained on foot and NQ remained in compliance with its obligations. 9 As I have already observed, since their appointment the administrators have been carrying out their investigations into the companies' affairs as required by the Act, with the intention, presumably, of reporting to creditors within the period prescribed by the Act. The administrations of the companies are, however, not straightforward. According to Mr Connelly, there are a number of complicating issues that have had to be addressed and which, I understand, will continue to be addressed given the orders which I propose to make. These include the need to ascertain the value of and assess the claims made in respect of a number of secured assets; negotiations between the companies, the Receivers and the asset financiers; issues arising from the ongoing trading of the companies; and, as further explained below, the potential for a recapitalisation of the companies, together with a deed of company arrangement (DOCA). 10 It is because of these factors that the administrators have formed the view that they are not presently in a position to provide the statement to creditors required by s 439A(4) of the Act and explains why they require further time. In particular, the following circumstances give rise to the current application. 11 The Receivers, Isa Sun, and Rivet Pty Ltd (Rivet), a large Australian provider of transport and logistics services, have been engaged in discussions regarding a potential debt purchase and recapitalisation of the companies by an entity associated with Rivet. The administrators have not been involved in those negotiations, which have been protracted and which have ceased from time to time. 12 Because of the nature of the negotiations and the fact that they were ongoing and did not seem to be bearing fruit, the administrators prepared a report to creditors pursuant to s 439A of the Act. That report recommended that the companies be placed into liquidation in the absence of any viable proposal for a DOCA being submitted. However, on the evening of Wednesday, 31 May 2017, prior to the issue of the report, Mr Connelly was informed by a representative of the Receivers that Isa Sun and Rivet had reengaged in their negotiations and that the submission of a proposal was probable. 13 Because of that development the administrators make this application. Despite the fact that the negotiations are ongoing the administrators have been informed that a terms sheet will be executed very shortly or, as Mr Connelly says "in the coming days". If executed, it is proposed that the Receivers will relinquish control of NQ, save in respect of certain specific assets to cover receivership liabilities, including the Receivers' remuneration. Once this occurs the administrators will assume day-to-day management and control of NQ as well as continuing to manage and control NQHHS. 14 As part of the proposal, should it proceed, it is anticipated that there will be a proposal for a DOCA by Rivet or an entity associated with it. Among other things, the DOCA proposal will seek to secure the continuation of the businesses operated by the companies and provide ongoing employment to all, or a majority of, the employees. 15 Mr Connelly's evidence is that the implementation of the proposal and, consequently, the timing for the implementation of any DOCA proposal will be protracted for a number of reasons, including that: the negotiations have not yet concluded; the likely settlement period for the proposal will be at least 120 days from execution of any terms sheet; and as part of the proposal it will be necessary for Rivet to enter into discussions with various stakeholders. 16 Once a DOCA proposal is received, Mr Connelly says that he will then be in a position to consider what it offers stakeholders in more detail and to undertake an assessment of its benefits in comparison to a liquidation outcome which, as already observed, is his and his fellow administrators' current recommendation. Mr Connelly says this will be a complicated exercise as it will depend upon his investigations of the validity of security interests claimed in equipment and, potentially, on applications to the Court. This is another reason why the extension of time is required and the length of extension of the convening period is required. 17 I pause to note here that the evidence before me is that there are numerous secured creditors with interests registered against each of the companies: there are 274 security interests registered against NQHHS and 266 security interests registered against NQ. Not all of these interests are current and only a small proportion of them are in respect of all present and after acquired personal property. However, those interests will need to be investigated by the administrators.

consideration 22 In my opinion, and having regard to the statements of principle and the circumstances of the two companies, NQ and NQHHS, it is appropriate to make an order extending the convening period. It is clear that the objects of s 435A of the Act are best served by granting the extension as it will maximise the chance of the companies, or as much as possible of their businesses, to continue in existence. 23 As things presently stand the administrators would recommend that the companies be wound up. However, if an extension is granted and the proposal currently under negotiation comes to fruition, it is at least possible that the companies will continue in existence. This would necessarily, I infer, allow for the possibility of a better return to creditors than would result if a liquidation were to be the end result. 24 Further, I note the following relevant matters: (1) the application for the extension of the convening period has been made before the period expires and it is the first application; (2) while the extension is sought for a period of four months, that period is reasonable having regard to the complexity of the recapitalisation proposal; the estimate of time required to allow any DOCA to be proposed; the complexity of the companies' affairs generally; the supervening receivership and the need for the administrators to work with the receivers to attempt to obtain the best return for creditors; the uncertainty as to the status of a number of securities registered in respect of the companies' assets; the need for the administrators to now conduct further investigations in relation to those securities; and the need for the administrators to carry out further investigations generally; (3) if a DOCA is proposed, further time will be required for it to be developed and negotiated by the administrators and then put to creditors; (4) further time will allow the administrators to continue their investigations into the companies' affairs in order to make a recommendation to the companies' creditors; (5) the companies will retain the benefit of the moratoriums applicable to the lease of the premises from which the companies trade, thereby allowing the companies to remain in possession of the leased premises and to continue to trade in order to preserve the value of the business. In that regard, I note that there is evidence before me that the owners of the properties from which the companies operate will continue to be paid during any extended convening period; (6) there is evidence that no employee's employment has been terminated but that those who have resigned are having their entitlements paid; (7) the creditors, including employees, will not be materially prejudiced by the extension. The companies continue to pay the landlords and the employees continue to be paid; (8) the major secured creditor of NQ is also the appointor of the Receivers, which supports the application being made. According to Mr Connelly, he does not believe that there would be any specific prejudice to any other of the financiers because the companies will continue to meet their obligations to secured creditors during any extended convening period; and (9) there are no winding-up applications on foot in respect of any of the companies. 25 One final matter arises. That is, given the urgency with which this application has been made, the creditors of the company have not been notified of it. The administrators propose that that matter be met by the making of an order that they give notice of these orders to the companies' creditors and that an order be made granting any interested party liberty to apply on not less than three business days' notice for the purpose of modifying or discharging the orders extending the convening period. The same approach was adopted in the matter of Harrisons Pharmacy by Farrell J, where in that matter there had also been no notice to the creditors prior to the application being made. 26 I am satisfied that an order of that nature will address the interests of any interested party, including creditors, should there be any issue with the making of these orders and, in particular, the orders extending the convening period.

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Judgment (6 paragraphs)

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