HIS HONOUR: On 2 March 2015, the Court made orders fixing these proceedings - which are an application by the plaintiff Workers Compensation Nominal Insurer for an order that the defendant Bobos Engineering Australia Pty Ltd be wound up in insolvency and a liquidator appointed - for hearing today, with a half day estimate. Orders were made that the defendant not be entitled to rely on any evidence not served by 20 March, and that the plaintiff lodge and serve an outline of submissions by 23 March.
The evidence to be served by 20 March was contemplated to involve an expert report as to the solvency of the defendant, the defendant having served some evidence as to solvency - but such as would not necessarily have met the strictures of the requirement for the best and fullest evidence as to solvency - in an endeavour to rebut the presumption arising from its failure to comply with the plaintiff's statutory demand. However, the defendant did not serve any such solvency report. The report it obtained from the expert concluded that it was insolvent.
The defendant thereupon appointed that expert and his partner as voluntary administrators under (Cth) Corporations Act 2001, Pt 5.3A. Today, the defendant applies for an adjournment pursuant to s 440A, in the first instance for a short period of a week or so to enable the first creditors meeting to be convened, and for it to be ascertained whether there is any utility in seeking an adjournment until after the second creditors meeting.
Courts have now quite frequently expressed a consistent attitude to the appointment at the last minute of administrators, before the hearing, by a company that is opposing or has opposed a winding up petition [In the matter of Reed Constructions Australia Pty Ltd [2012] NSWSC 1045; In the matter of Offshore & Ocean Engineering Pty Ltd [2012] NSWSC 1296, [15], affirmed in Offshore and Ocean Engineering Pty Ltd v Greenwich Contractors Pty Ltd [2012] NSWCA 371; In the matter of TMTE Group Pty Ltd [2014] NSWSC 1895, [4]-[5]; Gorst Rural Supplies Pty Ltd v Glenroy (Lake Bolac) Pty Ltd [2012] VSC 60 (in which it was said that the Court would have regard to the lateness of appointment of an administrator if this occurred immediately prior to the hearing of a winding up application and in circumstances of previous adjournments of that application raising the possibility of an abuse of the processes of Pt 5.3A)].
Mr Metlej, for the plaintiff, has understandably and properly raised all those matters in opposition to this application. It is, of course, also stressed by Mr Metlej, and accepted by Mr Hynes for the defendant, that on an application under s 440A(2), the Court must be satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up, and that mere speculation that such a course may be in their interests is insufficient. However, as Campbell J pointed out in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd (2003) 44 ACSR 377, the extent of proof that can result in the requisite level of persuasion differs with the circumstances in which this litigation comes before the Court and, in the context of a short adjournment made very soon after the appointment, less may be required than in the context of a longer adjournment, the practical effect of which would be to defeat the winding up application.
As I have said, in this case a short adjournment is sought, in order to facilitate exploration of a number of matters, including the possibility that a deed of company arrangement will be proposed by the landlord or the director. The appointment of a liquidator will likely have a number of adverse effects on the company's financial position. One is that the receipt of payments expected over the next two to three weeks of $400,000 is likely to be jeopardised if the company ceases trading and goes into liquidation. A second is that the potential to derive income from tenders for works said to be worth in excess of $15 million, which may be of attraction to potential purchasers of the business, would not likely be available if the company ceases to trade.
A third is that employee redundancy entitlements would crystallise. A fourth is that there would be no moratorium preventing the landlord from taking possession, which he would be entitled to do upon appointment of a liquidator, but not while an administration continues. That said, as the landlord is one of those believed to be contemplating a deed of company arrangement, he might be expected not to take that course. Nonetheless, I think it is fair to conclude that the appointment of a liquidator would reduce the prospects of achieving a sale as a going concern, whatever those prospects might currently be, and would also reduce the prospects of successfully prosecuting the company's claim against Crystal, which it currently treats as its predominant asset.
I should take into account that the adjournment is opposed by creditors who approximate half of the company's creditors, and that is a significant consideration against the grant of an adjournment. However, save for the costs of administration, which will be constrained by the short time frame of an adjournment, there does not appear to be any real prejudice to the interests of the creditors from a short adjournment. The potential benefit is that a deed of company arrangement may be proposed and there are some indications, particularly from the landlord and, to some extent, from the director, that that is likely to ensue; together with indications of a desire on the part of the Broken Hill community and the trade creditors located in that community, to support the company in its business.
The evidence is quite insufficient to establish that it is in the interests of the company's creditors for the company to continue under administration indefinitely rather than be wound up. The mere possibility that a deed of company arrangement may ensue would be insufficient to satisfy that test, but when one is looking not at the indefinite continuation of the administration, but its continuation for a very short period, the considerations are somewhat different. It seems to me that there is a realistic possibility that a deed of company arrangement may be proposed, which would involve sale of the business on a going concern basis. A sale on a going concern basis is likely to be more beneficial for creditors overall than an immediate liquidation; at the least, there is a reasonable possibility that that would be the case.
It is in the interests of the company's creditors for the administration to continue, albeit only for a short period, to ascertain whether a DOCA that would have that effect is likely to emerge. As I have said, no real detriment to the position of the creditors from such an adjournment has been identified, other than the costs of the administration.
Accordingly, I propose to grant an adjournment for a short period. In doing so, I have taken into account that while the matter is set down for final hearing today, it is not as if a lengthy wait will be involved for a final hearing, if it is decided that a further adjournment should not be granted. In light of the appointment of administrators, there is effectively an admission of insolvency, so that the matter could proceed on what would effectively be an undefended basis and that could be dealt with on any day on which the matter returned before the Court.
Accordingly, the Court orders that:
1. Pursuant to Corporations Act, s 440A(2), the proceedings be adjourned to Tuesday 7 April 2015 at 9.45 before me.
[3]
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Decision last updated: 18 February 2016