Duncan, in the matter of Megafert Pty Ltd (Administrators Appointed) [2011] FCA 785

REASONS FOR JUDGMENT 1 On 9 June 2011 I made orders in a proceeding in this Court brought by Stephen James Duncan and Christopher Robert Powell in their capacity as administrators of Megafert Pty Ltd (Administrators Appointed) ('Megafert') and in their capacity as administrators of Interfert Australia Pty Ltd (Administrators Appointed) ('Interfert Australia'). The orders I made were as follows: 1. Pursuant to s 439A(6) of the Corporations Act 2001 ("Act") the period within which the administrators of Megafert Pty Ltd (Administrators Appointed) must convene a meeting of creditors under s 439A of the Act is extended up to and including 20 September 2011. 2. Pursuant to s 439A(6) of the Act the period within which the administrators of Interfert Australia Pty Ltd (Administrators Appointed) must convene a meeting of creditors under s 439A of the Act is extended up to and including 20 September 2011. 3. Pursuant to s 447A(1) of the Act, the meeting of the creditors of Megafert Pty Ltd (Administrators Appointed), required by s 439A of the Act, may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 1 above, notwithstanding the provisions of s 439A(2) of the Act. 4. Pursuant to s 447A(1) of the Act, the meeting of the creditors of Interfert Australia Pty Ltd (Administrators Appointed), required by s 439A of the Act, may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 2 above, notwithstanding the provisions of s 439A(2) of the Act. 5. Liberty to apply is granted to any person who can demonstrate sufficient interest, to modify or discharge these orders upon appropriate notice being given to the Applicants. 6. The costs and expenses of this application be costs and expenses of the administration of Megafert Pty Ltd (Administrators Appointed) and Interfert Australia Pty Ltd (Administrators Appointed). 2 I said that I would deliver reasons for the orders I made and these are my reasons. 3 Megafert is a proprietary limited company which was incorporated in Victoria on 18 August 2005. The directors of the company are Peter John Evans and John Munro Simper and a company called Interfert Pty Ltd owns all the issued capital in the company, although not beneficially, being 100 one dollar shares. The directors of Megafert are the only shareholders of Interfert Pty Ltd. The company was placed in administration by resolution of the directors passed on 12 May 2011. The company conducted a business as a retailer of fertiliser on its own account and through distributors. 4 Mr Evans and Mr Simper, either jointly or individually, and Interfert Pty Ltd hold interests in a number of other companies. I do not need to set out the details. They are contained in the affidavit of Mr Powell sworn on 8 June 2011. 5 Interfert Australia is also a proprietary limited company and it was incorporated in Western Australia on 2 February 2005. The directors of the company are Mr Evans and Mr Simper, and Interfert Pty Ltd owns all the issued capital of the company although not beneficially, being 10 one dollar shares. The company was placed in administration by resolution of the directors passed on 12 May 2011. The company conducted a business as an importer and wholesaler of fertiliser. 6 The evidence before me established that as at 8 June 2011: 1. Megafert and Interfert Australia were trading in a limited fashion with stock levels being relatively low. Between them the two companies employed 14 people. 2. Megafert and Interfert Australia owned plant and equipment which the administrators were in the course of having valued. 3. According to the books of the two companies amounts owed to Megafert totalled $1,689,511 and amounts owed to Interfert Australia totalled $495,127. 4. According to the books of the two companies amounts owed by Megafert totalled $986,132 and amounts owed by Interfert Australia totalled $18,898,520. The administrators were undertaking investigations to confirm the amounts owing by Megafert and the amounts owing by Interfert Australia. The first meeting of creditors took place on 24 May 2011. Based on the proofs of debt received prior to that meeting the liabilities of Megafert are 'potentially significantly higher than recorded in the books of Megafert' (Mr Powell's affidavit sworn on 8 June 2011.) 5. The Deputy Commissioner of Taxation had applied to wind up Megafert on the ground of insolvency based on non-compliance with a statutory demand for $941,939.01. The first hearing of the application was listed for 22 June 2011. 6. The Deputy Commissioner of Taxation had applied to wind up Interfert Australia on the ground of insolvency based on non-compliance with a statutory demand for $4,884,391.57. The first hearing of the application took place on 25 May 2011. 7. Interfert Australia is a party to an action in the Supreme Court of South Australia. It and its directors and a company called Independent Grain Handling Pty Ltd are being sued by Jebsens International (Australia) Pty Ltd and Jebsens Orient Shipping Services A/S. 8. There are a number of inter-company loan accounts between Megafert and Interfert Australia and also between one or both of Megafert and Interfert Australia and other entities wholly or partly controlled by one or other of the directors. The administrators had not been able to confirm the correctness of all relevant inter-company loan balances. 7 The administrators wish to investigate a transaction which occurred in February 2010 whereby Megafert, Interfert Australia and other entities associated with the directors were able to discharge securities held by the National Australia Bank Limited in relation to company borrowings over company assets. It may be necessary for the administrators to apply for examination summonses. 8 The administrators also wish to investigate the circumstances of a proposed financing transaction in mid-2010 which did not proceed to determine whether Megafert and Interfert Australia may have a claim in relation to those circumstances. 9 The administrators were advised by Mr Leroux Beyer who is the principal of Superfert Pty Ltd that Superfert was considering making a proposal for a deed of company arrangement in the administrations of both Megafert and Interfert Australia. If a proposal is made the administrators will need time to consider it. 10 Mr Powell states in his affidavit sworn on 8 June 2011: 41. In addition, in order to provide to creditors of Megafert and of Interfert Australia ahead of a second meeting a report which accurately describes the current position of the companies and the likely return to creditors based on the different possible scenarios (namely a Deed of Company Arrangement in either company the voluntary administration ending or either company being wound up) me and Mr Duncan will also need more time to properly consider the following: 41.1 valuations of plant and equipment need to be obtained; 41.2 the potential for successful recovery of accounts receivable will need to be considered; 41.3 the correct position as to the liabilities of Megafert and Interfert Australia needs to be confirmed; 41.4 the correct position in relation to intercompany loan accounts should be confirmed; 41.5 the circumstances surrounding the transaction to which the Bank was party needs to be investigated; and 41.6 the finance proposal which did not proceed in mid 2010 needs to be investigated. 11 Mr Powell said that based on his experience as a voluntary administrator he and Mr Duncan would need approximately three months in order to complete their investigations, examine and consider any proposed deed of company arrangement and form a final opinion as to the likely return to creditors of each of Megafert and Interfert Australia 'in either a winding up of both companies or based on any deed of company arrangement which may be proposed'. 12 Neither the committee of creditors of Megafert nor the committee of creditors of Interfert Australia objects to the orders sought by the administrators. 13 I take the liberty of repeating some observations I made earlier this year in Aqa Oysters Limited, in the matter of Aqa Oysters Limited (Administrators Appointed) (Receivers and Managers Appointed) [2011] FCA 68 at [18]-[21]: In the great majority of cases a company will be placed into administration by the company's directors on the directors resolving that in their opinion the company is insolvent, or is likely to become insolvent at some future time and that an administrator of the company should be appointed (s 436A). The object of Pt 5.3A is for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the company's creditors and members than would result from an immediate winding up of the company (s 435A). The effect of an administration is to place a moratorium on a proceeding against the company or its property and on any enforcement process in relation to the property of the company (s 440D, s 440F). The effect of an administration is to place the decision as to the company's future in the hands of the company's creditors, who may decide that the company should execute a deed of company arrangement or that the administration should end or that the company should be wound up (s 439C). The administrator is in control of the company during the administration (s 437A-s 437D) and he or she plays an important role in providing information to the creditors so that they can make a fully informed decision about what should happen to the company (s 439A(4)). The first creditors' meeting is to be held within eight business days after the administration begins (s 436E(2)) and the second creditors' meeting at which the decision as to the company's future is made is to be held within five business days before or after the end of the convening period, which is a period of 20 business days (subject to some exceptions not presently material) (s 439A). The second creditors' meeting may be adjourned from time to time but not for a period exceeding 45 business days (s 439B). As has been noted in the authorities, the time limits apply whether the company is big or small, or its affairs complex or simple (Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 ('Riviera')). The time limits suggest that administration is generally to be a short-term state or condition. However, the Court's power to extend the convening period and the great variety of circumstances which might arise means that there is no presumption or predisposition against extending the convening period (Re Diamond Press Australia Pty Ltd [2001] NSWSC 313). The Court will require a good or sound reason for exercising its power to extend the convening period and will do so having regard to, among other things, the objects of Part 5.3A. In Riviera, Austin J helpfully set out by reference to the authorities the types of cases where the convening period has been extended (at [13]). I have regard to that decision. I have also found helpful the discussions in Sims, Re Destra Corporation Limited [2008] FCA 2002 at [21]-[25]; Silvia, Re FEA Plantations Ltd (Administrators Appointed) [2010] FCA 468. 14 The likelihood in this case is that each company is insolvent. In order to have resolved to appoint an administrator, the directors of each company must have formed the opinion that each company was insolvent or that it was likely to become insolvent at some future time (s 436A). Such investigations as have been carried out by the administrators suggest that each company is insolvent and in the case of Interfert Australia there is a substantial excess of liabilities over assets. It seems likely that the administration of each company will come to an end by the creditors resolving that the company execute a deed of company arrangement or that the company be wound up (s 435C(2)). 15 In this case no deed of company arrangement has been proposed whereby a third party has offered to acquire the business of each company. However, at the date of hearing it was a realistic possibility that Superfert Pty Ltd would put forward a proposed deed of company arrangement. It is desirable that the creditors have the opportunity to consider a deed of company arrangement if there is a realistic possibility of one being proposed. 16 The creditors are entitled to the assistance of the administrators in considering the best course of action. Section 439A(4) is in the following terms: The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of: (a) a report by the administrator about the company's business, property, affairs and financial circumstances; and (b) a statement setting out the administrator's opinion about each of the following matters: (i) whether it would be in the creditors' interests for the company to execute a deed of company arrangement; (ii) whether it would be in the creditors' interests for the administration to end; (iii) whether it would be in the creditors' interests for the company to be wound up; and also setting out: (iv) his or her reasons for those opinions; and (v) such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and (c) if a deed of company arrangement is proposed - a statement setting out details of the proposed deed. 17 In this case the administrators, without any default or failure on their part, were not in a position to provide creditors with the required details not only because they did not yet have a deed of company arrangement, but also because they did not have sufficient information to give an accurate report about the company's business, property, affairs and financial circumstances. 18 An adjournment of the relevant meetings under s 439B(2) would lead to unnecessary cost and expense. In the circumstances the appropriate course was to extend the convening period in the case of each company. There was sufficient evidence to satisfy me that an extension in the order of three months was appropriate. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.