Farnsworth in his capacity as voluntary administrator, in the matter of... [2013] FCA 1236 | Case summary

THE COURT ORDERS THAT:

The first plaintiff give notice of these orders to all creditors of each of the second, third, fourth, fifth, sixth, seventh and eighth plaintiffs by the following means: (a) by, within 3 business days, placing a copy of these orders on the website maintained by Farnsworth Shepard at www.farnsworthshepard.com.au; (b) by, within 7 days, sending a circular notice to all creditors by email to all creditors who have provided the first plaintiff with an email address; (c) by, within 14 days, sending a circular notice to all creditors by prepaid post to all creditors for whom the first plaintiff has only a mailing address. Second Plaintiff - Monorant Pty Limited (Administrator Appointed)

REASONS FOR JUDGMENT 1 The first plaintiff, Mr Farnsworth, is the administrator of the second to eighth plaintiffs (collectively, the corporate plaintiffs). He was appointed on 20 August 2013 by resolution of the board of directors of each corporate plaintiff pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). 2 On 12 September 2013, I made orders pursuant to s 439A and s 447A of the Act extending the convening period to 17 November 2013 for the second meeting of creditors of each corporate plaintiff: Farnsworth in his capacity as voluntary administrator, in the matter of Monorant Pty Limited (administrator appointed) [2013] FCA 949 (my previous reasons). My previous reasons set out the essential background facts, which I will only repeat to the extent necessary to make these reasons comprehensible. My previous reasons should be read with these reasons. 3 By interlocutory process dated and filed on 12 November 2013, Mr Farnsworth seeks a further extension of the convening periods to 17 December 2013. 4 In my previous reasons, I referred to the steps taken by Mr Farnsworth to sell the business operated by the corporate plaintiffs. I recorded Mr Farnsworth's view that a higher price for the business is likely to be received if the sale is effected during the administration of each corporate plaintiff as opposed to during a liquidation of them. I also recorded Mr Farnsworth's view that such a sale would assist to provide a clearer picture of the financial position of each corporate plaintiff, thereby allowing him to comment upon and give his opinion on any proposed deed of company arrangement and the effect of that arrangement on each corporate plaintiff. 5 Mr Farnsworth seeks further extensions of the convening periods for the following reasons: It will enable him to finalise the sale of the business. It will facilitate a deed of company arrangement proposal, which Mr Farnsworth anticipates will be a pooled arrangement. A deed of company arrangement is likely to lead to a better return to creditors than the liquidation of the corporate plaintiffs. 6 In a further affidavit affirmed on 12 November 2013, Mr Farnsworth gave the following evidence. 7 Since 12 September 2013, he has: continued to conduct and operate the business; entered into discussions with various third parties in respect of the sale of the business; selected one of those parties as the preferred party to purchase the business (the proposed purchaser); assisted the proposed purchaser to undertake a thorough due diligence process; met with representatives of key stakeholders in respect of the proposed sale of the business; liaised with key stakeholders including secured creditors, employees, and key suppliers in relation to the conduct of the business and its sale; obtained advice of senior counsel on certain contracts to which some of the corporate plaintiffs are parties; instructed the group's accountants to prepare accounts for the year ended 30 June 2013 and, on receipt, ascertained the intercompany indebtedness of members of the group; handled queries from creditors; continued the employment of employees in the group; and continued to conduct investigations into the financial position of the group, including obtaining a draft valuation of certain assets. 8 As I noted in my previous reasons, a key part of the day-to-day operations of the business involves the services provided by Symbion Pty Limited (Symbion). Mr Farnsworth has continued to liaise with Symbion in respect of the ongoing operation of the business. He said that, having had discussions with Symbion, he expects that it will agree to continue the operations of the business in the present manner, in the event that the convening periods were to be extended as sought. 9 As to the financial position of the business, Mr Farnsworth said that the months leading up to summer are historically the busiest period for sales. The business is currently operating at a profit and financial forecasts provided to him indicate that the business will, at the very least, break even - but more likely continue to generate a profit - if the convening periods are extended as sought. 10 In my previous reasons, I referred to the position of Bibby Financial Services Australia Pty Limited (Bibby), who is a secured creditor. As I there noted, the third plaintiff raises invoices to Symbion for payment in respect of orders for products placed by retailers. These invoices are factored by the third plaintiff to Bibby, who makes payment to the third plaintiff of approximately 80% of the face value of each invoice. Notice has been given to Bibby of Mr Farnsworth's intention to seek a further extension of the convening periods. Bibby has stated that it does not oppose the extensions that are sought. 11 As to the proposed sale of the business, Mr Farnsworth said that, on 15 October 2013, the proposed purchaser was provided with a draft business sale agreement. On 18 October 2013, having completed due diligence, the proposed purchaser submitted a conditional offer for the purchase of the business. Since receipt of that offer, Mr Farnsworth has continued to correspond with the proposed purchaser in respect of the terms of the draft sale agreement. On 12 November 2013, Mr Farnsworth's solicitors sent a further revised draft sale agreement to the proposed purchaser. 12 In my previous reasons, I noted that the third plaintiff is the main operating entity within the group and holds the rights to conduct the Tony Ferguson Weight Loss Program (the program). It licences Amnesiac Australia Holdings Pty Ltd (Amnesiac) and Jalco International Pty Ltd to conduct the program internationally, other than in New Zealand. 13 The third plaintiff and Amnesiac are parties to a Restated International Intellectual Property Licence Document (the licence agreement). Mr Farnsworth said that the main issue preventing an exchange of the present draft sale agreement with the proposed purchaser relates to constraints arising from the licence agreement and how those constraints are to be dealt with. He said that the proposed purchaser is, in parallel, negotiating directly with Amnesiac in order to agree on whether, or how, the licence agreement "will be amended, terminated or dealt with in some other way". He said that he was hopeful that an agreement between the proposed purchaser and Amnesiac will be reached shortly. 14 Mr Farnsworth said that, subject to such agreement being reached, he expected that a binding agreement for the sale of the business will be entered into with the proposed purchaser within the next 10 days. If so, he anticipates that completion of the sale of the business will take place by the end of November or by early December 2013. Following completion of the sale, it will be necessary for him to prepare a report to creditors which would include details of the sale, its conditions, and any deed of company arrangement proposal that may be put forward. 15 Mr Farnsworth said that, until a sale of the business is completed, it will not be possible to estimate the recoveries that will be made from the assets of each corporate plaintiff. It is difficult, therefore, for any party to put forward a deed of company arrangement proposal. 16 There is a further matter which should be mentioned. The seventh plaintiff is the holding company for the group. The shares in the seventh plaintiff are owned by Jalco Investments Pty Limited (Jalco Investments) (as to 49%) and by Anthony Munro Ferguson (as to 51%). The relations between Jalco Investments and Mr Ferguson, as shareholders of the seventh plaintiff, are governed by a shareholders' agreement dated 31 August 2011 (the shareholders' agreement). Mr Farnsworth has been informed of a dispute between Jalco Investments and Mr Ferguson in relation to the effect and operation of one provision in the shareholders' agreement. Mr Farnsworth said that he did not expect that the current disagreement would present any impediment to the sale of the business but it could, potentially, require a further application to be made to extend the convening periods. I will not anticipate what might happen should such an application be made. 17 In my previous reasons, I referred to the guiding principles that are relevant to the exercise of the discretion to extend a convening period in respect of an administration under Pt 5.3A of the Act: see at [25] to [26]. Those principles remain apposite when a further extension is sought. 18 In my view, the extensions that are sought are warranted and should be granted. The extensions are relatively short and much progress has been made towards the sale of the business. I do not see the present dispute between Jalco Investments and Mr Ferguson as relevant to the present application. 19 Orders substantially as sought will be made. Furthermore, I will order that notice be given to creditors of the granting of this application. I will also grant liberty to apply to enable any person with a sufficient interest to move the Court to vary or discharge the orders made today. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

Farnsworth in his capacity as voluntary administrator, in the matter of Monorant Pty Limited (administrator appointed) (No 2) [2013] FCA 1236

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (13 paragraphs)

Legislation Cited (2)

Cases Cited (1)

Cited By (1)