Farnsworth in his capacity as voluntary administrator, in the matter of... [2013] FCA 1400 | Case summary

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)
Pursuant to s 447A of the Corporations Act 2001 (Cth) (the Act), the period within which the first plaintiff must convene the second meeting of creditors of the second plaintiff pursuant to s 439A of the Act be extended up to and including 14 February 2014.

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 This is an application for a further extension of the convening periods for the second meeting of creditors of the second to eighth plaintiffs (collectively, the corporate plaintiffs). 2 On 12 September 2013, I made orders, pursuant to s 439A and s 447A of the Corporations Act 2001 (Cth) (the Act), extending the convening periods to 17 November 2013: Farnsworth in his capacity as voluntary administrator, in the matter of Monorant Pty Limited (administrator appointed) [2013] FCA 949 (my first reasons). On 13 November 2013, I made orders pursuant to s 447A(1) of the Act in relation to each corporate plaintiff that Part 5.3A of the Act have effect in relation to the plaintiff such that the period within which the plaintiff must convene a meeting of creditors under s 439A of the Act be extended up to and including 17 December 2013, and that the meeting may be held at any time during the period up to, or within five business days after, 17 December 2013, notwithstanding the provisions of s 439A(2) of the Act: Farnsworth in his capacity as voluntary administrator, in the matter of Monorant Pty Limited (administrator appointed) (No 2) [2013] FCA 1236 (my second reasons). 3 If there is no further extension of the convening periods, the last day for the holding of the second meeting of creditors of each corporate plaintiff would be 24 December 2013. To hold a meeting on 24 December 2013, Mr Farnsworth would be required to issue a notice convening the relevant meeting, together with his report to creditors, by 17 December 2013. 4 My first reasons and my second reasons should be read with these reasons. They set out, amongst other things, the background to the administration of the corporate plaintiffs, the nature and operation of the Tony Ferguson group of companies (the group), and the steps taken by Mr Farnsworth as administrator to sell the group business, which involves the supply of a range of weight loss products, including shakes, breakfast muesli and bars, and soups, and the operation of the Tony Ferguson Weight Loss Program (collectively, the business). 5 As I recorded in my first reasons (see at [4] and [5]), under the present group structure, the seventh plaintiff, now called AF Group Holdings Pty Limited (administrator appointed) functions as a holding company for the group. It owns all the shares in the second plaintiff which, in turn, owns all the units in four separate unit trusts of which the third, fifth, sixth, and eight plaintiffs are, respectively, trustees. The third plaintiff, now called AF Licencing Pty Limited (administrator appointed), is the main operating entity within the group. 6 The business has now been sold. The sale was completed on 6 December 2013. The purchasers purchased the majority of assets associated with the business, including the majority of plant and equipment and all stock and intellectual property rights in respect of the business. The secured creditor, Bibby Financial Services Australia Pty Limited, was paid in full and, thereafter, released its securities in respect of certain of the corporate plaintiffs. The corporate plaintiffs were also required to undertake a change of name to remove any designation associating them with Tony Ferguson. 7 The group is no longer trading. Mr Farnsworth has received all amounts payable to the group pursuant to the terms of the sale contract. An invoice in relation to the supply of products for the period 1 to 29 November 2013 has been issued to Symbion Pty Limited (Symbion), and payment is expected in early January 2014, in accordance with existing trading terms. I described Symbion's role in the business at [9] and [10] of my first reasons. An invoice in relation to the supply of products for the period 1 to 6 December 2013 will issue at the end of this month. Payment of that invoice is expected in early February 2014. 8 The invoices raised to Symbion are subject to the deduction of costs of warehousing provided by YCH (Australia) Pty Limited, which is calculated during the following month, and deductions for returns of stock from pharmacies. Mr Farnsworth has given evidence that, given potential deductions from the amounts of the November invoice and the prospective December invoice, he will not know with certainty the final trading position of the corporate plaintiffs and, therefore, the total amount available for distribution to creditors until early February 2014. 9 At [16] of my second reasons, I referred to a dispute between Jalco Investments Pty Limited (Jalco Investments) and Anthony Munro Ferguson as to the effect and operation of one provision of the shareholders' agreement to which they are parties and which governs the relations between them as the only shareholders of the seventh plaintiff. Essentially, Jalco Investments and Mr Ferguson are in dispute as to whether clause 15 of the shareholders' agreement has the effect of subordinating their respective shareholder loans to other debts of the group. The amount of Jalco Investment's shareholder loan is approximately $2,176,414, and the amount of Mr Ferguson's shareholder loan is approximately $2,265,247. Jalco Food and Beverage Pty Limited, a company related to Jalco Investments, is the single largest trade creditor of the group. It is owed approximately $6,297,030.79 for products it has supplied. 10 Mr Farnsworth has given evidence that, since completion of the sale agreement, he and his solicitors have had discussions with the solicitors acting for Jalco Investments and Mr Ferguson respectively. During the course of those discussions, Jalco Investments and Mr Ferguson have indicated that, with the benefit of more time, they expect that they may be able to reach a resolution in respect of their differences as to the operation and effect of clause 15 of the shareholders' agreement. 11 Since completion of the sale of the business, Mr Farnsworth has caused calculations to be made which give some indication of the projected positions of the corporate plaintiffs depending on how the dispute between Jalco Investments and Mr Ferguson is resolved. I will not detail those projections in these reasons. I simply note that there are substantial differences in the returns to creditors based on whether the shareholder loans are subordinated. 12 Jalco Investments and Mr Ferguson have indicated that it is their intention to put forward a deed of company arrangement proposal. As I recorded at [17] of my first reasons, the deed of company arrangement proposal is likely to be a pooled one involving all the corporate plaintiffs. Mr Farnsworth's discussions with representatives of Jalco Investments and Mr Ferguson have led him to believe that, if Jalco Investments and Mr Ferguson do not jointly propose such an arrangement, either one of them or each of them will propose an arrangement for one or more of the corporate plaintiffs. 13 The further extension of the convening periods is sought primarily to provide further time to enable Jalco Investments and Mr Ferguson to continue their discussions with a view to facilitating a resolution of their dispute and, ultimately, the making of a deed of company arrangement proposal. Mr Farnsworth has said that, until the dispute is resolved, he is unable to, first, ascertain what amount will be available to creditors of the group; secondly, ascertain whether a proposed deed of company arrangement for one or more of the corporate plaintiffs would achieve a better outcome for creditors than the liquidation of those plaintiffs; and, thirdly, make any proper recommendation to the creditors of the corporate plaintiffs for the purposes of s 439A(4) of the Act. 14 Mr Farnsworth remains of the view that, in general terms, a deed of company arrangement proposal is likely to result in a greater return to creditors than a liquidation of the corporate plaintiffs. 15 I should add that, at the first meeting of creditors of the third plaintiff, it was resolved that a committee of creditors be appointed. At a meeting of that committee on 12 December 2013, a resolution was passed which supports the making of the present application. Jalco Investments and Mr Ferguson separately support the making of the present application. Mr Farnsworth has given evidence of his opinion that it is in the best interests of creditors as a whole that the convening periods for the second meeting be extended, particularly when compared with the alternative of otherwise having to recommend an immediate liquidation of each corporate plaintiff. He also said that, given the interrelationships between certain of the corporate plaintiffs, it is in the interests of creditors that the convening periods be extended to the same date. 16 In the circumstances, and particularly in light of the views expressed by Mr Farnsworth in his affidavit of 13 December 2013, I am persuaded that it is appropriate to extend the convening periods as sought. I take into account, in particular, the support for that outcome provided by the committee of creditors of the third plaintiff which is the main operating entity within the group. It should not be assumed, however, that any further extension would be readily granted. 17 There is a further matter. Mr Farnsworth has given evidence that the third plaintiff has priority employee creditors totalling approximately $347,341.68. The eighth plaintiff has priority employee creditors totalling approximately $128,672.66. Mr Farnsworth has said that, regardless of whether the corporate plaintiffs are placed in liquidation or a deed of company arrangement proposal is approved by creditors, the priority employee entitlements of each of the third and eighth plaintiffs would be paid in full and determination of the dispute between Jalco Investments and Mr Ferguson would not have any impact on those payments. 18 Given that the entitlements to which I have referred would, on any view, be paid in full, Mr Farnsworth has sought a direction that he is justified in paying those entitlements prior to any deed of company arrangement or liquidation of the corporate plaintiffs. In that connection, there is also evidence before the Court that the committee of creditors of the third plaintiff resolved at their meeting on 12 December 2013 that Mr Farnsworth be entitled to distribute the third plaintiff's employee entitlements prior to a deed of company arrangement or liquidation. I have been taken to balance sheets prepared for the third and eighth plaintiffs and for the group. Those records show that there will be assets significantly in excess of the amount required to pay those entitlements. They also show that, for those corporate plaintiffs, the employees entitled to those payments are the only priority creditors. In the circumstances, I am prepared to give the direction that Mr Farnsworth seeks. 19 For these reasons, orders as sought by the plaintiffs in their interlocutory process filed on 13 December 2013 should be made substantially as sought. In addition, orders should be made in the same terms as made on 13 November 2013 providing for the giving of notice of the orders to be made today, and granting liberty to any person with sufficient interest to make such application as he, she or it may be advised to vary or discharge the orders to be made today on three business days' notice being given to the plaintiffs and to the Court. 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 3) [2013] FCA 1400

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