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[2021] FCA 1104
Federal Court of Australia
2021-09-08
Cheeseman J
Original judgment source is linked above.
Background 8 The plaintiffs relied on an affidavit of Mr Tracy, one of the Administrators. Mr Tracy is a partner of Deloitte Financial Advisory Pty Ltd, a registered liquidator. He has over 18 years of financial advisory, restructuring and insolvency experience and has been a voluntary administrator in numerous external administrations. 9 In2Food Australia Group is a business specialising in fresh food produce, pre-prepared produce and ready-made meals for the food service and high-end retail sectors, restaurants, and cafes nationally. The Group has over 500 casual and permanent employees. It services its clients from nine key sites in all States and currently operates warehouses in New South Wales, Victoria, the Northern Territory, Western Australia, Victoria, Queensland and South Australia. The largest parts of the business are located in New South Wales and Victoria. The Companies' businesses are intertwined and are, collectively, large and complex. 10 On the same day that the first plaintiffs were appointed as voluntary administrators, Vaughan Strawbridge, Kathryn Evans and Kathryn Warwick of FTI Consulting were appointed joint and several Receivers and managers of the Companies. The Receivers support the application to extend the convening period. 11 On 25 August 2021, the first meetings of creditors of each of the Companies were held concurrently. At the first creditors' meeting, creditors were informed of the potential need for an extension of the convening period. 12 The Receivers are currently overseeing a sale and/or recapitalisation process. Non-binding indicative offers were received by the Receivers on or around 27 August 2021. Interested parties are currently conducting due diligence. The due diligence process has been hampered by the current COVID-19 lockdowns in New South Wales and Victoria. The evidence is that some of the business premises are located in Local Government areas of concern as designated by New South Wales Health.
Extension necessary and no prejudice to creditors likely 13 Mr Tracy considers it is necessary to extend the convening period for the second meeting for a period of three months to allow the sale and/or recapitalisation process to complete and allow time for the Administrators to complete their investigations in order to be in a position to make the recommendation required in the second report to creditors, as to whether, in the administrators' opinion, the company should execute a Deed of Company Arrangement (DOCA), go into liquidation, or end the administration should end. 14 On the evidence before me, having regard to the Re Riviera categories set out in Farnsworth at [6], extracted at [4] above, I note that of relevance in the present case are: (a) the size and scope of the In2Food business; (b) the complexity of the corporate group structure; (c) the time needed for thorough assessment of the administrator's recommendation, including any proposal for a DOCA; (d) that the extension is to facilitate the sale or recapitalisation of the In2Food business as a going concern; and (e) the likelihood that additional time will enhance the return for unsecured creditors. 15 I am further satisfied that the extension is appropriate and should be granted in circumstances where: (a) the Receivers support the application for extension; (b) the creditors were informed of the potential need for an extension at the first creditors' meeting on 25 August 2021 and the creditors attending the meeting did not raise any concerns; (c) the Administrators are not aware of any opposition to the extension; (d) Mr Tracy's belief, based on his experience and supported by reasons, is that the extension will likely maximise the return for creditors and is unlikely to adversely affect the rights of creditors; (e) Mr Tracy's believes that the absence of an extension will jeopardise the ongoing sale process, may seriously prejudice the Receivers' strategy for achieving an ongoing sale and/or transaction by way of a DOCA and would likely result in the liquidation of the Companies; (f) the sale program has been, and continues to be, impacted by the prolonged lockdowns in New South Wales and Victoria and national travel restrictions across state borders, particularly because the business is operated in Local Government Areas of concern. This has impacted the ability of interested parties to conduct and complete due diligence, including site visits and engaging with key suppliers and service providers; (g) in Mr Tracy's opinion, the sale and/or recapitalisation cannot be completed prior 17 September 2021 or thereabouts; and (h) the sale and/or recapitalisation process is well underway and the Receivers are targeting a completion date of 30 October 2021. 16 The extension to 10 December 2021 allows for the possibility of some slippage in the sale and/or recapitalisation timetable, and allows time for the preparation of a DOCA (if required), and for the Administrators to prepare a report to creditors and take the steps necessary to convene the second meeting of creditors. It also accommodates the impact of the current COVID-19 related restrictions on the timely progress of the sale and/or recapitalisation process and the progress of the administration. 17 Finally, I note that the first plaintiffs are required to give notice of the orders to all known creditors on the Deloitte Touche Tohmatsu website within three days. Creditors then have liberty to apply to this Court if they wish to oppose the extension, such application to be made within 14 days of the making of these orders. 18 Accordingly, I made orders substantially in the form sought by the plaintiffs. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman.
SCHEDULE OF PARTIES NSD 924 of 2021 Plaintiffs Second Plaintiff: IN2FOOD AUSTRALIA PTY LTD (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGERS APPOINTED) ACN 609 288 360
Third Plaintiff: INSPIRED FOOD SOLUTIONS PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED) ACN 610 341 716
Fourth Plaintiff: MIDDLE ROAD INVESTMENTS PTY LTD (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGERS APPOINTED) ACN 622 029 752
Fifth Plaintiff: YARRA VALLEY FARMS AUSTRALIA (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGAERS APPOINTED) ACN 141 164 767
Sixth Plaintiff: YARRA VALLEY FARMS IP PTY LTD (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGERS APPOINTED) ACN 133 329 441
Seventh Plaintiff: IN2F SERVICES PTY LTD (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGERS APPOINTED) ACN 618 857 471
Eighth Plaintiff: IN2FOOD PERTH PTY LTD (ADMINISTRATORS APPOINTED)(RECEIVERS & MANAGERS APPOINTED) ACN 634 573 881
Farnsworth
About Life Pty Limited
Principles 4 The approach to be adopted in an application of this type is conveniently set out in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Limited (Administrator Appointed) [2019] FCA 11 at [3]-[6] (Thawley J): [3] The purpose of the power to grant an extension is to enable the Court to allow further time where to do so is appropriate to advance the purposes of the administration. Extensions should generally be brief, although substantial extensions may be appropriate in complex cases. Extensions are not to be granted where doing so undermines the statutory object of a quick and summary consideration of the alternatives or if to do so has the effect of creating an administration of a different nature to that contemplated by the Act. [4] The Court balances the expectation that an administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible and constructive options that may provide better returns for creditors and any return to shareholders, or to enable the company to return to trading in the interests of creditors and shareholders … [5] In Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18], Lindgren J summarised relevant considerations in the following way: The overlapping considerations affecting the exercise of the discretion whether to extend the convening period may be summarised as follows: (a) the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that creditors be fully informed about the company's position as early as possible and have an opportunity to vote on its future as soon as possible: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J) at 612; Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 (Owen J) at [5]; (b) the function of the Court is to strike an appropriate balance between the legislature's expectation that the administration will be a relatively swift and summary procedure, and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders: Re Diamond Press Australia Pty Limited [2001] NSWSC 313 (Barrett J) at [10]; Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77 (Lindgren J) (Pan Pharmaceuticals) at [42]; Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 (Austin J) at [5]; (c) the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 (Barrett J) (Fincorp) at [18]; (d) a particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others: Fincorp 62 ACSR 192 at [4]; Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 (Jacobson J) at [9]; (e) the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation: Pan Pharmaceuticals [2003] FCA 598; (2003) 46 ACSR 77 at [41]; ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No.7) [2009] FCA 454 (Emmett J) (ABC Learning Centres) at [28]; (f) it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended: see the order made in Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446 (Daisytek) at [10]-[18]. [6] In Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2009] NSWSC 585 at [13], Austin J identified the following categories of cases in which an extension had been granted: • the size and scope of the business: Lombe, Re Babcock & Brown Ltd (Administrators Appointed) [2009] FCA 349; Worrell; Re Storm Financial Ltd (Receivers and Managers Appointed) [2009] FCA 70; ABC Learning Centres Ltd, in the matter of ABC Learning Centres Ltd; application by Walker (No 5) [2008] FCA 1947; • substantial offshore activities: Lehman Bros Australia Ltd [2008] NSWSC 1132; • large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari [2005] VSC 496; Re Ansett Australia & Ors (All Admin Appointed) and Korda and Anor (As Administrators) [2002] FCA 90; • complex corporate group structure and intercompany loans: Lombe, Re Babcock & Brown Ltd (Administrators Appointed) [2009] FCA 349; Re Octaviar Limited (Administrators Appointed) (Receivers and Managers Appointed (ACN 107 863 436) [2008] QSC 272; In the matter of LED Builders Pty Ltd (Administrators Appointed); LED Builders Pty Ltd (Administrators Appointed) and Ors [2008] NSWSC 633; Hall, in the matter of Australian Capital Reserve Limited (Administrators Appointed) [2007] FCA 1328; • complex transactions entered into by the company (e.g. securities lending or derivatives transactions): In the matter of Lift Capital Partners Ltd (Administrators Appointed) [2008] NSWSC 446; • complex prospects of recovery proceedings: Worrel, Re Storm Financial Ltd (Receivers and Managers Appointed) [2009] FCA 70; Deputy Commissioner of Taxation v Wellnora Pty Limited [2007] FCA 1324 ; • lack of access to corporate financial records: Sims, in the matter of Destra Corporation Ltd [2008] FCA 2002; Fincorp Group Holdings Pty Ltd & Ors [2007] NSWSC 363; • the time needed to execute an orderly process of disposal of assets: Carter, in the matter of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 (No 2) [2009] FCA 419; ABC Learning Centres Ltd, in the matter of ABC Learning Centres Ltd; application by Walker (No 7) [2009] FCA 454; • the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636; • where the extension will allow sale of the business as a going concern: Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, in the matter of Kleins Franchising Pty Ltd (Administrators Appointed) (ACN 007 348 236) [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, in the matter of Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619 [2006] FCA 1423; • more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, in the matter of Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; in the matter of Marrickville Bowling and Recreation Club Ltd (under Administration) [2008] FCA 622. [7] These are not exhaustive and serve merely as examples. Whether an extension is appropriate turns on the particular circumstances of the case. 5 Next, it is relevant having regard to the timing of the present application to consider the impact of the COVID-19 pandemic. In Bumbak (Administrator), Re Duro Felguera Australia Pty Ltd (Admins Apptd) [2020] FCA 422, Gleeson J included in the matters relevant to granting an extension of the convening period (at [35]) that "[i]t is reasonable to assume that the current circumstances of the COVID-19 pandemic will affect the timely progress of the administration to some extent." 6 The administrator's own opinion as to the need for an extension will be given weight in an application of this kind: Re Owen, RiverCity Motorway Pty (Ltd (admins apptd) (recs & mgrs apptd) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at 260 [26] (Logan J); Re Belmont Sportsmans Club Co-Operative Ltd (admins apptd) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak at [32] (Gleeson J). 7 Finally, in Silvia, Lindgren J noted that it is often desirable that any extension be accompanied by an order under s 447A permitting the meeting to be held at any time during the convening period as extended: see by way of example the orders made in Silvia, and in Farnsworth.
[2000] WASC 320
[2005] VSC 496
[2008] QSC 272