Farnsworth v About Life Pty Ltd

STEWART J: 1 On 27 July 2020, the administrators of Union Standard International Group Pty Ltd applied for an order that the convening period for a second meeting of creditors, which is due to expire on 5 August 2020, be extended by about six weeks to 18 September 2020. The administrators were appointed joint and several administrators of the company by resolution of the directors of the company pursuant to s 436A of the Corporations Act 2001 (Cth) on 8 July 2020. 2 The first meeting of creditors was held on 20 July 2020. Based on the administrators' investigations and the books and records available to them, they describe the business of the company as follows. 3 The company operates under the brand USGFX as a financial services business dealing with derivatives and foreign exchange contracts, banking markets, and providing general financial product advice. The company holds an AFS licence, which was suspended by the Australian Securities and Investment Commission on 15 July 2020 until, at this stage, 23 September 2020. The company provides margin trading services for foreign currency pairs or instruments such as gold, silver or an index via an online platform. The company's sole shareholder, Union Standard Group International Holdings Ltd (USG Holdings) is registered in Samoa, and the mutual director, Mr Soe Hein Minn, is resident in Myanmar. 4 The administrators understand that Mr Soe controls the operations of USG Holdings out of Taiwan. USG Holdings, via the operations in Taiwan, controls the company's website, trading software and, potentially, funds held with a primary money processor, U-Pay. 5 The principles governing an extension of the convening period are well established (see Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 at [64] per Middleton J. In considering whether to extend the convening period, the Court must: reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors. 6 See also, to similar effect, Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 at [18(b)] per Lindgren J. Factors that may warrant an extension of time were canvassed in the reasons of Austin J in the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585; 72 ACSR 352 at [13], which was cited with approval in Strawbridge, and in Farnsworth v About Life Pty Ltd (Administrator Appointed) [2019] FCA 11 at [6] per Thawley J. See also the observations by Nettle and Gordon JJ in Mighty River International Ltd v Hughes [2018] HCA 38; 265 CLR 480 at [73]. 7 The factors relevant to this case include substantial offshore activities, complex transactions entered in to by the company, lack of access to corporate financial records, the time needed to execute an orderly process of disposal of assets, the time needed for a thorough assessment of a proposal for a deed of company arrangement (DOCA), and more generally, that additional time is likely to enhance the return for creditors. The court will also give weight to the considered opinion of the administrator as to what is in the interests of creditors as a whole. See Bumbak (Administrator), Re Duro Felguera Australia Pty Ltd (Admins Apptd) [2020] FCA 422 at [32] per Gleeson J, and Strawbridge at [68]. 8 I am satisfied that an extension of the convening period is warranted in the present case, taking into account the following factors deposed to by the administrators. First, there are substantial offshore activities. The platform through which the clients of the company close out their contracts is controlled by its sole shareholder in Taiwan, and not controlled by the voluntary administrators. Some $15.3 million of company funds are held abroad with "money processors", including $13.9 million in China, which preliminary inquiries by the administrators suggest will be difficult to recover. One of the company's directors, and the controlling director of its sole shareholder, appears to reside in Myanmar, as indicated. It appears that the shareholder has, since the administration was entered into, been attempting to transfer client accounts offshore to an operation in Vanuatu. 9 Second, the company has entered into complex transactions, including security lending and derivatives transactions. As indicated, the company operated under an AFS licence, which has been suspended. At the first meeting of creditors it became apparent that there was a disparity between the products that some creditors understood they had been offered and the products reflected in the company's records, which requires further investigation. 10 Third, the administrators have limited access to corporate financial records of the company. The administrators do not yet have access to the company's software and there are significant discrepancies within the company records as to current client positions. There are significant discrepancies between the client equity positions identified in the company records and the proofs of debt lodged at the first meeting of creditors. The administrators currently have access to only two of the company's four platforms. The company's management has been effectively shut out of one of the trading platforms on which client investments are held, which is controlled by the shareholder. 11 Fourth, the administrators require further time to execute an orderly process of disposal of assets. The administrators commenced a sale campaign on 17 July 2020 with a view to selling the AFS licence, the MT4 licences, website and client list. Encouragingly, at least 12 parties have registered their interest in purchasing the business and/or the assets of the company, which expressions of interest the administrators intend to pursue. It is estimated by them that a due diligence and negotiation process for the sale of those assets will take around four weeks. 12 Fifth, time is needed for a thorough assessment of a proposal for a DOCA. In the administrators' opinion, the sale of the company's assets will most likely be effected by way of a DOCA, and that the creditor position of the company must be understood before the DOCA can be properly considered by the administrators and the creditors. 13 For those reasons, I am satisfied that an extension of the convening period is justified. The administrators' best estimate of the time required is an extension until 18 September 2020, although in the event that further time is required, it will be open to the administrators to make an application for such further extension. 14 The orders that the administrators seek provide for notice to ASIC and to all known creditors and for leave to those parties on good grounds to apply to vary or set aside the orders that I propose to make. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.