Fincorp Group Holdings Pty Limited [2007] NSWSC 363

1 The plaintiffs are 21 companies in the Fincorp Group, together with their administrators, Mr Winterbottom, Mr Korda and Mr McIntosh. 2 In each of 20 cases, those three gentlemen were appointed to be administrators under Part 5.3A of the Corporations Act 2001 (Cth) on 23 March 2007. In the other case, the appointment was on 26 March 2007. 3 The first meeting of creditors called for by Part 5.3A has been held in each case. The administrators were confirmed in office. They now approach the court seeking an extension of the convening period for the second meeting of creditors. To be more precise, they seek an order pursuant to s.439A(6) that the convening period for the meeting required by s.439A(1) be extended to and including 19 July 2007 in each of the 21 cases. This is, of course, a substantial extension of time. 4 When one has regard to the objectives of Part 5.3A, as stated in s.435A, there is a general expectation that voluntary administration will proceed promptly, having regard, in particular, to the fact that secured creditors, lessors of property and various other people are subjected to a statutory embargo upon independent pursuit of their claims and remedies while voluntary administration continues. ` 5 The Act nevertheless recognises, by conferring on the court jurisdiction to extend the convening period, that there may be cases in which the statutory timetable is inappropriate and should be extended. In some cases, fairly long extensions have been granted: see examples quoted by Hamilton J in Re Gympie Gold Ltd [2004] NSWSC 11. 6 In the present case, the extension would be such that the convening period would be some three months longer than it would otherwise have been. This means that there might be no second meeting of creditors until five business days after the end of the extended period, that is five business days after 19 July 2007. 7 I should mention at this point that the plaintiffs also make application for an order under s.447A that would enable the meeting to be held before the end of the convening period, if that seemed the appropriate thing to do. There would thus be a displacement of the general position under s.439A(2) which is that the meeting occurs after the conclusion of the convening period. This aspect is proposed in order to provide flexibility and to allow mitigation of what might otherwise be the undesirable effect of a prolonged waiting period. 8 The real question before me is whether a case has been made out in support of the proposition that more time is needed in order to place before creditors at the second meeting a reasonably formulated recommendation as to the future of the company. Austin J put the matter thus in Re New Horizons Corporation Pty Ltd [2004] NSWSC 253 at [5]: "The Court's task is to balance the need for the administration of a company to be carried out as efficiently and expeditiously as practicable so as to minimise the effect on those persons who are subject to the moratorium imposed by Part 5.3A, against the need to give the administrators time to present meaningful choices to the creditors at their meeting (see in Re Pan Pharmaceuticals Limited [2003] FCA 598 per Lindgren J)." 9 The present case is an unusual one in many ways. The administrations have attracted publicity, not least because there are some 8,100 ordinary investors in notes issued by one of the companies under a trust deed of which an external trustee company is the trustee. On present indications, those note holders will incur losses. This has caused the matter to have a high profile and has occupied the administrators with inquiries from and correspondence with noteholders, the media, ASIC, the trustee and receivers appointed by the trustee. 10 There is also a degree of complexity that comes from the asset base of the companies. The proceeds of the note issue, some $201 million, were largely invested in property developments of various kinds. The evidence suggests that development projects have been undertaken at some ten sites. Many of them are obviously very substantial. There is, for example, a 405 lot subdivision. There is a 91 hectare site expected to be rezoned for residential subdivision. There is a 219 unit retirement village completed, apparently, to a point where 21 lots are ready for sale. There is a 16 hectare site on Bribie Island in respect of which a 193 villa and 49 townhouse development is planned. There are others as well. These are at different stages of preparation and development. 11 The significant point is that the assets are substantial, the development potential is clear and, as I have said, the projects are at different stages, giving rise, it may safely be inferred, to needs for different forms of attention and consideration when it comes to determining advantageous ways of realising the assets. 12 The administrators' efforts are hindered to some extent by two factors. One is what they regard as the unsatisfactory nature of corporate books and records. They have not yet been able to piece together the full financial position, particularly as it relates to inter-company indebtedness as among the several companies in the group. This is compounded by the second factor which is that the three directors of the main company are all very recently appointed. Each had been in office for only a matter of weeks - at most a few months - at the time of the appointment of the administrators. Those directors were themselves not fully conversant with the affairs of the companies in the way that would normally be expected. These two factors have left the administrators in a position where they face an unusual challenge in assembling information relevant to both the formulation of strategies in relation to assets and the formulation of advice and recommendations for creditors. 13 The administrators have, of course, considered the relative merits of winding up versus continuation of the administration in the way that extension of the convening period will entail. Their view is that, from creditors' viewpoint, winding up in the short term would be disadvantageous compared with the possibilities presented by continuation of the administration in the way envisaged. 14 The administrators refer to the need to develop strategies in relation to the properties in the way I have described and to the circumstance that a deed of company arrangement might present a flexible means of extrication in whole or in part or in respect of one or more assets. That would not be available in case of winding up. There is, on the evidence, no deed of company arrangement proposed at this stage but as the administrators say, this is to be expected, having regard to the size and complexities of the group. 15 In summary, retention of the opportunities that voluntary administration entails for continuation of operations and emergence of a deed of company arrangement proposal cause the administrators' to be firmly of the view that winding up at this point would be very much the less favoured way forward. 16 I have mentioned that voluntary administration entails embargoes upon actions by secured creditors and others. Extension of it means that persons subject to the embargo must wait for a longer time. This matter is dealt with in the evidence by references to discussions that have taken place with the secured creditors, being banks and others, together with the trustee for note holders and the receivers appointed by the trustee. Those discussions have produced reactions which are not opposed to the present proposal. By and large, the secured creditors have shown an understanding of the complexity of the task facing the administrators. I also have evidence about the position of landlords that makes it unnecessary for there to be concern about their position. 17 As to creditors generally, they were given notice by a circular sent in such a way that it probably reached them only yesterday or perhaps today. The most that can be said there is that, as of this morning, no objections had been received. 18 I am satisfied that this is a case in which the extension sought should be granted and that the prospects of a better outcome for creditors through a potentially longer period of administration outweigh the general expectation of prompt resolution of voluntary administration. 19 I have already mentioned the order sought under s.447A. This is a sensible precaution that enables the administrators the flexibility of convening the meeting at an earlier time, should it appear to them desirable to do so. They should be given that facility. An order of the kind sought under s.447A has been made in previous cases: see for example, Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446 and Re Pan Australia Shipping Pty Ltd [2006] FCA 1464. 20 I make orders 3, 4 and 5 in the originating process. **********

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