Background
6 It is appropriate to set out the following short background derived from the applicants' counsel's written submissions and Ms Dickerson's affidavit.
7 At the first meeting of creditors held on 20 January 2020, the creditors of McWilliam's appointed a committee of inspection comprising representatives of key stakeholder groups, namely trade creditors, lessors and employees of the Companies. They were QWIL Investments Pty Ltd (QWIL), Maxsons Pty Ltd, SMYP Pty Ltd, David Pitt, Pipeclay Lawson Ltd as trustee for Chullora Land Trust (Pipeclay Lawson) and April5 Pty Ltd.
8 On 4 February 2020, the Court made orders extending the period for convening the second meeting of creditors of the Companies under s 439A of the Corporations Act to 31 July 2020. One of the principal reasons sought for the extension was to enable the administrators to undertake a sale or restructure of the Companies' assets as a going concern: see Dickerson No 1.
9 Shortly thereafter, on 14 February 2020, Margaret River Wine Production Pty Ltd (MRWP), a secured creditor of the Companies, enforced its security interest and appointed receivers and managers to the assets and undertaking of each of the Companies. The administrators took the view that discharging the Companies' indebtedness to MRWP was in the best interests of the Companies' creditors and borrowed funds from Gordon Brothers Pty Ltd (Gordon Brothers) to repay the amount owing to MRWP and to cause the receivers and managers to retire, which occurred on 18 February 2020: see Dickerson No 2.
10 Following their appointment, the administrators continued to trade the business of the Companies (including the harvest and production of the 2020 wine vintage) with a view to offering the business for sale as a going concern and/or to explore a possible deed of company arrangement or recapitalisation. Colliers International (NSW) Pty Ltd (Colliers) was engaged to act as sale agents and advisers in relation to the sale of the Companies' business.
11 This sale process culminated in a proposal for a deed of company arrangement and associated creditors' trust deed put forward by MCW on 30 June 2020 (DOCA Proposal). The administrators formed the view that, for a number of reasons (including because it would likely result in the highest return to creditors), the DOCA Proposal was more favourable than all other final offers received during the sale process.
12 On 24 July 2020, the second meeting of creditors of the Companies was held and the creditors resolved (among other things) that the Companies should execute the DOCA. This occurred on 3 August 2020.
13 The conditions precedent to the DOCA were required to be satisfied (or waived by MCW) on or before 30 November 2020 or such later date as may be agreed in writing by MCW and the deed administrators. The conditions precedent were satisfied by 27 November 2021, as acknowledged by an email from MCW's solicitors on that date.
14 It is Ms Dickerson's evidence that:
(a) The "Implementation Date" as defined in the DOCA, being the date on which the DOCA would complete, was five business days after satisfaction of the conditions precedent or such other date as is agreed in writing by the deed administrators and MCW before the end of that period. Accordingly, the Implementation Date would be 4 December 2020 unless another date was agreed.
(b) The parties agreed that the Implementation Date was 30 November 2020. However, completion of the transfer of all of the McWilliam's shares under the DOCA did not proceed on that date because MCW did not make the payments it was then required to make under cl 7.2 of the DOCA. On 4 December 2020, MCW (through its solicitors) requested an extension of time for completion of the DOCA until 5 pm on 8 December 2020, to which the deed administrators agreed subject to MCW making a non-refundable payment of $500,000 by 10 am on Monday, 7 December 2020, on account of the payments required under cl 7.2 of the DOCA (extension payment). At 9.29 am on 7 December 2020, MCW's solicitors advised the deed administrators' solicitors by email that MCW would be unable to make the extension payment. After consultation with the committee of inspection at a meeting held at 10.30 am on 7 December 2020, the deed administrators did not press the request for the extension payment and their solicitors advised the solicitors for MCW that the extension to 8 December 2020 had been granted.
(c) Completion of the DOCA did not occur on 8 December 2020. Instead, MCW requested an extension of the Implementation Date until 15 December 2020. The deed administrators consulted with the committee of inspection at a meeting held at 2 pm on 9 December 2020. After the meeting, the deed administrators (through their solicitors) offered to extend the date for implementation of the DOCA to 15 December 2020 subject to receipt of the extension payment and confirmation from MCW's investors that they would release the funds to enable the payments required by cl 7.2 of the DOCA to be made by close of business on 9 December 2020. On 10 December 2020, MCW's solicitors indicated that it could not meet the deed administrators' requirements for an extension of the time for completion of the DOCA to 15 December 2020. They acknowledged that there would be no further extensions of time provided but indicated MCW would continue "... to work towards being able to complete as a matter of urgency."
(d) On 10 December 2020, the deed administrator's solicitors sent a letter to MCW's solicitors (described as a "breach notice"):
(i) giving notice that MCW had breached its obligations under cl 7.2 of the DOCA and that the deed administrators had determined that it was no longer practicable or desirable to implement the DOCA as a result of the damage and loss being suffered by the business as a result of the delay;
(ii) stating that as a result of MCW's breach and the deed administrators' determination, the deed administrators would be convening a meeting of creditors in accordance with the terms of the DOCA (and pursuant to cll 7.8, 21.2 and 21.7 of the DOCA) for the purposes of, amongst other things, the creditors passing a resolution to either enforce the terms of the DOCA by way of court proceeding or that the DOCA be terminated; and
(iii) demanding that MCW immediately complete the DOCA and pay the amounts payable under cl 7.2 of the DOCA.
(e) Since then, MCW has not taken any steps to complete the DOCA and neither the deed administrators nor their solicitors have received any response to the breach notice. The deed administrators consider that there is no reasonable prospect that MCW will complete the DOCA by making the payments required by cl 7.2 of the DOCA.
(f) As a consequence of MCW's failure to complete the DOCA, the deed administrators recommenced the sale process for the business and assets of the Companies on 10 December 2020. This included: re-engaging Colliers as the sales agent; re-opening the electronic data room used in the previous sales campaign; advertising the business for sale; and contacting the under-bidders in the previous sale campaign.
(g) At the conclusion of the sale campaign, the deed administrators received six offers to acquire all of the assets and operations of the Companies. These offers included both business sale proposals and deed of company arrangement proposals. Six additional offers were received for parts of the business or specific assets. On 9 February 2021, the deed administrators entered into a short period of exclusive negotiations with a preferred bidder. That exclusivity period expired on 15 February 2021 and has not been extended but the negotiation of a draft business sale agreement with the preferred bidder is ongoing. A completion date of 30 April 2021 is contemplated. However, there are no assurances of an agreement being entered into with the preferred bidder and the structure of any transaction is not settled. It could take the form of the sale of all or part of the business as a going concern or a restructure through a deed of company arrangement.
(h) The deed administrators have also continued to carry on and actively trade the business of the Companies. In conjunction with the Companies' senior management personnel and external grape growers, and on the advice of Colliers, the deed administrators decided to proceed with the harvesting and production of the 2021 wine vintage. Had they not determined to proceed with the 2021 vintage, the deed administrators would have had no alternative but to dramatically scale back the business operations and retrench or stand down a significant portion of the Companies' employees, particularly those based at the corporate head office. The Companies would also have risked losing their grower base into the future, as these growers would likely have found other wineries for their 2021 grape harvest. It was the deed administrators' assessment, supported by Colliers, that committing to the 2021 vintage and retaining as much of the existing grower base as possible would maximise the prospects of achieving a sale of business as a going concern. To facilitate the conduct of the Companies' businesses as a going concern, the deed administrators have re-drawn funding from Gordon Brothers.
(i) The harvest for the 2021 vintage commenced in late January 2021 and the 2021 vintage process (including wine production) is now expected to be completed by early April 2021 given that weather related factors have pushed back harvest planning. As a result, discussions with potential purchasers have focused on 30 April 2021 as the proposed completion date for a going concern sale to enable the final cost of the vintage to be determined, including allocation of overheads, and to align with the month end following the completion of the vintage from an ease of transition of business ownership perspective.
(j) Following the failure of the DOCA to complete, the deed administrators were obliged to call a meeting of the creditors of the Companies under cll 6.4, 21.6 and 21.7 of the DOCA. On 14 January 2021, the deed administrators convened a meeting of the creditors of the Companies to be held on 2 February 2021 for the purpose (among others) of considering resolutions that the DOCA be terminated and the Companies be wound up, there being no other viable alternative at that time. At the meeting, the creditors were provided with detail as to the failure of the DOCA to complete and the progress of the further sale process that had been undertaken. As chairperson and without opposition from the creditors, Ms Dickerson then adjourned the meeting for 15 business days until 23 February 2021. On 15 February 2021, the deed administrators issued a notice for the adjourned meeting of creditors to be resumed on 23 February 2021. That notice reflected the fact that, as matters presently stood (because of the absence of any binding transaction for the sale or restructure of the business and assets of the Companies), the only option available to creditors was the termination of the DOCA and winding up of the Companies.
15 Having regard to the current status of the sale process, including negotiations with the preferred bidder, the deed administrators have formed the view that the optimal outcome for the creditors of the Companies is to maintain flexibility in the sale process to preserve the possibility of a sale transaction without the Companies being wound up immediately.
16 The deed administrators have concerns that if, following resumption of the creditors' meeting on 23 February 2021, the Companies were to move immediately into liquidation:
(a) It would have a negative impact on their ability to finalise the current sale process and on the value which can be obtained.
(b) It is likely to increase uncertainty of the Companies' customers, employees and suppliers thereby destabilising the Companies.
(c) It would have an impact on staff morale and the Companies' ability to retain staff. If a sale can be completed without liquidation, it will avoid redundancies and termination payments which would have the effect of reducing the pool of assets available to other creditors. There is no certainty that key staff would be willing to be re-hired, affecting the Companies' trading and a liquidator's ability to complete a going concern sale.
(d) It would have an adverse impact on the Companies' capacity to obtain future sales of their products through major outlets, such as Woolworths and Coles. That view is shared by the Companies' senior management.
17 Based on ongoing analysis conducted by the deed administrators and their staff, which is regularly updated as the sales process continues, in Ms Dickerson's opinion the completion of the sale process outside of a liquidation is more likely to produce a superior return to creditors than what would be available in a liquidation scenario. It is her view that the sale or restructure of the business and assets of the Companies as a going concern outside of a winding up is consistent with the objectives of Part 5.3A of the Corporations Act as it is likely to preserve as much of the business of the Companies as possible (and therefore maintain continuity of employment for as many of the Companies' employees as possible) and otherwise maximise the return to creditors from the Companies' external administration of the Companies. The deed administrators consider that avoiding liquidation and continuing the deed administration process at this stage is in the best interests of creditors.
18 It is for these reasons that the administrators seek orders from the Court permitting them further to adjourn the meeting to 30 April 2021.
19 The deed administrators have also assessed the potential impact on certain stakeholders of the Companies if the orders they seek are made. They note that:
(a) Under cll 12.1 and 13.1 of the DOCA:
(i) any secured creditor who voted in favour of the resolution to approve the DOCA is prevented from realising or otherwise dealing with its security interest until, relevantly, the termination of the DOCA; and
(ii) an owner or lessor of property in the Companies' possession who is a party to a Non-Releasing Security (as defined in the DOCA) and who voted in favour of the resolution to approved the DOCA waives any event of default or breach that would entitle that person to take possession of or otherwise recover the property.
(b) The current position regarding property leases is:
(i) the extension of time will not cause detriment in respect of the leased warehouse property at Chullora owned by Pipeclay Lawson as this lease was the subject of a notice given by the administrators pursuant to s 443B of the Corporations Act on 15 January 2020 and the property is no longer used or occupied by the Companies;
(ii) the Companies' head office property at Pyrmont owned by Australia Brilliance Investment Group Pty Ltd (ABIG) has been subject to a month to month arrangement and the deed administrators continue to meet the monthly rental obligations during their appointment. In addition, ABIG did not participate in the second meeting of creditors which resolved to enter into the DOCA and is, therefore, not bound by any restrictions on the exercise of its property rights contained in the DOCA;
(iii) in relation to the Hanwood vineyard, the deed administrators, McWilliam's and QWIL (the owners have the vineyard) have an arrangement whereby the deed administrators have prepaid rent for the period 1 March 2021 to 31 July 2021 and QWIL has agreed not to exercise any existing default rights which might have accrued under the lease; and
(iv) in relation to the Barwang vineyard, the owner, Mooremc Pty Ltd has no right of termination of the lease as McWilliam's insolvency is not an event of default under the lease and the deed administrators are continuing to pay rent.
(c) In relation to a number of secured creditors who hold PPSR registrations of specific assets leased or otherwise held by the Companies, the extension of the adjournment period will not have a detrimental effect as the deed administrators are continuing to meet payments as part of ongoing trading activities and it is anticipated that these leases will be novated to an incoming purchaser in a sale of the Companies or their businesses on a going concern basis.
(d) If the orders sought in these proceedings are made, the employment of the Companies' employees will continue during the extended adjournment period with the prospect that a substantial number will be offered continuing employment by a purchaser of the Companies or their businesses on a going concern basis.
(e) A meeting of the committee of inspection was held on 18 February 2021. The members present and voting represented an estimated 56% of the value of all creditors' votes. The members of the committee were advised of the proposed application and the meeting unanimously passed the following resolution:
That the Committee of Inspection approve the Deed Administrators making an urgent application to the Federal Court for an order extending the maximum period for which the meetings of creditors of that were held and adjourned on 2 February 2021, may be adjourned in accordance with Insolvency Practice Rule 75-140, from 15 business days to the period ending on 30 April 2021.
20 The deed administrators say that, although the proposed adjournment period will end on 30 April 2021, if the sale process can be concluded sufficiently before that time, they will endeavour to resume the creditors' meeting before that date. The proposed orders are therefore cast in such a way as the meeting may be resumed on any day in the period up to 30 April 2021 upon the deed administrators giving at least five business days' notice to creditors.