Georges, In the Matter of Midas Australia Pty Ltd (Administrators Appointed) [2009] FCA 38

REASONS FOR JUDGMENT 1 Midas Australia Pty Ltd is a wholly-owned subsidiary of Midas Asia Pacific Pty Ltd, which is, in turn, a wholly-owned subsidiary of Midas Corporation Pty Ltd, which is in turn a wholly owned subsidiary of PBH Asset Management Pty Ltd. Midas Australia and PBH were placed into administration on 23 December 2008. George Georges and Peter Damien McCluskey were appointed joint and several voluntary administrators of both companies. Neither Midas Asia Pacific Pty Ltd nor Midas Corporation Pty Ltd is in any form of insolvency administration. 2 Mr Georges and Mr McCluskey have taken control of the companies. They held the first creditors meetings for both companies concurrently on 7 January 2009. At this meeting, the creditors established a committee of creditors. The administrators have also been investigating the companies' affairs, including examining their books and records. They have been seeking to ascertain the amount owed to secured and unsecured creditors. 3 Unless the Court extends time, the administrators are required to convene the second creditors meeting within 25 days of their appointment (that is, by 2 February 2009). They make application today for an order under s 439A(6) of the Corporations Act 2001 (Cth) extending the convening period to midnight on 3 April 2009. They also seek an order under s 447A(1) that Part 5.3A of that Act is to operate in relation to the companies as if the meeting of creditors required by s 439A be held at any time during the convening period as so extended and the period of five business days thereafter, notwithstanding the provisions of s 439A(2) of the Act. The administrators support this application by an affidavit of Mr Georges sworn on 23 January 2009. 4 PBH is a non-trading entity whose primary role is to hold the investments in Midas Australia. Midas Australia operates, directly or through franchisees, a network of car care centres across Australia providing various automotive repair services, with an established client base of about 900,000 active customers. Prior to being placed in administration, Midas Australia had 90 car centres, of which 47 were owned and operated by Midas Australia itself and 43 were operated by franchisees. Since being placed in administration, 12 of the 47 Midas-owned service centres have closed. The administrators presently intend to continue trading the remainder of the Midas owned service centres as well as to continue with and preserve, to the greatest extent possible, the existing franchisee network, with a view to selling the business as a going concern. Out of the 78 premises from which the remaining service centres are operating, 73 are leased directly by Midas Australia with approximately 66 different landlords. Mr Georges deposed that, overall, the landlords with whom he has had contact to date have been supportive of his proposal to sell the business as a going concern. 5 In early January 2009, advertisements were placed in the Australian Financial Review, The Australian and The Age newspapers calling for expressions of interest in the Midas Australia business, with a closing date of 16 January 2009. The administrators have received approximately 67 expressions of interest. They anticipate that the parties expressing an interest in the purchase of the business will seek to conduct their own due diligence into the business. The administrators estimate a period of at least two weeks for the potential purchasers to complete their due diligence. Once the due diligence is completed, the potential purchasers will be able to submit an offer, which the administrators will need to consider. If a suitable buyer is found, the administrators estimate that the sale process is likely to take a further 6 to 8 weeks to complete. 6 In addition, the directors of the companies have indicated to the administrators that they are currently considering the possibility of proposing a deed of company arrangement, rather than a winding up of the two companies. Such a proposal may depend on the outcome of the sale of the business and require further time to be put together as a concrete proposal. 7 In his affidavit, Mr Georges deposed that, despite the administrators' best efforts, they have been unable to complete all the investigations that they consider are necessary and that they believe will affect the creditors' decision on the post-administration future of the companies. Importantly, the administrators do not consider that they yet have sufficient information to enable them to report back to the companies' creditors and make a recommendation in relation to the companies' future. Mr Georges deposed that the administrators are practically unable to form a concluded opinion about which of the three options available to the creditors at the second meeting (see s 439C) will deliver the best commercial outcome, until they know what amount, if any, from the sale of the business will be available to the general body of unsecured creditors and/or any deed of company arrangement. 8 The administrators seek an extension of time for convening the second creditors meeting on the basis that the extension would: 1. provide the administrators with further time in which to complete their investigations into the affairs of the companies; 2. allow the directors an appropriate amount of time to put together a deed of company arrangement proposal that may give a better result for the creditors than a winding up of the companies; 3. allow sufficient time for the future of the business of Midas Australia to be ascertained; and 4. allow the administrators further time to prepare their report to creditors to inform them adequately of the options available to them. The administrators expect that they will be able to ascertain, within the next two months, whether a sale of the business may be achieved and what, if any, surplus may be available to unsecured creditors. The availability of a surplus from the sale of the Midas Australia business would also impact on any proposed deed of company arrangement. 9 Further, Mr Georges has deposed that: · if the extension of time is not granted, the report completed by the administrators would be inadequate for the creditors' needs and unlikely to comply with s 439A(4) of the Corporations Act; · the extension of convening period would be in the best interest of the creditors as a whole as it would enable them to make a better informed decision on the future of the companies; · the issue of seeking of any extension of time for the second creditors meeting was foreshadowed at the first creditors meeting, and no creditor advised that it had any objection; and · the committee of creditors and the provisionally registered chargees have expressed support for the proposed extension of time for the convening period. 10 Pursuant to s 439A(1) of the Corporations Act, the administrator of a company under administration must convene a meeting of creditors within the convening period as fixed by s 439A(5), unless extended by the Court under s 439A(6). Further, the meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period: see s 439A(2). 11 The authorities establish that, where an application is made under s 439A(6) for an extension of time, the Court must strike a balance between the expectation that the administration be conducted relatively speedily and summarily and the need to ensure that undue speed not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders: see Mentha, In the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 at [20] per Jacobson J and PCG Capital Management Limited, In the matter of PCG Capital Management Limited and Glen Brook Pty Limited [2008] FCA 508 at [16] per Emmett J. 12 In this case, the administrators advance legitimate reasons for an extension of time, which fall to be considered in the context of the holiday season that is now ending. Further, the order the administrators also seek under s 447A(1) allows them to hold the second creditors meeting at any time within the convening period as extended. Therefore, if it subsequently turns out that a shorter period of time is required than that currently anticipated, the second creditors meeting may be held without any unnecessary delay. 13 In all the circumstances, this is an appropriate case to grant an extension of time. I would make the orders sought. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.