Goyal (Administrator), in the matter of Aussie Cherries Ltd (Administrators Appointed) [2018] FCA 677

GLEESON J: 1 On 3 May 2018, I heard an ex parte application made by the joint and several voluntary administrators ("administrators") of Aussie Cherries Limited ("company") under ss 439A and 447A of the Corporations Act 2001 (Cth) ("the Act") to extend the convening period for the second meeting of the company's creditors to 7 June 2018 (that is, a period of just over one month), and for consequential orders. 2 The convening period was due to expire on 8 May 2018. I was satisfied that the convening period should be extended and, accordingly, made orders in accordance with the orders sought by the administrators, with minor modifications. My reasons for making those orders are as follows. 3 The application was supported by an affidavit of Rahul Goyal affirmed 3 May 2018 and by oral submissions made by Mr Andre Zahra, counsel for the administrators. One of the exhibits to the affidavits ("confidential exhibit RG-2") contained commercially sensitive confidential material comprising the administrators' proposed approach for the preparation of the company's landholdings for sale. 4 In summary, the administrators sought the extension of the convening periods to allow time: (1) to maximise the realisable value of the company's major asset (its landholdings) and therefore the return to creditors, including for reasons given in confidential exhibit RG-2; (2) to form a concluded view of the financial position of the company; (3) to complete investigations and report on the company's business and property affairs and financial circumstances, including the availability of claims against directors or officers of the company; and (4) to obtain advice regarding litigation in which the company is involved, including advice in relation to the company's prospects in the litigation. 5 Mr Goyal gave evidence that the administrators consider that the extension sought was appropriate as, if granted, it would: (1) provide the administrators with sufficient time to ensure that all steps which can practicably be taken to maximise the value of the company's landholdings are taken; and (2) enable the administrators to make an informed recommendation to the creditors of the company at the second creditors meeting in relation to the future of the company.

Background facts 6 The company was established in 2000 and is based in the Huon Valley in southern Tasmania. Its business involves growing, packing and selling cherries in domestic and international markets. 7 The administrators were appointed to the company on 9 April 2018, pursuant to a resolution of the directors. Upon their appointment, the administrators took control of the company's assets and affairs. Since then, they have continued to operate the company's business as a going concern. 8 At the commencement of the administration, the company had a permanent staff of five full time employees. On 30 April 2018, one employee submitted his resignation. The company currently employs four casual staff. During the harvest season (which takes place in January and February of each year), the company also employs up to 20 seasonal employees as cherry pickers, packers/sorters, harvest supervisors and tractor drivers.

Managed investment scheme 9 The company is involved in a managed investment scheme, called "The Tasmanian Premium Cherries Project" or "The Tassie Cherries Project". The responsible entity of the scheme is Food and Beverage Australia Limited ("FABAL"). The purpose of the scheme was to provide investors with a licence to grow cherries on a parcel of land owned by the company during the term of the scheme. 10 The scheme involves 42 investors, called "Growers", taking up 408 interests (covering 40.8 planted hectares in total) in the scheme. The scheme is operated on the company's land in Lucaston and Castle Forbes Bay. Of the 408 interests, 301 were funded by way of a loan from Total Beverage Australia Pty Ltd ("TBA"), a related company of FABAL. 11 The termination date of the scheme is the earlier of: (1) 30 June 2023; (2) expiry of the last of the "Grower Interests"; (3) the scheme being wound up; or (4) the expiry of the last "Grower Allotment" due to the termination of all "Management Agreements" and "Licence Agreements". 12 Under the terms of the scheme, a substantial portion of the company's land has apparently been encumbered by leases and licence agreements. Mr Goyal's evidence was that the effect of the encumbrances presents significant difficulties for the administrators in realising the value of the landholdings. 13 Mr Goyal referred to the following particular issues confronting the company in relation to the scheme: (1) a dispute between the company and FABAL about the number of "Growers" remaining in the scheme: FABAL asserts that there are between 13 and 18 "Growers" with 73 interests in the scheme whereas the company's position is that there is only one "Grower" remaining, holding 12 interests in the scheme; and (2) the "Grower" holding 12 interests appears to be reluctant to end his interest in the scheme at this time. 14 The administrators have instructed Corrs Chambers Westgarth, their lawyers, to provide advice about the operation of the scheme and the company's options in relation to the scheme.

Administration to date 15 The first creditors' meeting was held on 19 April 2018. On that occasion, creditors were informed that it was likely that an application to extend the convening period for the second meeting of creditors would be made, as there were "several unknown factors that needed to be resolved" before calling that meeting. The minutes of the meeting state relevantly: This included the resolution relating to the managed investment scheme, valuation of the various property, plant and equipment, implementation of a program to preserve the assets of the Company and any potential restructure of sale of the Company may include the need of a Deed of Company Arrangement. A resolution of these factors would allow creditors to make a better informed decision for the future of the Company. 16 A committee of inspection was formed at the first creditors' meeting, comprising representatives of Westpac, FABAL, Tasfarm Pty Ltd ("Tasfarm") and Workforce Services Pty Ltd, a company which provides labour hire services to the company. 17 Mr Goyal's evidence was that no objections were raised by creditors present at the first creditors' meeting to the proposal to extend the convening period for the second meeting of creditors. 18 Since their appointment, in addition to conducting the first creditors' meeting, the administrators have undertaken the following tasks: (1) carrying on the business of the company; (2) site visits to Castle Forbes Bay and Lucason; (3) payment of outstanding wages; (4) a review of the financial position of the company; (5) communicating with suppliers - approximately $2.8 million is owing to the company's suppliers; the administrators have placed orders with suppliers for essential items that are necessary for the ongoing conduct of the company's business; no suppliers have been paid for pre-appointment debts and, to date, the administrators have not made any post-appointment payments to suppliers as all suppliers have agreed to continue normal trading terms with the company; (6) preservation of trees to ensure to preserve their value and to ensure that the quality of the next harvest would not be adversely impacted. (7) repairs to ensure occupational health and safety - Gray's were retained to conduct an OH&S review and delivered their report to the administrators on 27 April 2018; (8) communicating with the solicitors for the company in litigation in the Supreme Court of South Australia and the Supreme Court of Tasmania investigating each company's business, property, affairs and financial circumstances, pursuant to s 438A of the Act, including identifying potential voidable transactions; (9) liaising with the directors and representatives of the companies, including in relation to access to books and records of the companies, and also the financier to each company, Westpac Banking Corporation Limited ("Westpac"); (10) progressing or formulating sale processes for the operating subsidiaries and a process for seeking recapitalisation proposals for the companies; and (11) addressing queries from creditors, including employees and trade creditors, including to discuss the nature and implications of the appointment of voluntary administrators. 19 At the time of Mr Goyal's affidavit, the administrators had not adjudicated upon proofs of debt submitted for the first creditors meeting. According to proofs of debt received to date, there are 27 creditors of the company with claims totalling $8,101,095.18. Mr Goyal categorised the creditors as follows: (1) twenty-six trade creditors, with total claims of $3,456,090.20; (2) two contingent creditors, with total claims of $1,658,597.77; and (3) one secured creditor, Westpac, with total claims of $2,956,407.21. 20 None of the company's employees have submitted proofs of debt; however, company records suggest they are creditors with total claims of $103,024.66 that accrued prior to 9 April 2018.

Litigation in Supreme Court of South Australia 21 FABAL has brought two proceedings in the Supreme Court of South Australia. In one proceeding, FABAL alleges non-payment of management fees and other amounts by the company. FABAL also seeks restitution from the company for alleged overpayments made by it to the company. 22 The company has filed a counterclaim seeking damages for alleged breaches of contract by FABAL. 23 The proceeding was listed for a trial to commence on 14 May 2018. On 19 April 2018, the trial was vacated by consent, and the matter was adjourned to 15 May 2018 for a directions hearing in order to give the administrators time to understand the litigation. 24 The second proceeding is at a very early stage and the pleadings have not yet closed. The proceeding relates to the alleged non-payment of net harvest proceeds said to be owing by the company to FABAL and the alleged receipt of other monies owed to FABAL by the company which are said to have been converted by the company. 25 The second proceeding has also been listed for directions on 15 May 2018. 26 The administrators have instructed Corrs to obtain an advice from counsel briefed in the proceedings on the company's prospects. The administrators expect to receive that advice on about 10 May 2018.

Litigation in Supreme Court of Tasmania 27 This litigation was commenced against the company by Tasfarm. The proceeding appears to relate to the alleged non-payment by the company of monies owing under a contract for the provision of packing services. 28 The company has filed a counterclaim seeking damages for alleged breaches of contract by Tasfarm. 29 Tasfarm has lodged a proof of debt in the administration. 30 The proceeding is listed for directions on 7 June 2018. 31 Whilst the administrators understand the broad nature of the South Australia proceedings and the Tasmanian proceeding, the administrators have not yet formed a view, and are not yet in a position to form a view, as to whether or not it is in the interests of the creditors of the company as a whole for the company to: (1) continue to defend either or both of these proceedings; or (2) pursue its counterclaim in either or both these proceedings. 32 In forming a view as to whether or not it is in the interests of the creditors of the company as a whole for the company to take either or both of these actions, the administrators will need to consider at least the following matters: (1) the company's prospects in the proceedings; (2) whether, or to what extent, a favourable judgment could be enforced; and (3) whether or not the company has the resources, or can obtain the resources, to conduct all or part of the litigation. 33 The administrators expect that they will be in a position to form a view as to these matters prior to the end of the proposed extended convening period, being 8 June 2018. The administrators consider that this period of time is required due to the complexity of the South Australian proceedings, which relate to the Scheme.

Statutory framework 34 Section 439A of the Act provides relevantly: (1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6). (2) The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period. … (5) The convening period is: (a) if the day after the administration begins is in December, or is less than 25 business days before Good Friday - the period of 25 business days beginning on: (i) that day; or (ii) if that day is not a business day - the next business day; or (b) otherwise - the period of 20 business days beginning on: (i) the day after the administration begins; or (ii) if that day is not a business day - the next business day. (6) The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires. 35 Requirements for giving notice of a meeting pursuant to s 439A are set out in rr 75-15 and 75-255 of the Insolvency Practice Rules (Corporations) 2016 (Cth). 36 By s 447A(1) of the Act, the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company.

Relevant principles 37 In Strawbridge, re Custom Coaches (Sales) Pty Ltd (Admin Apptd) [2014] FCA 683, Jacobson J said (at [22]): The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales.

Consideration and conclusion 38 I was satisfied that the Court had power to make the orders sought and that those orders were appropriate. In particular, I was satisfied that the proposed extension was reasonable because: (1) It was a relatively short extension that, in the administrators' opinion, is likely to result in a better return for creditors than if the extension were not granted. In particular, the administrators have developed an approach for the preparation of the company's landholding for sale, which they consider is likely to achieve a better return for creditors than if the extension were not granted, in which case they would not have sufficient time to pursue that approach. (2) The extension of time would enable the administrators to convey useful information to the creditors, including a properly informed opinion as to the options available to the creditors at the second meeting, which they were unlikely to be able to do by 15 May 2018. (3) The creditors who attended the first creditors meeting, including Westpac, FABAL and Tasfarm are apparently substantial creditors who did not object to the prospect of seeking an extension of the convening period for the second creditors meeting. (4) There is a significant degree of complexity in the company's affairs arising out of the managed investment scheme, and the administrators need further time in order to obtain advice concerning their options in relation to the scheme. (5) The administrators also need further time to obtain advice on the prospects of the South Australian litigation. (6) The orders proposed make provision for any person who can demonstrate sufficient interest to apply to the Court for modification of those orders. (7) On the evidence before me, there is no reason to think that the administrators have delayed in the exercise of their functions. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.