Griffiths, in the matter of Armorgalv (Aust) Pty Limited (Administrator Appointed) [2023] FCA 752

INTRODUCTION 1 The plaintiff, Mitchell Griffiths, in his capacity as voluntary Administrator of Armorgalv (Aust) Pty Limited (Administrator Appointed) under s 447A of the Corporations Act 2001 (Cth) seeks orders extending the period of adjournment of the second creditors' meeting permitted by s 75-140(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) for a period of three months. The purpose of the adjournment is to facilitate the sale of the business operated by Armorgalv before it is placed into liquidation. 2 I heard the application in my capacity as Commercial & Corporations Duty Judge on 4 July 2023 and made orders substantially as sought. These are my reasons for doing so. The urgency which necessitated the application being heard as a duty matter was that, absent the Court granting an extension, the second creditors' meeting was required to be held on 12 July 2023 and the Administrator would be required to give notice of the meeting to creditors together with a report to creditors by 5 July 2023, being five business days before the meeting: s 75-225 of the Rules. 3 Notice of the application was given by the Administrator to all creditors and other stakeholders. None of the interested parties sought to be heard on the application. The Administrator also notified the Australian Securities and Investments Commission (ASIC) of the hearing. ASIC did not seek to be heard.

EVIDENCE 4 In support of the application, the Administrator relied on his own affidavit sworn 3 July 2023 and exhibit MG-1 to that affidavit and correspondence tendered during the hearing relating to Armorgalv's unpaid rent and outgoings, and confirmation of receipt of the Administrator's originating documents and evidence relied on in this application from a representative of ASIC. 5 Mr Griffiths is a partner of an insolvency and restructuring firm based in Newcastle and has 19 years' experience as an insolvency practitioner, including 11 years' experience as a registered liquidator.

BACKGROUND 6 The relevant background to this proceeding is set out in the Administrator's detailed written submissions, a copy of which appear on the electronic court file. 7 Armorgalv is the sole Australian licensee of a patented thermal zinc-diffusion method of applying corrosion-resistant coating to steel products. Armorgalv operates under a licence agreement with Distek Ltd, a company based in Israel. Distek is not a creditor of Armorgalv but is relevantly an interested party. Distek has indicated that it supports the application. 8 Armourgalv experienced trading losses in the 2021 and 2022 financial years as it suffered a decline in revenue and increase in total company expenditure between the 2019 and 2023 financial years. On 23 March 2023, the directors of Armorgalv resolved to appoint Mr Griffiths as administrator pursuant to s 436A(1) of the Act. His appointment has not been challenged. 9 Armorgalv has two secured creditors, who are together owed debts totalling approximately $1.7 million. Each secured creditor either consents to or does not oppose the Administrator's application. The Administrator estimates that, as at 3 July 2023, Armorgalv owes unsecured and priority creditors around $1.4 million. The Administrator's present estimate is that, for the 2023 financial year to date, Armorgalv has a net deficit of assets to liabilities in the sum of approximately $531,953. 10 From 23 March 2023 to 12 April 2023, the Administrator temporarily ceased Armorgalv's operations and undertook some restructuring of its operations with an eye to reducing expenses and improving profitability. The Administrator forecasts that Armorgalv will trade at a net profit for the period through to 30 September 2023. There is no current forecast for the period beyond 30 September 2023. Since 12 April 2023, the Administrator has resumed trading and Armorgalv has traded at net profit. The first creditors' meeting was held on 4 April 2023 pursuant to s 436E(2) of the Act. 11 In the course of his appointment, the administrator has undertaken a Sale Campaign for the sale of Armorgalv's business. The Administrator's evidence details in broad terms the steps taken as part of the Sale Campaign. 12 On 2 May 2023, the administrator issued a report pursuant to s 439A of the Act and convened the second creditors' meeting on 10 May 2023. In his report, the administrator notified creditors of his intention to adjourn the second meeting of creditors to allow additional time to complete the Sale Campaign. On 10 May 2023, the second creditors' meeting was adjourned for a period not exceeding 45 business days as required by s 75-140(1)(b) of the Rules. No creditor objected to or opposed the adjournment. No deed of company arrangement has been proposed and the Administrator does not expect that one will be. It is thus the Administrator's expectation that Armorgalv will be wound up when the second meeting is reconvened. 13 On 26 May 2023, the Administrator identified a preferred bidder. A business sale deed is currently being negotiated. The Administrator expects that the business sale deed will be executed by 12 July 2023, being the final day of the adjournment period (if not extended). The Administrator anticipates that post completion steps, including assignment of the lease in respect of the business premises and novation of the license agreement will take approximately two weeks after the execution of the business sale deed. The Administrator's position in relation to the period being extended by a period of three months to enable commercial flexibility if his current expectation as to timing is not met is justified on the evidence led on this application. Further, the Administrator has undertaken to the Court that, if the sale of the business completes prior to 12 October 2023, he will reconvene and hold the second meeting of creditors as soon as practicable thereafter and prior to 12 October 2023. 14 The Administrator has advanced cogent reasons for why, in his view as an experienced insolvency practitioner, he considers that it is in the interest of creditors to adjourn the second meeting to enable the sale to be completed before Armorgalv is placed into liquidation.

CONSIDERATION 15 Having regard to the Administrator's evidence and to the well-established legal principles on which he relies on, I was satisfied that it was appropriate to extend the period of adjournment to no later than 12 October 2023. The power to extend the period of adjournment is supported by authority: Bailey, in the matter of Megacrane Holdings Pty Ltd (administrator appointed) [2022] FCA 733 at [15], [16]; Georges, in the matter of Vical N.S.W Pty Ltd (Administrators Appointed) [2018] FCA 1974 at [25] to [28]. 16 In my view, the Administrator's case for an extension of the period of adjournment allowed under s 75-140 of the Rules is a strong one for the reasons advanced by the Administrator: (1) the extension will maximise the prospects of the sale of business being completed before the company is placed into liquidation; (2) the interested parties most affected by the application are Armorgalv's secured creditors as they stand to gain the most if the sale of the business assets completes - and they support or do not oppose the extension; (3) other key stakeholders such as the landlord of the leased business premises and Distek support the application. Their ongoing support is crucial to the viability of the sale of the business assets; (4) if the extension is granted it is likely to improve the prospect of current employees retaining their jobs in the business under the new owner; (5) if Armorgalv goes into liquidation before the sale of business is completed there is a risk that the lessor of its business premises and Distek may exercise their respective rights of termination on the occurrence of an insolvency event under the lease and license, which in turn would jeopardise the sale; and (6) the three month extension is not excessive and is within an acceptable period for an extension to the convening period in the particular circumstances of the present administration. 17 The expectation that an administration will be relatively speedy and summary must be balanced against the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors (or, in this case, some of them) and in securing a more favourable outcome for employees of the business. In this case the balance weighs in favour of the extension being granted. I have reached this conclusion notwithstanding that as things presently stand the strong probability is that the company will be placed into liquidation once the business is sold and that the improved monetary return will only benefit secured creditors, who will not be fully paid out in any event.

CONCLUSION 18 For these reasons, I made orders substantially in the form of the orders sought by the Administrator. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman.