Hancock and Tonks, in the matter of Blackwater Quarries & Concrete Pty Ltd (Administrators appointed) [2017] FCA 447

Farrell J: 1 Messrs Hancock and Tonks were appointed as joint and several voluntary administrators of Blackwater Quarries & Concrete Pty Ltd, Blackwater Properties Pty Ltd and Nationwide Quarries Pty Ltd (the Companies) on 21 March 2017 pursuant to a resolution of the directors under s 436A of the Corporations Act 2001 (Cth). 2 On 21 April 2017, the administrators applied pursuant to s 439A(6) of the Corporations Act to extend the period under s 439A(5) for convening the second meeting of creditors of the Companies to 21 July 2017, a period of slightly less than 3 months. But for the extension, the convening period would have ended on 28 April 2017. The application is supported by affidavits sworn by Mr Hancock on 21 and 24 April 2017. 3 These are my reasons for making the orders sought by the administrators.

Background 4 The Companies are based in Blackwater, a small mining town in the Central Highlands Region of Queensland. Their activities are: (1) Blackwater Quarries operates a quarry and its activities include rock crushing, screening and operating a concrete batching plant. It owns various mining leases. It is Mr Hancock's evidence that the leases will be extinguished if the company is placed in liquidation. It has 17 casual workers. It has suffered approximately a 24% reduction in turnover in the 2016 financial year compared to the previous financial year. (2) Blackwater Properties is the trustee for the Pinnacle Property Unit Trust. It is the registered proprietor of land in Doon Street, Blackwater. It operates the "Smart Stayzzz Inns-Blackwater", a motel consisting of 72 rooms, a manager's quarters and a 65 seat restaurant. It predominantly services mining and allied industries in and around the southern portion of the Bowen Basin. It employs 14 casual workers. It suffered an approximately 30% reduction in turnover in the 2016 financial year compared to the previous financial year. (3) Nationwide Quarries is the trustee for the Nationwide Quarries Trust. It does not trade but it is the registered proprietor of land in Blackwater on which Blackwater Quarries conducts its business. 5 The economic downturn in the mining industry in Queensland has had a significant impact on the businesses conducted by the Companies. 6 The directors of all of the Companies are Mr Dean Leslie Wilson and Mr Troy Ronald Schmidt; they are the sole shareholders of Blackwater Quarries and Nationwide Quarries and they are two of four shareholders of Blackwater Properties. There are two corporate shareholders of Blackwater Properties: Brett Evans Investment Nominees Pty Ltd and Smart Stay Villages Pty Ltd. 7 The administrators issued a first report to creditors and notice of meeting of the creditors of the Companies on 23 March 2017. The first creditors' meetings of the Companies were held concurrently on 31 March 2017.

Factors which support an extension of the convening period 8 Unsecured creditors who attended the first creditors meeting held 31 March 2017 and the directors and shareholders of the Companies support the Court ordering an extension of the convening period for up to 12 weeks. 9 Westpac Banking Corporation has no objection to a Court ordered extension. Westpac is a secured creditor of the Companies under cross collateralised loans to a value of approximately $27 million. Mr Hancock notes that Westpac has not moved to appoint a receiver. It appears that Westpac is content for the time being to allow the administrators to undertake the role of selling available assets to realise its security and its representatives have been dealing directly with the administrators. This has the benefit of avoiding duplication of effort, increased costs and delay in the conduct of the administration. 10 The administrators estimate that the amount of approximately $566,037 is owed to unsecured creditors of the Companies. The application for an extension was foreshadowed at the first creditors' meetings held concurrently on 31 March 2017. A resolution was passed approving the administrators making an application for an extension of up to 12 weeks should it become necessary. 11 Before the administrators were appointed, Nationwide Quarries entered into a contract for sale of its property to Ceneglow Pty Ltd. Blackwater Quarries also entered into a contract with Ceneglow for the sale of its quarry business and the transfer of its mining leases. The value of the two contracts for sale is approximately $4.35 million. Based on conversations with the sole director of Ceneglow, it will assume the employment contracts with the existing casual employees of Blackwater Quarries following the sale. If Blackwater Quarries were to be placed into liquidation, the mining leases would be extinguished, and a purchaser of the business would have to reapply for them, involving delay and uncertainty which would affect the value of the business. Westpac has indicated that it agrees with the proposed sales and will release its security over the relevant land and business. 12 It is also intended that the land and motel operated by Blackwater Properties will be advertised for sale by the administrators. The proposed sale has been significantly affected by tropical cyclone Debbie. Water has damaged 22 motel rooms. The restaurant has suffered flood damage. Insurers have been notified. A representative of the insurer has informed Mr Hancock that an insurance assessor will attend at the motel in the week commencing 24 April 2017. It is not clear at this stage what the damage claim will be. Westpac has been advised of the proposed sale. Once offers are received from prospective purchasers, the administrators will inform the representatives of Westpac in order to obtain its consent and the release of its security. 13 To date, the main focus of the administration has been to trade the businesses operated by Blackwater Quarries and Blackwater Properties in order to maintain the employment of 31 casual employees and to sell the relevant properties and businesses. Maintaining the employment of the casual employees is a matter of significant importance to the small and close knit Blackwater community. As a result, it has not been possible for the administrators to complete detailed investigations. They do not believe that it is possible for them to adequately discharge their duties and meet the requirements of s 439A for the purposes of a second creditors meeting if it were to be held by 5 May 2017. 14 It is Mr Hancock's view that an extension of approximately 12 weeks should be sufficient time to enable the administrators to complete the sale of the land owned by Nationwide Quarries and of the business and assets owned by Blackwater Quarries to Ceneglow. At least that period will also be required to undertake necessary steps in relation to the insurance claim by Blackwater Properties and to seek out and negotiate with prospective purchasers of Blackwater Properties' land and business. In the meantime, the employment of the casual employees will be maintained. 15 Mr Hancock cannot rule out the possibility that a further extension might be required because of various matters beyond his control. For example, whether or not the insurer accepts that it is liable to pay for damage to the motel which Blackwater Properties operates will affect any terms of sale of that business. 16 Mr Hancock submits, and I accept, that there does not appear to be any prejudice to any person by reason of the extension.

Consideration 17 The principles to be applied on an application of this kind are not controversial. They are usefully set out in the judgement of Yates J in Weston, in the matter of Flush Fitness Pty Ltd (Administrators Appointed) [2017] FCA 172 at [14]-[16]: 14 In considering an application of this nature, the Court is involved in a balancing exercise. A balance needs to be struck between the expectation that an administration under Pt 5.3A of the Act will be conducted with relative speed, to which the relevant provisions of the Act give due regard, and the requirement that "speed not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders": Collective Olive Groves Limited, in the matter of Collective Olive Groves Limited; application by Reidy [2009] FCA 177 at [18]; Diamond Press Australia Pty Limited [2001] NSWSC 313 at [10]. 15 In Re Riviera Group Pty Ltd (administrators appointed) (receivers and managers appointed) (ACN 102 298 279) & Ors (2009) 72 ACSR 352, Austin J surveyed the case law that informs the exercise of the discretion that arises in cases such as the present one. It is not necessary for me to set out or summarise all that his Honour said on that matter. It is sufficient for present purposes for me to note that his Honour observed (at [16]) that in balancing the expectation of an expeditious administration against the risk of prejudice, there cannot be any predisposition in favour of a speedy administration because that would skew the balancing process. 16 In Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110, Barrett J said (at [20]-[21]): 20 In the circumstances as they now exist, it would, in a real sense, be counterproductive for the administrators to be compelled to bring on the second meeting of creditors quickly. The purpose of that meeting is to decide the company's future - whether the administration should end, whether the company should pass into liquidation or whether any deed of company arrangement proposal should be accepted (there is, I might say, no deed of company arrangement proposal in this case, at least at this stage). 21 The second meeting of creditors is best held at a time when it is possible to give creditors fairly definitive financial information that will assist them in this decision making. In the present case, information about the financial consequences of a sale of the business is crucial, assuming such a sale eventuates. In addition, creditors' decision-making will be much more difficult and more complicated if they are compelled to make a decision about the company's future based on speculation about the possibility of a going-concern sale. Further time for the formulation and digestion of recommendations based on established realities will avoid the possibility of what might be a premature decision in favour of winding up as the only practically available option. 18 In light of these principles and the factors on which Mr Hancock relies, I am satisfied that it would be appropriate to make the orders sought. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.