Hancock, in the matter of Tarleton & Peters Pty Limited (Administrator Appointed) (No 2) [2015] FCA 1232

Federal Court of Australia|2015-11-13|Before: Yates J, Gleeson J

REASONS FOR JUDGMENT 1 The plaintiff ("Mr Hancock"), the voluntary administrator of Tarleton & Peters Pty Ltd ("company") applied for a second extension of the convening period for the second meeting of creditors of the company to 5 February 2016. The convening period was due to expire on 11 November 2015, having been extended by orders made by Yates J on 24 September 2015: Hancock, in the matter of Tarleton & Peters Pty Limited (Administrator Appointed) [2015] FCA 1058. 2 The matter was listed before me as Commercial and Corporations Duty Judge on 5 November 2015. The application was supported by an affidavit of Mr Hancock sworn on 5 November 2015. 3 After hearing submissions from Mr Harris SC on behalf of Mr Hancock, I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by Mr Hancock. These are my reasons for making those orders.

Background to the application 4 Mr Hancock was appointed as the voluntary administrator of the company on 2 September 2015, pursuant to a resolution passed by the sole director under s 436A of the Corporations Act 2001 (Cth) ("Act"). 5 At the time of Mr Hancock's appointment, the company had been in business for 52 years, and operated a chain of 31 butcher stores (two with delicatessens) in leased premises in Sydney and some country towns in New South Wales. The businesses were the company's only assets of any significant value. The company employed 276 permanent and casual employees. 6 The first meeting of creditors was held on 14 September 2015.

First extension of convening period for meeting of creditors 7 On 24 September 2015, the administrators applied to this Court for an extension of the convening period pursuant to ss 439A(6) and 447A(1) of the Act. 8 The first extension of the convening period was for a period of six weeks. The extension was sought with the approval of the first meeting of creditors. Yates J noted (at [11]) the following factors in favour of the extension: the creditors were in favour of the extension; Mr Hancock had continued to operate 27 retail stores at his own risk (having closed four non-performing, unprofitable stores) in the belief and expectation that purchasers will be found for those stores, or for the business as a whole, or that an acceptable deed of company arrangement ("DOCA") would be proposed; the business was effectively 27 separate business operations at each store, each of which needed to be assessed separately because of the possibility that individual stores would be sold. The overall business also needed to be assessed against the possibility that it could be sold as a whole; the employment of the company's present employees was likely to be terminated if the company went into liquidation, whereas many of them might be expected to retain employment with a new purchaser, or purchasers, or if a DOCA was entered into; the only secured creditor of the company (N&M Investments/Properties Pty Ltd) was in favour of the resolution to apply for an extension of the convening period that passed at the first creditors meeting. It was the secured creditor who proposed that resolution; there was a committee of creditors which would be able to monitor the actions of the administrator in the intervening period.

Current position 9 Since the first extension of the convening period, Mr Hancock has continued to trade on the business of the company. He has finalised the closure of 13 stores, comprising the four stores closed before the first extension and another nine stores, about which he formed the view that he would not be able to find a purchaser. 10 Mr Hancock has negotiated sales of the remaining 18 stores, but each sale is dependent on the purchaser obtaining, within 90 days of the agreement for sale, consent to an assignment of the existing lease or a new lease between lessor and purchaser. While there is no reason to believe that agreement with the lessors will not be achieved, there has not been sufficient time to obtain the necessary agreements and, consequently, the sales will not be completed before 11 November 2015. 11 Currently, there are 192 permanent and casual employees on the company's payroll. Mr Hancock anticipates that 186 of these persons will be offered employment by the purchasers of the stores, while the employment of the remaining six employees will be terminated once the sale process has been completed.

Financial position of the company 12 At the time of the application for the first extension of the convening period, there was a possibility that a third party might propose a DOCA. However, no such proposal emerged and Mr Hancock is now of the view that there will be no DOCA proposal. 13 In these circumstances, the recommendation, which Mr Hancock is required to make at the second creditors' meeting under s 439A of the Act, will have to be for liquidation of the company. 14 Mr Hancock's evidence is that, if the company goes into liquidation, all stores unsold at that time would have to be closed and employment of all employees terminated as liquidation would trigger the relevant termination clauses in the company's leases and it is unlikely that suppliers would continue to supply without the voluntary administrator's personal liability and with the uncertainty that liquidation would bring. Liquidation would deprive creditors of the opportunity of a return as a sale as a going concern would not be possible. As a consequence, there would be no return to creditors.

Grounds for a further extension of the convening period 15 On behalf of Mr Hancock, Mr Harris SC submitted that there are two major reasons why the proposed extension should be granted: (1) The extension will enable the assets of the company to be realised in its administration, in circumstances where they are unlikely to be able to be realised if the company goes into liquidation, being the apparently inevitable result if the convening period is not extended for a second time; and (2) The creditors are in favour of the extension. 16 As to (2), the evidence comprised a resolution of the committee of creditors on 4 November 2015 and evidence that the secured creditor also consents to the extension. 17 In further support of the application, Mr Harris SC noted that the extension will be of significant benefit to the company's employees because most of them will be able to continue their employment with the purchasers, should the sales of the businesses be able to be completed, whereas their employment would have to be terminated if the company went into liquidation.

Statutory framework 18 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. (3) The administrator must convene the meeting by: (a) giving written notice of the meeting to as many of the company's creditors as reasonably practicable; and (b) causing a notice setting out the prescribed information about the meeting to be published in the prescribed manner; at least 5 business days before the meeting. (4) The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of: (a) a report by the administrator about the company's business, property, affairs and financial circumstances; and (b) a statement setting out the administrator's opinion about each of the following matters: (i) whether it would be in the creditors' interests for the company to execute a deed of company arrangement; (ii) whether it would be in the creditors' interests for the administration to end; (iii) whether it would be in the creditors' interests for the company to be wound up; and also setting out: (iv) his or her reasons for those opinions; and (v) such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and (c) if a deed of company arrangement is proposed--a statement setting out details of the proposed deed. (5) The convening period is: … (b) … 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. (7) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application. (8) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to: (a) the fact that the application was made after that period; and (b) any other conduct engaged in by the administrator; and (c) any other relevant matters. 19 By s 447A(1), the Court may make such order as it thinks appropriate about how Part 5.3A (which includes ss 439A and 447A) is to operate in relation to a particular company. Although there may be some doubt as to whether s 439A in its current form authorises a second extension of time under s 439A(6), there is no doubt that the power to grant a subsequent extension of the convening period exists in s 447A(1): see Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 ("Gothard") at [33] and the cases there cited. 20 The decision to grant an extension of the convening period involves a balancing exercise 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: Gothard at [34] to [38].

Conclusion 21 I was satisfied that the convening period should be extended for the further period sought in order to achieve, if possible, completion of the sales of the remaining businesses pursuant to the sale agreements which have been made. There is presently no reason to believe that completion cannot be achieved by 5 February 2016. The following matters also supported the orders: (1) The committee of creditors and the secured creditor are in favour of the extension; (2) There is no evidence of any prejudice to creditors arising from the proposed extension; (3) There is no suggestion that the administrator has delayed in the exercise of his functions; and (4) The proposed orders provide for liberty to apply to any creditor or other interested party; 22 Taking into account these matters, I was satisfied that it would be in the best interests of the creditors if the convening periods were extended in accordance with the application. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

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