Holzman v New Horizons Learning Centre

1 This is an urgent application under s.447A(1) and (4) of the Corporations Act 2001 (Cth) by the administrator of four companies for an order permitting him to attend, by video conference link, meetings of creditors of the companies required to be held pursuant to s.439A. 2 The application is made because Austin J has held in Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 that s.439B(1) of the Act requires personal attendance by an administrator at a meeting held under s.439A. His Honour repeated that view in Re A&D Hagan Pty Ltd (Receiver and Manager Appointed) (Administrator Appointed) (2003) 46 ACSR 434. The administrator in the present case is unsure whether his attendance at the meetings by video conference link qualifies as "personal attendance" - hence his application for an enabling order under s.447A. 3 At the conclusion of the submissions made by Mr Linden in support of the application, I announced that I would make the orders sought but would publish my reasons later. These are those reasons. The construction of s.439B(1)

4 In Bovis , the administrator of the company did not attend the relevant meetings under s.439A in any way - he appointed a nominee to chair the meetings in his place, purportedly pursuant to Reg. 5.6.17(1). In Hagan , the joint administrators sought an order under s.447A that they be permitted to nominate another person to chair the meeting in their place. In Bovis , his Honour held that s.439B(1), by directing that the administrator "is to preside" at a meeting convened under s.439A, requires the administrator to be "physically present" at the meeting: at 673. In Hagan , his Honour, using slightly different words, said that s.439B(1) requires the administrator "to chair the s.439A meeting personally" : at 436. 5 Bovis and Hagan raised for consideration whether the administrators were entitled, by appointing a nominee under Reg. 5.6.17(1), to refrain from participating in the creditors' meetings in any way; his Honour did not have to consider whether an administrator could "preside at" a s.439A meeting within the meaning of s.439B(1) if he or she attended by video conference link. 6 I respectfully agree with Austin J that s.439B(1) requires the administrator to attend and preside in person at a s.439A meeting, and that Reg. 5.6.17(1) does not enable the administrator to refrain from any participation in the meeting by appointing a nominee in his or her place. Although his Honour obviously did not have the possibility of attendance at a meeting by video conference link in mind in the context of the cases which he was deciding, I agree that the language of s.439B(1) would indicate, in accordance with normal experience of the conduct of meetings, that the administrator must be bodily present in the same room as the creditors are bodily present, rather than present by means of an image on a screen and a voice heard over a loudspeaker. 7 I would hold, therefore, that on the true construction of s.439B(1) an administrator cannot preside at a s.439A meeting by attendance through a video conference link. Accordingly, if the administrator desires to preside at such a meeting by video conference, he or she must apply to the Court under s.447A for an order permitting him or her to do so. Considerations in exercise of discretion under s.447A

8 In my view, it is important to ensure that meetings under s.439A are conducted in such a way as will not disadvantage the creditors who attend. Creditors will often have difficult decisions to make at such meetings and will require careful explanations, answers to complex questions, and the opportunity and time for full discussion. Video conferencing may meet all of these needs with considerable cost savings in some cases but not in others. 9 Where the issues are relatively straightforward or where the number of creditors is small, the administrator may easily be able to preside effectively and efficiently at a meeting by video conference link. However, where the issues are complex or the number of creditors is large, it may be difficult for an administrator presiding by video link to control the meeting and to provide satisfactory information to all those who wish to ask questions. The artificiality of communication through video link and the slight but perceptible delay between transmission and receipt can sometimes prevent the free flow of exchange in a way that would not occur at a meeting where all participants are present in the same room. Further, the cost of video conferencing may be perceived as inhibiting discussion to as full an extent as creditors would wish. 10 For these reasons, in my opinion, an application by an administrator for an order permitting him or her to preside at a s.439A meeting by video conference link should not be granted almost as a matter of course or merely on the ground that costs will be saved. The saving of costs is one factor but the overriding consideration is whether or not, in all of the circumstances, the creditors will be disadvantaged. The relevant facts

11 In the present case, the four companies which have been made defendants in the application are part of a group of subsidiaries of a holding company and each of them conducted a franchise business in the capital city which is identified in its name. Each defendant company operated as a separate business entity and incurred separate trade debts, but the holding company and an associated company together hold more than 50% of the indebtedness of each defendant company. 12 Meetings of creditors of the defendant companies have been held pursuant to s.439E of the Act. Each meeting was held in the capital city in which the relevant company conducted its business. At the creditors' meeting of the First Defendant held in Canberra there were twelve creditors in attendance; at the meeting of the Second Defendant in Perth there were twenty-three; at the meeting of the Third Defendant in Adelaide there were ten; and at the meeting of the Fourth Defendant in Brisbane there were six. 13 The administrator has been informed by the directors of each of the Defendants that they intend to propose a Deed of Company Arrangement for consideration by the creditors of each of the Defendants at the meetings which are required to be held pursuant to s.439A of the Act. The administrator expects to receive the proposals within the next few days. The time for convening meetings of creditors pursuant to s.439A(5) will expire on 26 February 2004 and five business days' notice of the meetings is required. It is this tightness of the time frame for convening and holding the meetings which has caused the administrator's difficulties and given rise to this application. 14 If the administrator is required to be personally present at each of the meetings it will be necessary for him to travel to Canberra, Brisbane, Adelaide and Perth. It is physically impossible for him to be personally present at each of those meetings if they were to be held on the same day. If he has to be personally present at each of the meetings, he intends to hold the meetings on the following dates: on 2 March the meeting for the First Defendant in Canberra and the Fourth Defendant in Brisbane; on 3 March the meeting of the Third Defendant in Adelaide and another subsidiary of the holding company in Sydney; on 4 March the meeting of the Second Defendant in Perth. The administrator has provided a calculation showing that the costs of his personal attendance at each of the meetings is approximately $15,260. 15 If the meetings were to proceed by video conferencing, all of them could be held on one day at staggered times and the administrator would preside and be able to answer such questions as the creditors might wish to ask him. The administrator has obtained a quotation for the cost of video conferencing at the four meetings and has calculated that the saving of expense to creditors would be at least $10,000. 16 Further, if all meetings could be held on 4 March rather than the first of them on 2 March, the administrator will have two extra days to digest the directors' proposals for Deeds of Company Arrangement and to prepare a report to creditors. 17 The evidence clearly shows that the administrator's attendance at the creditors' meetings by video link rather than by being physically present would result in a considerable saving of expense to the creditors. Further, the creditors would have the benefit of a more considered report from the administrator as to the proposed Deeds of Company Arrangement. Having regard to the relatively small number of creditors who attended the previous creditors' meetings, I do not think that the administrator's conduct of the meetings to be held under s.439A by video link would prove unwieldy. 18 I do not know whether the issues raised by the directors' proposed Deeds of Company Arrangement and the administrator's report thereon will be complex and difficult so that discussion with the administrator would be unduly inhibited if conducted by video link. If this proves to be the case, it is open to the meetings to vote to adjourn for further discussion at meetings at which the administrator is physically present. 19 As the matter stands at present, the evidence satisfies me that the creditors are not likely to be disadvantaged and that it is in their interests that the administrator be permitted to attend the s.439A meetings of the Defendant companies by video conference link. The orders do not extend to an adjourned meeting. If any of the meetings is adjourned the administrator would be obliged to seek a fresh order under s.447A if he wishes to preside by video conference link although if the creditors voted that the adjourned meeting should be conducted by video link I would expect that the administrator's application would be granted almost as a matter of course. 20 For these reasons, I made the orders as sought by the administrator. - oOo -

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