In the matter of Belmont Sportsmans Club Co-Operative Limited... [2015] NSWSC 543 | Case summary

What happened

This is an ex tempore decision by Black J granting administrators of Belmont Sportsmans Club Co-Operative Ltd (the Club) a 90 day extension to the convening period for the second meeting of creditors under the administration provisions that, by statute, apply to co-operatives in New South Wales (see [1], [4], [8], [11]).

Key factual points the Court accepted: administrators were appointed on 3 February 2015 in the context of an ATO winding up application (see [2]); the Club operates licensed-club facilities including 67 gaming machines and owns significant real property with development approval for senior residences and potential subdivision (see [2]); there are numerous creditors including two identified secured creditors (Australian Unity/Perpetual Nominees and Stevens Constructions) and approximately 105 other creditors (see [3]); the administrators had engaged a valuer, continued marketing and sale/amalgamation initiatives begun pre-appointment, and received expressions of interest (see [4]-[6]); the second meeting was initially required to be convened on 3 March 2015 so the meeting would fall on or before 10 March 2015, and the administrators sought an extension to 1 June 2015 to allow further valuation, negotiation and consideration of amalgamation/sale/deed options (see [4], [6]).

The administrators filed an Originating Process on 2 March 2015 under the Corporations Act provisions as applied to co-operatives, seeking the extension and the customary consequential orders: modification of Pt 5.3A timing to permit the meeting on or before the extended date or within five business days after, liberty to any interested person to apply on 3 days' notice, and costs of the application to be paid as an administration cost (see [1], [11]).

Black J granted the extension, concluding that the administrators' evidence showed the extension would facilitate obtaining further offers, carrying out valuations, negotiating structure for amalgamation or sale, and thereby better inform creditors and potentially enhance returns, while not causing significant prejudice to third parties (see [10]-[11]).

Why the court decided this way

The decision turns on statutory application and established judicial principles:

Statutory basis: the Co-Operatives (Adoption of National Law) Act 2012 (NSW) brings into NSW law the Co-Operatives National Law which in turn makes parts of the Corporations Act applicable to co-operatives. Black J expressly notes that Pt 5.3A (administration regime) applies to co-operatives under s 382 of the Co-Operatives National Law, and that s 15 provides that applications under Pt 5.3A as applied may be made to the Supreme Court (see [8]). That provides the jurisdictional and statutory foundation for relief under ss 439A(6) and 447A.
The balancing principle: the established rule, quoted from Barrett J in Re Diamond Press, requires the Court to balance the expectation of prompt, summary administration against the danger that undue haste might prejudice sensible steps to maximise creditor returns (see [9]). The Court applies that test to the facts here.
Administrators' commercial judgment: authorities (referred to in [9]) indicate the Court will accord considerable weight to the administrator's assessment because administrators are especially qualified to determine whether extensions will help provide accurate information to creditors and maximise asset realisation. Black J explicitly relies on that reasoning to accept the administrators' evidence about valuation, marketing, and expected offers (see [9], [10]).
Factual application: Black J identified practical reasons the extension was necessary in the strict sense: anticipated further offers, the need to assess and compare options (amalgamation, sale, deed of company arrangement), negotiation time, and receiving the valuation report. The Court also noted creditor positions: principal secured creditors indicated non-objection or support, employees remained employed and paid, and administrators had funding for cashflow during the extension (see [5]-[7]). Taken together, these factors meant the balance favoured granting the extension (see [10]-[11]).

The Court therefore concluded that the extension would likely benefit creditors by enabling a more orderly disposal or restructuring process and permit the administrators to better inform and advise creditors at the second meeting (see [10]-[11]).

Before and after state of the law

Before this decision (as described in the judgment), authorities such as Re Diamond Press, Re Riviera Group, Re Mentha (Hans Continental Smallgoods), and Re Kavia Holdings had established and illustrated the principles courts apply in considering extensions of convening periods, including the balancing test and weight to be given to administrators' assessments (see [9]).

This decision applies those established principles to a co-operative operating as a licensed club, confirming that Pt 5.3A, as applied to co-operatives by the Co-Operatives National Law, is the correct statutory framework for administration relief in respect of co-operatives (see [8]). It demonstrates how the balancing approach works in practice where the subject is a co-operative with complex assets (property, development approvals, gaming entitlements) and many creditors. The decision thus reinforces the existing line of authority that extensions will be granted where administrators can show that additional time will materially assist in maximising returns and providing accurate information to creditors, and where prejudice to third parties is not significant.

The judgment does not change the law; it applies and confirms the existing tests and practice, but importantly records the Court's acceptance that the additional complexities of a co-operative and a licensed club can justify an extension where they impede a fully informed recommendation to creditors within the original convening timeframe (see [6], [9]-[11]).

Key passages with plain-English translation

Paragraph 8: "Pt 5.3A of the Corporations Act applies to co-operatives under s 382 of the Co-Operatives National Law..."
- Plain English: Although the Club is a co-operative rather than a company, the national co-operatives law makes the corporate administration rules in the Corporations Act apply to it, so the Court can make the usual administration orders.
Paragraph 9: "the Court's function ... is to strike a balance between the expectation of a speedy and summary administration and the requirement that undue speed not prejudice sensible and constructive actions directed to maximising the return to creditors..."
- Plain English: The judge must weigh the need to resolve matters quickly against the need to avoid rushing steps that would hurt creditors' ability to get the most value.
Paragraph 9 (later): "the Court will give considerable weight to the assessment reached by an administrator ..."
- Plain English: The administrators' judgements about what is needed to help creditors are influential because they are in the best position to know what practical work is needed.
Paragraph 10: "If an extension ... were not granted ... [administrators] would not be in a position to adequately inform creditors ..."
- Plain English: Without more time, the administrators would have to hold a meeting before they had enough information to present the realistic options, which would be unhelpful to creditors.
Paragraph 11: "I am satisfied that the extension of time sought by the Administrators is appropriately granted."
- Plain English: The judge decided to allow the extra time because the benefits to creditors outweigh any downside.

What fact patterns trigger this precedent

From the reasoning in this decision, the following fact patterns are those in which a court is likely to consider (and potentially grant) an extension under s 439A(6)/s 447A as applied to co-operatives:

Administrators appointed to a co-operative (or company) with complex, real-property-rich assets (development approvals, subdivision issues, licences or entitlements such as gaming/poker machines) that require valuation and negotiation time before a sensible recommendation can be made (see [2], [4]-[6]).
Existence of multiple creditors, including secured creditors, where administrators need time to negotiate with secured parties or to explore amalgamation/merger options that could affect secured creditor recovery and unsecured creditor returns (see [3], [5]-[7]).
Administrators can point to active marketing, expressions of interest, valuation reports in progress, or imminent offers that are expected but need time to be formalised and compared (see [4]-[6], [10]).
Administrators can show no significant prejudice to third parties from the extension: creditor support or non-objection from major secured creditors; employees retained and paid; administrators have funding to meet cashflow during the extended period (see [6]-[7]).
The extension is a finite period reasonably related to the steps to be completed (here 90 days) and the complexity of the matters to be resolved (see [11]).

How later courts have treated it

This judgment itself cites earlier authorities (Re Diamond Press, Re Riviera, Re Mentha, Re Kavia) as the existing jurisprudential background to extension applications (see [9]). The present decision applies those authorities to a co-operative context and records that the Court will give weight to administrators' assessments and to practical steps shown in evidence.

The judgment does not contain material about how later courts have treated this specific decision. It therefore does not provide authority about subsequent treatment. To determine later judicial treatment one must search subsequent decisions and citations of this judgment, which are not contained in this judgment record.

Still-open questions

Grounded in the text of this judgment, the following remain areas where further factual or legal nuance could be relevant in future cases:

Extent of deference to administrators: Black J emphasised "considerable weight" to administrators' assessments (see [9]). The boundaries of that deference, how detailed court scrutiny should be when administrators' commercial judgments are asserted, are not exhaustively defined here and will depend on case-specific evidence.
The interaction between club-specific regulatory regimes (Registered Clubs Act and poker machine entitlements) and administration options: Black J observed additional complexity due to the Club being a licensed co-operative and the potential transfer of entitlements on amalgamation (see [6]). The precise legal constraints and opportunities created by licensing or club legislation will require focused analysis in particular cases.
The permissible length of an extension: Black J accepted a 90 day extension as justified by complexity (see [11]). What constitutes an acceptable extension length in other contexts is fact-dependent; this decision provides an example but not a fixed rule.
Treatment of employees and creditors with claims that might crystallise or be affected by extended moratoria: Black J noted employees were not disadvantaged here because they remained employed and paid (see [7]); different funding or employment circumstances could change the balance.
Application to co-operatives more generally: This decision confirms Pt 5.3A's applicability to co-operatives via the Co-Operatives National Law (see [8]). But the diversity of co-operatives may produce novel issues in other cases, particularly where statutory co-operative rules impose distinctive constraints.

Final note: This analysis explains Black J's reasoning in this single judgment and summarises the legal framework and factual factors he relied upon. It is legal information only. I am not your lawyer, I can make mistakes, and before you act on, rely on, or use any part of this analysis or any draft orders, get a qualified Australian lawyer to check it.

Judgment (3 paragraphs)

[1]

Solicitors: Minter Ellison (Plaintiffs) File Number(s): 2015/64078

[2]

Judgment - ex tempore

By Originating Process filed by leave on 2 March 2015, the Plaintiffs, Messrs Merryweather, England and Honner ("Administrators") in their capacity as joint and several administrators of Belmont Sportsmans Club Co-Operative Limited (administrators appointed) ("Club") apply to extend the convening period for a meeting of creditors of the Club under s 439A(6) and s 447A of the Corporations Act 2001 (Cth). They also seek an order, which is common in applications of this kind, that Pt 5.3A of the Corporations Act then be modified such that the second meeting of creditors may be held at any time on or before the date to which the convening period is extended or within five business days after that date. They also seek an order, again common in applications of this kind, that any director, creditor or contributory of the Club have liberty to apply on three days' notice to vary or amend the order extending time.
The application is supported by an affidavit of Mr William Honner, one of the Administrators, sworn 2 March 2015. Mr Honner sets out the background to the application, and the nature of the Club's activities, and I should refer to his evidence before turning to the applicable legal principles. The Administrators were appointed on 3 February 2015. Mr Mackay, who appears for the Administrators, has indicated from the bar table that that appointment took place in the context of a winding up application that had been brought by the Australian Taxation Office in respect of the Club in respect of an outstanding tax debt. The Club operates from premises at Belmont, New South Wales, near Lake Macquarie. It owns those premises, and there is evidence as to the facilities that are erected upon them, which include a clubhouse containing a gaming area with 67 gaming machines and other facilities. The Club has approximately 28 employees, as well as using external security staff and cleaners, and a bistro is currently operated by an external party. The Club has also received, and has in place, development approval from Lake Macquarie City Council for the construction of self-care senior residences on its site, and for the subdivision of that site, with one portion of the property being used for the proposed development and the remaining portion of the property being used by the Club.
Mr Honner's affidavit evidence is that there are a significant number of creditors known to the Administrators, which presumably include the Australian Taxation Office to which I have referred. Two parties are, or claim to be, secured creditors, the first being Perpetual Nominees Limited as trustee for Australian Unity High Yield Mortgage Trust which is a lender, secured by a registered mortgage, to the Club and the second of which is Stevens Constructions (NSW) Pty Ltd which claims to be a secured creditor in respect of a development agreement entered into with the Club in February 2014. The Administrators note that there are approximately 105 creditors in addition to those two identified secured creditors. There is evidence that significant amounts are owed by the Club, both to the secured and the unsecured creditors.
The Club is presently obliged to convene its second meeting of creditors tomorrow, 3 March 2015, so that the second meeting of creditors would be held on or before 10 March 2015. The Administrators now seek an extension of the convening period for a period of 90 days to 1 June 2015. Mr Honner's affidavit, appropriately, sets out the work which has been undertaken by the Administrators since they were appointed which includes, relevantly, dialogue with the employees of the Club, who continue to be paid their wages; the appointment of a valuer to undertake a valuation of the Club's property and the Club; the continuance of a marketing and sales campaign for a possible amalgamation of the Club or the sale of its property and the Club, which had commenced prior to the Administrators' appointment; and the usual activities which would be undertaken in respect of an administration, including communication with secured creditors of the Club.
Mr Honner's evidence is that the Administrators require more time to form a view about the best recommendation to creditors with respect to the future of the Club, as it is not yet clear what sale strategy in respect of its assets, including the property, will provide the best return for creditors. They point out that, prior to their appointment, the Club had already been engaged in developing a proposal for an amalgamation with a potential partner under the provisions of the Registered Clubs Act 1976 (NSW) and had received two expressions of interest in respect of that process. The Club had already commenced the marketing of that part of the property on which the development is proposed in order to reduce its debt, and two parties have been identified as potential purchasers. The Administrators have progressed those activities since their appointment. They indicate that several parties have expressed interest, which is developed to a greater or lesser extent, in respect of a potential amalgamation or purchase of the Club's property, although it is not necessary to set out the detail of that interest in this judgment. They indicate they are also considering an appropriate sales strategy with respect to the poker machine entitlements held by the Club, although those entitlements would transfer to an amalgamated Club on an amalgamation.
The Administrators identify several reasons for seeking a further extension of the convening period for the 90 day period to which they have referred. First, they identify the desirability of that extension to allow the making of further offers, which they anticipate receiving in respect of an amalgamation or sale, and to allow a further opportunity for analysis of those offers, with the benefit of the valuation report which they expect to receive shortly. They note that further time would then be required to negotiate with parties in respect of the structure of any amalgamation or sale, including details such as whether a subdivision of the property is required, whether a sale of the Club as a going concern is proposed, or whether a deed of company arrangement would be required or proposed. I interpolate at that point that those possibilities indicate a degree of complexity involved in assessing the alternative courses, because the Club is a co-operative operating as a licensed club, which would not necessarily arise in respect of a company in administration, and other options may be available to deal with the Club's property which would not be available in respect of a company.
Mr Honner, appropriately, indicates that he has given consideration to parties that might be affected by such an extension. The first secured creditor, Australian Unity, has indicated that it does not object to a proposed extension of the convening period for up to 90 days. There is evidence that the second secured creditor, Stevens Constructions, has also indicated that it supports the proposed application in order to facilitate the best outcome for creditors. It does not seem to me that the extension is disadvantageous to employees, because they remain in employment and are continuing to be paid, although it defers or avoids the crystallisation of claims which might arise if the Club were to be wound up. That, from employees' perspective, may well be desirable, particularly if it affords them, or some of them, the opportunity for continued employment within any amalgamation of the Club with another club. The continuance of the administration will, of course, also continue the statutory moratorium in respect of creditors' claims. However, the proposed extension, although not short, is also not very long, and there would be a corresponding advantage to other creditors so far as the extension might maximise either the prospect of a successful amalgamation of the Club or the values achieved on realisation of its assets. The Administrators' evidence is that they have sufficient funding available to meet the Club's cashflow requirements during the period of the extension.
I turn now to the applicable legal principles. The first matter which should be noted is that the Club is not a company incorporated under the Corporations Act. However, as Mr Mackay points out, the Co-Operatives National Law applies as part of the law of New South Wales, by reason of the Co-Operatives (Adoption of National Law) Act 2012 (NSW). The Co-Operatives National Law in turn provides that certain provisions of the Corporations Act are applicable to co-operatives and, in particular, Pt 5.3A of the Corporations Act applies to co-operatives under s 382 of the Co-Operatives National Law, and s 15 of the Co-Operatives National Law provides for a relevant application under Pt 5.3A, as so applied, to be made to this Court. Accordingly, the provisions in Pt 5.3A, including those which initially provided for the Administrators' appointment, then for the convening of the first meeting and second meeting of creditors, and also for the Court's power to extend the time for such a meeting under s 439A of the Corporations Act, are also applicable to the club as a co-operative.
Mr Mackay draws attention to the well-established principles dealing with the circumstances in which a convening period should be extended. He points out, as Barrett J observed in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] in a passage which has since been cited on many occasions, that the Court's function in an application of this kind is to strike a balance between the expectation of a speedy and summary administration and the requirement that undue speed not prejudice sensible and constructive actions directed to maximising the return to creditors and any return for constituents. Mr Mackay also points to the decision of Austin J in Re Riviera Group Pty Ltd (admins apptd)(recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 at [13], which has again been cited on many subsequent occasions, which identifies matters relevant in such an application. In the present case, a number of those matters are not relevant, but relevant factors to this application include the desirability of time to execute an orderly process of the disposal of the Club's assets and of the assessment of any proposal for a deed of company arrangement and that the prospect of the additional time would enhance the return for unsecured creditors. There are other examples where the courts have granted extensions of time to facilitate a sale process, including Re Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (admin apptd) [2008] FCA 1933 and Re Kavia Holdings Pty Ltd (admin apptd) [2013] NSWSC 737. I would add, in addition to the principles to which Mr Mackay has referred, that the authorities have emphasised that the Court will give considerable weight to the assessment reached by an administrator in respect of an application of this kind, since they are particularly well qualified to make an assessment as to whether creditors' interests, both in respect of the provision of accurate information at a second meeting of creditors, and in respect of maximising the value on a realisation of the company's assets, are likely to be facilitated by an extension of the convening period.
In the present case, as Mr Mackay points out, the extension of the convening period sought by the Administrators is necessary, in the strict sense, to allow them to obtain the further offers which they are anticipating and to undertake an assessment between those options, as to the various courses such as amalgamation or sale of property which may be available, and to negotiate with relevant parties and prepare relevant documents. Conversely, if an extension of time were not granted, the Administrators would now be required to call a second meeting, at a point at which they had not been able to explore all available options to maximise the value of the Club's property, and would not be in a position to adequately inform creditors of the options available to them at a second meeting.
For these reasons, and in circumstances that it does not seem to me that there is a significant risk of prejudice to third parties, I am satisfied that the extension of time sought by the Administrators is appropriately granted. Although the time sought is not short, I have noted above the complexity of the process which is involved, and it seems to me that the time sought is justified by the complexity of that process. As I have noted above, the Administrators seek the usual, and desirable, order permitting them to convene the second meeting of creditors earlier, if events develop such that they are in a position to do so, and also a provision which will allow any interested person, whose interests are, he or she perceives, adversely affected by this application to bring a further application to the Court. I should also add that the Administrators seek the usual order that their costs of the proceedings be paid as a cost in the administration of the Club. That order is properly made where, as in this case, the application is one that promotes the purposes of the administration and was properly brought by the Administrators on that basis.
For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. I note that these orders include an order that these orders be entered forthwith.

[3]

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 May 2015

In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543

At a glance

Result

Key principles

Issues before the court

Plain English Summary

Cited legislation

Deep Dive

What happened

Why the court decided this way

Before and after state of the law

Key passages with plain-English translation

What fact patterns trigger this precedent

How later courts have treated it

Still-open questions

Judgment (3 paragraphs)

Legislation Cited (3)

Cases Cited (4)

Cited By (20)

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