By application made by leave today, Mr Jamieson Louttit, in his capacity as administrator of Canberra Eye Hospital Pty Ltd (Administrator Appointed) ("Company") applies under ss 439B and 447A(1) of the Corporations Act 2001 (Cth) to extend the period in which a second meeting of creditors of the Company, which has already been convened, may be held.
In the matter of Canberra Eye Hospital Pty Ltd (Administrator Appointed) [2015] NSWSC 1215 | Case summary | Zoe
This is the second application for an extension of that period, albeit the circumstances that now face the administrator have changed since the first application which was heard before Brereton J. At the time of the first application, an agreement had been reached for the sale of the Company's business to its majority shareholders and the period for holding of the second meeting of creditors was extended to allow that sale to complete. The extension then granted was such that the meeting should occur no later than 29 May 2015. A meeting did take place, was adjourned, albeit not to a particular date, and has since been convened to resume on 29 May 2015.
The sale agreement between the administrator and the majority shareholders was not, as had then been anticipated, completed and, on 22 May 2015, the administrator gave notice to the purchaser, which is an entity associated with the majority shareholders, to complete that contract by 9 June 2015, and also gave notice of a potential forfeiture of the deposit and termination of the agreement in the event of a failure to complete.
In the meantime, minority shareholders in the Company had foreshadowed the possibility of a deed of company arrangement, but no such deed has yet been proposed, and solicitors for the majority and minority shareholders have indicated that they are undertaking parallel negotiations for a sale of shares held by the minority shareholders in the Company to its majority shareholders, which are expected to either be completed, or be terminated this week. The relationship between the sale of the business, as contemplated by the sale agreement, and the negotiations between the majority and minority shareholders, is not entirely clear and Mr Martin, who appears for the administrator, fairly accepted that what is likely to occur, if an agreement is reached between the majority and minority shareholders, is that a proposal would then have to be put to the administrator as to what would occur next.
Each of the majority and minority shareholders have been advised of the proposed application to extend the date for the second meeting of creditors. The solicitors for the minority shareholders, by letter dated 25 May 2015, indicated they did not object to that course. The solicitors for the majority shareholders consented to the application for an extension, but suggested that the date should be extended beyond 15 June 2015, in case matters were not finalised by that date. In the event, the administrator now seeks an extension of the time to convene the meeting to 30 June 2015, which would allow three weeks after the date on which the sale agreement is to complete to resolve the position. I will return to whether that date is reasonable below. I note at this point that it would be unwise for the majority shareholders to assume that extensions will be granted on a repeated basis, while negotiations between the majority and minority shareholders continue. The administrator, I should note, properly made no such assumption in this application, properly recognising that the onus was on him to satisfy the Court of the appropriateness of an extension.
The administrator's solicitors have also appropriately given notice to the lessor of the property occupied by the Company, which is, in one respect, the person most likely to be affected by the extension, so far as a moratorium in respect of any action under the lease would continue while the administration remains in place. The lessor has consented to the extension of the period in which the second meeting of creditors is to be held. I have been provided with a list of creditors, which indicates that there are a limited number of creditors, and only one employee is affected by the orders sought, who would be a contingent creditor if her employment were terminated. Her employment is presently continuing, so there is no question of her being disadvantaged by an extension of the time to convene the second meeting, at least, as matters presently stand.
The principles applicable to an order to extend the period in which the second meeting may be held are well established, and I have reviewed them in Re Palace Memories Pty Ltd (Administrator Appointed) [2015] NSWSC 56, to which Mr Martin draws attention. I there referred to decisions both in the Federal Court of Australia and in this Court which recognise that the Court may make such an order, at least, under s 447A of the Corporations Act, on which Mr Martin relies, and that the matters relevant to the making of such an order correspond to those which would be relevant to an extension of the convening period, involving the need to strike an appropriate balance between the expectation that an administration would be relatively speedy and summary and the requirement that undue speed not prejudice sensible and constructive actions.
In the present case, it seems to me that the exercise of the discretion is straightforward, at least, on this occasion, although, it would be much less so if a further extension were ultimately sought. Mr Martin pointed out, and I accept, that the present position appears to be that, if the share sale agreement is completed on 9 June, in accordance with the notice to complete, the Company's creditors are likely to be paid one hundred cents in the dollar and that is consistent with the administrator's report to creditors. On the other hand, if the Company was placed in liquidation, and the lessor chose to terminate the lease of the premises, which has a considerable period to run, and to prove in a liquidation for the damages suffered on an early termination of the lease, then it is possible or probable that the return to creditors will be substantially reduced.
If the second meeting of creditors were to be required to proceed on, or by 29 May 2015, then creditors may have no option other than to permit the Company to go into liquidation, because there is presently no deed of company arrangement proposal before them, and it would be unclear whether shareholders would have completed the purchase of the Company's business at that date. Without an order of the Court, creditors could not then adjourn the second meeting further, because the statutory period for such an adjournment, as extended by Brereton J, would have expired. The result would be to force upon creditors a liquidation of the Company, and, potentially, a worse outcome than would be achieved if the sale of the business completes in accordance with the sale agreement reached by the administrator. In these circumstances, although I am conscious that an extension of time will extend the period of the administration, it seems to me that the advantage of that course to creditors is clear, and the lessor of the property occupied by the Company, who is potentially at risk of disadvantage by that course, consents to it.
I note that the administrator seeks a period of a further three week extension, and Mr Martin fairly conceded that that was, on one view, a somewhat ambitious request. Having said that, it seems to me that the administrator would require some time, after the date on which the notice of completion expires, to determine what is then to be done, whether after a successful completion of the sale of the business, or if it has become apparent on that date that the sale of the business has not completed. Equally, if shareholders' negotiations come to fruition, within the time they have foreshadowed, then there may be some time required to implement any sale of the shares in the Company agreed between them, and determine its impact upon the administration.
In these circumstances, and given the lessor's consent to an adjournment, it does not seem to me that an extension of 21 days for that period is unreasonable. I note that the orders sought sensibly contain a common provision which allows an interested person to apply to vary these orders, if he or she is so inclined and that, in turn, protects such persons against any pressure that may result from the longer extension which is sought.
Mr Martin has already rightly drawn attention to the fact that the orders that are sought, as Brereton J last noted when similar orders were sought before him, in effect, allow creditors to vote to adjourn the meeting, for a period up to the maximum period which will be permitted by the order. This arises because the administrator has already convened the meeting, for 29 May 2015, and there is no suggestion that meeting will not proceed. It will be open to creditors on that date to consider the options available to them, and to consider the period for which they wish to extend to adjourn the meeting, preferably to a specified date, within the time which these orders permit. That is a matter that further supports the position taken by the administrator, which, in that light, may be seen as entirely consistent with the exercise of creditors' rights to determine the fate of a company in administration, at a second meeting at which they have the opportunity to be represented.
For all these reasons, I am satisfied that I should make the orders which are sought. I make orders in accordance with the short minutes of order, initialled by me and placed in the file, inserting in order 3, 30 June 2015, on the two occasions where a date needs to be inserted. I make a further order 7 that these orders shall be entered forthwith.
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Decision last updated: 03 September 2015