In the matter of Global Food Equipment Pty Ltd (under administration); Carter v Global Food Equipment Pty Ltd

3382/07 In the matter of Global Food Equipment Pty Ltd (under administration) and each of the companies named in the Schedule to the Originating Process; Phillip Patrick Carter v Global Food Equipment Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application under s 439A(6) of the Corporations Act 2001 (Cth) for an order extending the period for convening the second meetings of creditors to 31 August 2007. 2 On 12 June 2007, the plaintiffs were appointed as administrators to six companies in the Global Food Equipment Group (save for one company, Curtin Global Food Equipment Pty Ltd, to which only Mr Hall was appointed administrator). Their appointment was confirmed at the first meeting of creditors held on 19 June 2007. Unless extended, the time for convening the second meetings of creditors will expire on 2 July 2007 and the meetings will be required to be held within five business days thereafter (s 439A(1) and (5)). 3 The companies are in the business of supplying commercial food preparation storage products to food chains, supermarkets, restaurants and health-care establishments. They sell commercial bakery, cooking, dishwashing, meat/deli and refrigeration/merchandising displays to retailers. The administrators have continued to trade with a view to selling the business or businesses of the group as a going concern. The companies conduct businesses from nine premises in New South Wales, Victoria, Queensland, the ACT and Western Australia. There are 191 employees. 4 The consolidated management accounts as at 30 April 2007 disclosed that the group had liabilities of approximately $31,900,000. There are complex inter-company loan accounts. There are approximately 623 external creditors across the group, of which about forty are located overseas. The National Australia Bank holds a charge over all the assets and business of all but one of the companies in the group. The charge secures a debt of about $16,000,000. Ordinary unsecured creditors who do not have priority are estimated to total about $9,000,000. 5 The administrators consider that it is in the interests of creditors that the business of the group is sold. They have issued an information memorandum to interested bidders and have advertised nationally for expressions of interest to buy all or part of the business of the group. They have received numerous requests for further information and for clarification of issues relating to the sale. The information memorandum has been circulated to nineteen companies whom the administrators consider to be potential purchasers. 6 The focus of the administrators' efforts has been on achieving a sale of the business of the group. They have not also been able to conduct thorough investigations into matters such as possible claims against directors, recovery of potential preferences, disputed debts, claims by suppliers for reduction of title, anticipated warranty claims from creditors, and intercompany loan balances. 7 At present they are not in a position to make a meaningful report to creditors as to the companies' business, property, affairs and financial circumstances which is required to accompany a notice convening the second meeting of creditors (s 439A(4)(a)) or expressing an opinion about the matters in s 439A(4)(b). 8 The administrators' intention to endeavour to sell the group's business was flagged at the first meeting of creditors. Mr Carter told the meeting that the essence of success was to "hit the ground running" and to conduct an orderly but quick sale of the companies. He said that the administrators believed that there was a good potential for sale of the business as a going concern. He said that an advertisement would appear that day in the Australian Financial Review which was likely to produce further interest and that the administrators were aiming for a sale to occur within four to six weeks, with the business being sold as a going concern. 9 The administrators' timetable proposes that indicative offers be submitted by 4 July 2007, that preferred bidders be provided with the opportunity to conduct due diligence by 18 July, that final offers be submitted by 20 July and that the sale be effected by 27 July 2007. Accordingly, if the convening period for the second meeting of creditors is extended to 31 August 2007, and the administrators' hope and belief that the whole or part of the companies' businesses can be sold is realised, then, on the current timetable that will occur before the meeting is held. 10 To date, no person has proposed a deed of company arrangement. 11 On any application under s 439A(6), the Court's task is to balance the need for the administration of a company to be carried out as efficiently and expeditiously as practicable so as to minimise the effect on those persons who are subject to the moratorium imposed by Part 5.3A, against the need to give the administrators time to present meaningful choices to the creditors at their meeting (see Re Pan Pharmaceuticals [2003] FCA 598 at [41] per Lindgren J; Re New Horizons Pty Limited [2004] NSWSC 253 at [5]).

12 The group's affairs are complex. Some extension of time for convening the second meeting of creditors must be given. The question is whether the extension should be for such a period that the businesses of the companies might be sold before the meeting is held. 13 Administrators are entitled to sell all or part of a company's assets and business before a second meeting of creditors with a view to maximising the returns to creditors (s 437A(1)). The matter for decision at the second meeting of creditors under s 439A is not whether the assets or business of the company should be sold and if so, at what price. It is not the creditors' direct function to approve or disapprove of a proposed sale. The creditors must decide whether the company should remain in administration, whether it should be wound up, or whether any deed of company arrangement which is proposed should be entered into. 14 However, any proposal for sale of the companies' assets and business could be relevant to the making of the decision required by s 439A. A sale of the companies' assets or business prior to the meeting could pre-empt a proposal for a deed of company arrangement which might otherwise have been advanced, or it might significantly affect the terms of a proposed deed of company arrangement. Creditors might make a different decision as to whether the company should be wound up or the administration should be brought to an end if a sale has been effected, than they would make if a sale was still a proposal. 15 The policy behind Pt 5.3A combines elements which cannot always work in harmony. One objective is to maximise the chance that the company, or as much as possible of its business, continues in existence (s 435A(a)). The sale of the company's businesses will not advance that objective. However, another objective is that if the continuation of the company's business is not possible, returns to creditors should be maximised (s 435A(b)). Here the administrators consider that the optimum return for creditors is the sale of the businesses, and that to maximise the prospects of a successful sale, the businesses should be continued as a going concern for the time being, but that the steps needed to achieve the sales should be taken and completed as quickly as possible. 16 A third element is that it is for the administrators to determine whether assets are sold, but it is the creditors who determine whether the administration should continue, or whether the company should be wound up, or whether any proposal for a deed of company arrangement should be approved. That is so even though a sale of assets may affect such a decision by the creditors. 17 A fourth element is that unless the court extends the time for the convening of the second meeting of creditors, the creditors are to be given a swift opportunity to make their decision. 18 I was referred to a number of decisions where the time for convening the second meetings of creditors was extended against the background of the administrators negotiating for the sale of the company's assets. The most relevant are Re Diamond Press Australia Pty Ltd [2001] NSWSC 313, Re WC Penfold; Ex parte Lombe [2004] NSWSC 248, and Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446. Each case depends on its own circumstances. In none of the cases cited is it clear that the proposal was that a sale which was then being negotiated would be effected before the second meeting of creditors was held. In principle, it seems to me that if the prospect of maximising returns to creditors was not jeopardised by the second meeting of creditors being held before any sales of businesses were effected, then it would be preferable for the second meeting of creditors to be held before the creditors were presented with what might be a fait accompli. 19 Notwithstanding that it is the administrators' right and their power to decide how the companies' assets will be dealt with, the creditors have a legitimate expectation that the second meetings to decide the companies' fate will be held swiftly and, hence, to consider the proposals in the deed of company arrangement which might be precluded by a sale. 20 However, whilst this is the theoretical position, the sting is in the rider. The order extending the period for convening the second meeting to 31 August 2007 is sought by the administrators because they consider that a swift completion of the sale process will maximise returns to creditors. They are experienced insolvency practitioners whose judgment should be respected. It may be that prospective purchasers will be discouraged if they believe that they will be unable to complete the purchase swiftly. 21 The prospect of creditors resolving at the second meeting of creditors to simply end the administration is remote. If the creditors were to resolve on the companies being wound up, the administrators, as liquidators, would presumably attempt to complete whatever sale they had negotiated, assuming they were satisfied with its terms. Accordingly, the only realistic prospect of detriment to creditors would be if an advantageous deed of company arrangement, which might otherwise be proposed at the second meeting, was not put forward because it had been pre-empted by a sale. 22 No deed of company arrangement has been proposed at this stage. Despite inquiries, no member of the management of the group has indicated any interest in making a proposal for a management buyout. As I have said, the administrators advised the first meeting of creditors of their intention to try to achieve an orderly, quick sale of the companies as a going concern. They have advertised in the national press for expressions of interest in the purchase of the assets and business of the group. No objection has been made by anyone to this strategy. 23 At the first meeting of creditors a committee of four was appointed as an informal committee for the companies comprising the Global Food Equipment group, in order to consult with and advise the administrators. Only three out of four members of the committee have responded to a request for their views on the present application. The three who have responded support it. The National Australia Bank also consents to the application. 24 The application is made ex parte. In theory at least there may be persons affected by an order extending the period for convening the second meeting to 31 August 2007. In particular, any person who may be proposing a deed of company arrangement might wish to be heard to resist an order that the time for convening the meeting be extended until after any acceptable offers for the purchase of the companies' assets and business are accepted. 25 The appropriate balance is to make the orders sought for extending the period for convening the second meeting to 31 August 2007 as sought by the administrators, but with liberty to any person to apply to vary the order on appropriate notice to the plaintiffs. Such an order is appropriate because the application is made ex parte. It would also protect the creditors' position if, unknown to the administrators and the Court, a potentially advantageous proposal for a deed of company arrangement is under consideration by someone who has not yet come forward but which would be pre-empted by a sale, or if a potential purchaser of a particular company's assets preferred to propound a deed of company arrangement rather than an outright cash purchase. 26 Such a reservation of liberty to apply has been made in appropriate cases (see in particular in the matter of Re Henry Walker Eltin Group Ltd [2005] FCA 316 at [5]-[7] per Hely J.) 27 Although any application pursuant to the liberty to apply to vary the order would be made outside the time prescribed by s 439A(6) for extending the convening period, that should not defeat any such application, particularly as s 447A could be called in aid if it were necessary to do so. 28 An order is also sought and should be made under s 447A to enable the meeting to be held before the end of the convening period if the administrators consider it desirable to do so (Re Daisytek Australia Pty Ltd, Re Pan Australia Shipping Pty Ltd [2006] FCA 1464 and Re Fincorp Group Holdings Pty Limited [2007] NSWSC 363). 29 For these reasons, I make orders in accordance with paras 1, 2 and 3 of the originating process. I grant liberty to apply to any person who can demonstrate sufficient interest to vary these orders on reasonable notice to the plaintiffs. 30 These orders may be entered forthwith. 31 Exhibit PC1 may be returned.

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