In the Matter of Harrisons Pharmacy Pty Limited (Administrators Appointed)... [2013] FCA 1102 | Case summary

The confidential affidavit of Jason Mark Tracy sworn 15 October 2013 and the confidential exhibit JMT3 to that affidavit be kept confidential until 22 October 2015.
The date by which the plaintiffs are required by s 439A of the Corporations Act 2001 (Cth) (the Act) to convene the second meeting of creditors of the Harrison Group of Companies as set out in the attached Schedule (the companies) be extended to 30 April 2014.
Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act operates in relation to the plaintiffs and the companies such that, notwithstanding s 439A(2) of the Act, the second meeting of creditors of the companies may be convened at any time before the end of the convening period (as extended by order 2, above), provided that the plaintiffs give notice of the meeting in accordance with s 439A(3) of the Act.
Any person having a sufficient interest may apply to the court to vary orders 2 and 3 upon providing at least 5 days' written notice to the plaintiff's solicitors.
As soon as practicable, the plaintiffs are to provide notice to the creditors of the companies in the terms of these orders by email, where an email address for the creditors is held, or by way of written correspondence sent to their last known address. Notice of these orders is also to be made available by the plaintiffs on their website, www.rogersreidy.com.au.
The plaintiffs' costs of this application are costs and expenses in the administration of the companies and are to be paid out of their assets.
The confidential exhibit JMT3 be returned to Mr Lomb and Mr Tracy in their capacity as joint and several receivers and managers of the companies. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT 1 This is an application under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) for an order further extending the convening period for the holding of the second meeting of creditors for nine companies which form what is referred to as the Harrison Group of Companies. The further extension sought is for a period of six months. It is a further extension because on 21 May 2013 Farrell J granted a first extension of the convening period also for a period of six months, her Honour's reasons for so doing being set out in her decision In The matter of Harrisons Pharmacy Proprietary Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458. 2 For the reasons which follow I am satisfied that it is an appropriate exercise of discretion to grant the further extension of time which is sought, notwithstanding the fact that I acknowledge that the further extension of six months involves a relatively long overall extension - 12 months in total - in circumstances where, for example, it has been observed by Barrett J in Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [23] that it was appropriate for senior counsel in that case to acknowledge that the six month extension there sought was "at the upper end of the scale." 3 The fact that a further six month extension is being sought in this case calls into play and requires a real focus on the observation, for example, that was made by Austin J in Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 at [18] that: [t]he longer the extension that is sought the more important it is for the court to be given a clear and complete explanation of the state of the administration, the grounds for the extension and any potential prejudice that would flow from granting it. 4 In the present case I am satisfied that I have been given a clear and complete explanation of the state of the administration in affidavits by both the administrator and receiver. I do understand the grounds for the extension sought and there has been disclosed to me the potential prejudice that might flow from the granting of the extension. In overall terms, both the administrator, Mr Robert Moodie, and receiver, Mr Jason Tracy, have set out what work has been done so far, and indeed that work is very extensive, but have also given a summary of their views as to why the further extension should be granted. In short, that is because a further extension is to the likely overall benefit of all interested stakeholders, including potentially adversely affected employees, when their position is assessed on balance. 5 The circumstances, in short, are that in the period of the initial six month extension granted by Farrell J much work has been done, the result of which is that seven of the businesses have been sold. Seven more are subject to a pending sale which it is anticipated will be completed in November or December this year, although I should add that the evidence shows that, as might be expected in commercial negotiations of this type, issues arise which cannot always be anticipated. Finally, there are an additional five businesses which are still the subject of negotiations but sale contracts have not yet been entered into. It is the desire to sell those five businesses, or at least have the best opportunity to sell those five businesses, on an ongoing concern basis which has led to the application for the further extension for the six month period. While it is possible that some of those businesses may be sold within a period sooner than six months, on the best estimates at this stage there are others which seem not as far advanced in the process of negotiation and it is estimated that those, at least, will take the six months which has been sought. In addition, given the nature of the businesses, approvals are required from relevant regulatory authorities which has been factored into the period of six months sought. 6 Both classes of affidavits considered the position of employees. It is apparent that there is some potential for prejudice to certain employees if the sales of the businesses complete significantly in advance of the end of the period for the convening of the second meeting of creditors and there are insufficient assets available at that time to pay employees their full entitlements. As I understand it, the capacity for such payments is largely dependent on resolution of issues with a key supplier, Sigma Pharmaceuticals Limited. In any event, the issue seems to be one ultimately of timing, in the sense that those employees would not be able to claim the balance of their full entitlements from the Commonwealth Fair Entitlement Guarantee Scheme unless and until the companies went into liquidation. On the other hand, as is observed by Mr Tracy, if the extension is granted it is likely that a significant portion of the pre-appointment entitlements owed to employees who continue to be employed may be able to be transferred to incoming purchasers and redundancy payments thereby avoided. 7 It is for this reason that Mr Tracy has concluded that the continued trading of the businesses for the purposes of achieving sale of these remaining five businesses as going concerns, which necessitates the extension of the convening period, will yield the best result for creditors and maximises the chances of preserving jobs for the majority of the employees who continue to be employed in the businesses. It also benefits the landlords by providing opportunities for them to renegotiate or assign current leases to incoming purchasers and will afford trade creditors the opportunity to continue supplying the various entities during the receivership and to negotiate new trading terms with any incoming purchasers. 8 It has been disclosed in Mr Moodie's affidavit that, as might be expected in the case of a group of companies, not all are in the same position. Some of the companies have been the subject of the completion of sale of businesses, three entities in particular being noted by Mr Moodie, and two entities each have only one secured creditor and no other creditors, do not conduct any business and do not have any employee creditors. It is apparent, therefore, that these businesses do not require an extension of the convening period. Nevertheless, Mr Moodie has requested an exercise of discretion to extend the convening period for these entities if the convening period is otherwise extended, the reason being to enable costs to be saved in the sending of the report to creditors of those companies. There is an estimate of $15,000 to $20,000 additional costs and disbursements in dealing with those entities separately. In circumstances where there is evidence that there is no prejudice to any person in respect of those companies, it seems to me that the cost savings which have been identified is an appropriate reason to retain the administration of the companies as a group. In addition, as I have said, the only potential prejudice is to certain employees, and it appears on balance from the evidence that subject to a possible timing issue for the payment of their entitlements, their overall position is likely to be enhanced if the remaining five businesses can be sold as ongoing concerns as proposed. 9 Other relevant considerations are that it is clear from the material that the further extension of time which is being sought is not in any way due to any delay or dilatory conduct of those involved in the processes of sale thus far. The other relevant consideration on the facts in this matter is the one identified by Farrell J in her original decision. At [47] Farrell J emphasised that the Court had to consider the appropriateness of the length of the extension sought, having regard to the availability for further extension in appropriate cases to be granted. The reason for this, as her Honour put it, was so that the Court "is in a position to monitor the manner in which the administration and any associated receivership is being conducted." 10 Her Honour identified a series of relevant considerations. The first was that the extension should be for no longer than is required for a diligent exercise of the powers of the administrators and, where relevant as here, the receivers and managers. On the other hand, in dealing with the same factor, Farrell J observed that successive applications to the Court themselves involved costs. Farrell J also noted that it is undesirable for claims which are subject to a moratorium to remain on foot any longer than necessary; that an overly protracted administration is unsettling to employees who may leave for more certain employment thereby diminishing the value of the business; that unnecessary delay exposes the assets of the company to market risk; and that the longer the administration or receivership the greater potential there is for the interests of the secured and unsecured creditors to diverge to the detriment of unsecured creditors and, of course, that it was the clear intention of the legislature that administrations be conducted expeditiously. 11 In this matter, these considerations weigh relatively heavily because a full extension of six months is being sought in addition to the original extension for six months in circumstances where, for example, the evidence suggests that some of the sales might either be completed or other decisions made in relation to those businesses before the expiry of the full six month period. I have been assured that if it transpires in the present case that either all of the outstanding five businesses are sold or decisions otherwise made to crystallise all assets, rights and liabilities in relation to those businesses, the second meeting of creditors will take place at the earliest opportunity within the six month period. It seems to me that in the present case, given the nature of the evidence, this is an appropriate undertaking and it leads me to the view that on balance in the present case it would not be appropriate to grant an extension for a shorter period, such as four months, and to require the parties to attend again before the Court in order to assess whenever any further extension should be granted. It seems to me that this will involve unnecessary cost in circumstances where I have been assured, and the orders proposed contemplate, that the second meeting of creditors will take place within the period of six months at the first available opportunity, having regard to the position of the five outstanding businesses. Otherwise it is not necessary to refer to the other factors and considerations which were set out in the judgment of Farrell J. The evidence in the present case addresses those matters and none of them give me cause for concern. 12 I make orders accordingly. I certify that the preceding twelve (12) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

In the Matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 1102

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