Supreme Court of the ACT|2021-07-05

In the matter of National Health Co-operative Limited (Administrators appointed) [2021] ACTSC 206 (31 August 2021)

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

In the matter of National Health Co-operative Limited (Administrators appointed)

CORPORATIONS - External Administration - Cooperative under Co-operatives National Law (ACT) Act 2017 (ACT) - application of Pt 5.3A of the Corporations Act 2001 (Cth) to a cooperative - whether administrators validly appointed - application for directions under Insolvency Practice Schedule (Corporations) s 90-15 - whether meetings of creditors can be held electronically - application under s 439A(6) of the Corporations Act 2001 (Cth) to extend the period within which the second meeting of creditors must be convened - application to pay entitlements of any employees in the ordinary course of business

Co-operatives (Adoption of National Law) Act 2012 (NSW) Appendix ss 4, 381, 382, 383, 384, 385, sch 4

Insolvency Practice Rules (Corporations) 2016 (Cth) rr 75-15, 75-30, 75-35, 75-75

Insolvency Practice Schedule (Corporations) 2016 (Cth) ss 90-15, 105-1

Diamond Press Australia Pty Limited [2001] NSWSC 313

In the matter of BBY Limited [2015] NSWSC 974

Mighty River International Ltd v Hughes [2018] HCA 38; 265 CLR 480

Re Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543

Re Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) & Ors [2015] NSWSC 2002

Re University Co-operative Bookshop Limited (admins apptd) [2019] NSWSC 1898

Re University Co-operative Bookshop Limited (administrators appointed) (No 2) [2020] NSWSC 97; 350 FLR 188

Re Wiggins Island Coal Export Terminal Pty Ltd [2018] NSWSC 1342

Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571; 144 ACSR 310

Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347

Michael Slaven and Aaron Torline in their capacity as joint and several administrators of National Health Co-Operative Limited (Administrators appointed) ABN 36 598 686 366 (Plaintiffs)

1. On 5 July 2021, I heard and determined an application brought by Michael Slaven and Aaron Torline, who are the administrators of the National Health Co-operative Limited (Administrators Appointed) ABN 36 598 686 366 (NHC).

2. NHC is a charitable, non-profit entity operating through eight medical clinics in various locations across the ACT. The business of NHC is the provision of a range of bulk billed and low cost medical and allied health services to its members. The plaintiffs deposed to there being 25,630 active members, who pay a joining and annual fee to access the services of NHC.

3. The application to this Court followed a resolution of the directors of NHC to appoint the plaintiffs as administrators on 21 June 2021. The resolution was attached to the affidavit evidence of one of the administrators, Mr Michael Slaven, sworn 2 July 2021. It was apparent from the resolution that the board of directors formed the view that the NHC was likely to become insolvent in the coming months.

4. The administrators sought a declaration that they had been validly appointed. If that declaration was made, the application then sought consequential orders relating to the application of particular statutory provisions and associated schedules under the Corporations Act 2001 (Cth) (Corporations Act), as well as orders affecting the manner and progress of the administration.

5. Such orders were necessary to ensure that the administrators had the full suite of powers available to them to properly conduct the administration, as the administration of co-operatives such as NHC was governed by the Co-operatives National Law (ACT) Act 2017 (ACT) (ACT Co-Op Act). That statute does not incorporate the totality of the various matters to which the administrators will be required to attend during the administration.

6. The administrators also sought to extend the statutory timeframe in which to convene a second meeting of creditors, as required under s 439A of the Corporations Act. This was sought to enable them to properly complete their investigations and provide a report to creditors.

7. Following the hearing, I indicated that I was in a position to make the orders sought and would provide these reasons in due course. The orders made were as follows:

1. The Court declares, pursuant to subsection 447C of the Corporations Act 2001 (Cth) (Corporations Act), that the Plaintiffs were validly appointed as the administrators of National Health Co-operative Limited (Administrators Appointed) ABN 36 598 686 366 (NHC Limited) on 21 June 2021.

Extended convening period

2. Pursuant to subsection 439A(6) of the Corporations Act, the convening period defined in subsection 439A(5) of the Corporations Act in respect of NHC Limited is extended until 29 October 2021 (Extended Convening Period).

Electronic meetings

3. Pursuant to s 447A(1) of the Corporations Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), to the extent not permitted specifically by ss 75-30, 75-35 and 75-75 of the IPR, the Plaintiffs are permitted to hold meetings of creditors during the administration of NHC Limited by telephone or audio-visual conference only at the place of the Plaintiff's office (without creditors of NHC Limited being able to attend physically at that place), with such details of the arrangements for using the telephone or audio-visual conference facilities to be specified in each of the notices issued to creditors.

4. Pursuant to s 447A(1) of the Corporations Act and s 90-15 of the IPS, to the extent not permitted specifically by s 75-35(2)(b) of the Insolvency Practice Rules (IPR), the creditors of NHC Limited who wish to participate at any meeting of NHC Limited by telephone or audio-visual conference only at the place of the Plaintiff's offices (without creditors of NHC Limited being able to attend physically at that place), must lodge with the Plaintiffs, no later than the second last business day before the day on which the meeting is held, specific proxy forms in the form set out as attached to the notice of meeting (with liberty to notify the Plaintiffs of the withdrawal of that specific proxy and amended vote following any discussion at a meeting, in advance of a resolution being passed).

Application of IPS and IPR

5. Pursuant to s 90-15 of the IPS, set out in Schedule 2 to the Corporations Act, the Plaintiffs are to proceed on the basis that the following provisions of the IPS and IPR are applicable in the administration of NHC Limited:

(i) (remuneration)

1. Subdivision B of Div 60 of the IPS, other than ss 60-5(2), 60-10(2) and 60-15; and

2. Rules 70-35 and 70-45 of the IPR, other than r 70-45(4);

(ii) (lodgement and audit of administration returns) ss 70-5, 70-6, 70-15 and 70-25 of the IPS;

(iii) (meetings) Div 75 of the IPS, other than ss 75-20 to 75-40, and Div 75 of the IPR, other than rr 75-120 and 75-135 of the IPR;

(iv) (committees of inspection) s 80-35 of the IPS and rr 80-5(2) and (7) of the IPR; and

(v) (review of external administration) ss 90-15 and 90-20 of the IPS.

6. Pursuant to s 447A of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to NHC Limited in such a way so as to apply the following provisions of the IPS and IPR in the administration of NHC Limited:

(i) (statutory no profit rule) Subdivision E of Div 60 of the IPS and Div 60 of the IPR;

(ii) (funds handling) Div 65 of the IPS;

(iii) (information requests)

1. Sections 70-10, 70-20, 70-30 to 70-45, 70-55 and 70-65 to 70- 90 of the IPS; and

2. Rules 70-1 to 70-15, 70-30, 70-55 and 70-60 of the IPR.

(iv) (meetings) ss 75-20 to 75-40 of the IPS;

(v) (committees of inspection): Div 80 of the IPS, other than s 80-35, and Div 80 of the IPR;

(vi) (directions by creditors) Div 85 of the IPS;

(vii) (inquiry by Court) ss 90-5, 90-10 and 90-21 of the IPS;

(viii) (review by registered liquidator) Subdivision C of Div 90 of the IPS and Div 90 of the IPR;

(ix) (removal of external administrator by creditors) Subdivision D of Div 90 of the IPS; and

(x) (other matters) ss 100-5 and 100-6 of the IPS.

Payment of employee entitlements

7. Pursuant to s 447A(1) of the Corporations Act and s 90-15 of the IPS, the Plaintiffs are justified in paying employee entitlements in the usual course of business, including upon the resignation of an employee.

Liberty to apply

8. The parties have liberty to apply in respect of any further directions or orders that the Plaintiffs may be advised to seek in connection with the application of the IPS and IPR to the administration of NHC Limited.

Costs

9. The costs of this application are costs in the administration of NHC Limited.

Other orders

10. Pursuant to s 447A of the Corporations Act and section 90-15 of the IPS, the Administrators are permitted to hold the second meeting of creditors at any time during the Extended Convening Period.

8. The wording of Order 7 set out above reflects an amendment that was made pursuant to the slip rule (see r 6906 of the Court Procedures Rules 2006 (ACT)) on 19 August 2021, inserting the words "are justified in paying" in lieu of the words "are to pay".

9. The issues in the proceeding related to five matters:

(a) Whether the administrators were validly appointed (Issue 1);

(b) Whether certain provisions of the Corporations Act, the Insolvency Practice Schedule (Corporations) 2016 (Cth) (Insolvency Schedule) and the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Rules) should be applied, to the extent that they were not expressly adopted in the provisions of the ACT Co-op Act (Issue 2);

(c) Whether the time to convene the second meeting of creditors should be extended pursuant to s 439A(6) of the Corporations Act (Issue 3);

(d) Whether notices to creditors were able to be issued electronically and whether the second meeting of creditors was able to be conducted electronically (Issue 4); and

(e) Whether orders should be made to permit any employees of NHC who resigned during the period of administration to be paid their entitlements in the ordinary way (Issue 5).

Issue 1 - Were the administrators validly appointed?

10. This issue arose because of some uncertainty in the legislation. Under the legislative framework that applies to co-operatives in the ACT, there are two regimes governing the power to appoint an administrator - one in the Corporations Act and one deriving from the ACT Co-op Act. I use the word "deriving" because the relevant statutory provisions are in fact contained in a complementary piece of NSW legislation.

11. In 2012, a national law was adopted in relation to co-operatives - namely, the Co-operatives National Law (National Law). The National Law was set out in the appendix to the NSW equivalent of the ACT Co-op Act, being the Co-operatives (Adoption of National Law) Act 2012 (NSW).

12. Section 7 of the ACT Co-op Act then applies the National Law in the Territory, with the amendments included in Schedule 1. There are no amendments in Schedule 1 to the ACT Co-op Act that have any bearing on the present issue before the Court.

13. The administrators were concerned that the regime under the ACT Co-op Act which applies the National Law contained an ambiguity. In particular, s 383 of the National Law empowers the Registrar of Co-operatives (Registrar), similarly defined in s 19 of the ACT Co-op Act, to appoint an administrator. In the Territory, under s 19 that person is the ACT Commissioner for Fair Trading.

383 Appointment of administrator by Registrar in the case of insolvency

(1) The Registrar may appoint a person as an administrator for the purposes of Part 5.3A of the Corporations Act (as applying under this Division) if the Registrar is of the opinion that the co-operative is insolvent or likely to become insolvent at some future time.

(2) The person appointed by the Registrar must be a registered liquidator within the meaning of the Corporations Act, but the Registrar may appoint a person who is not a registered liquidator if the Registrar forms the view that the likely costs of administration by a registered liquidator are excessive taking into account the known assets of the co-operative and the expected extent of debt of the co-operative.

15. The exercise of the power under s 383 of the National Law was an avenue initially pursued by NHC. However, the Registrar did not appoint an administrator and any action in that regard was overtaken by the resolution of the directors of NHC on 21 June 2021.

16. The uncertainty giving rise to Issue 1 was whether the power under s 383 of the National Law was additional to the regime under the Corporations Act, or whether it operated to exclude the powers to appoint an administrator under the Corporations Act, in particular the power contained in s 436A of the Corporations Act.

17. Located in Part 5.3A of the Corporations Act, s 436A is in the following terms:

436A Company may appoint administrator if board thinks it is or will become insolvent

(1) A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:

(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and

(b) an administrator of the company should be appointed.

(2) Subsection (1) does not apply to a company if a person holds an appointment as liquidator, or provisional liquidator, of the company.

18. The reason that the ambiguity mattered for the circumstances pertaining to the NHC was because the administrators here were appointed via the process under s 436A of the Corporations Act.

19. I formed the conclusion that the better view was to construe the National Law as containing a power to appoint an administrator that was additional to the powers contained in the Corporations Act. In order to explain the reasoning behind such conclusion, it was necessary to engage with the detail of the legislative framework. Although that task regrettably makes for laborious reading, doing so results in the clear answer that s 383 of the National Law is an additional power to that contained in s 436A of the Corporations Act.

20. Part 4.1 of Chapter 4 of the National Law deals with the appointment of administrators. It commences with s 381, which is in the following terms:

Chapter 4 Structural and other events for co-operatives

Part 4.1 Appointment of administrator

(1) This Part provides 2 methods for the administration of a co-operative, as follows--

(a) administration under the Corporations Act as applying under Division 2;

21. There are thus two different ways of administration permitted under the National Law.

22. Division 2 of Part 4.1 applied to the circumstances followed by the directors of the NHC. That division contains two sections, namely ss 382 and 383. Section 382 is in the following terms:

Division 2 Administration under Corporations Act

382 Application of Corporations Act--administration of co-operative

A co-operative is declared to be an applied Corporations legislation matter for the purposes of the Corporations application legislation of this jurisdiction in relation to Part 5.3A and Division 3 of Part 5.9 of the Corporations Act, subject to the following modifications ...

23. The section proceeds to list eight modifications. Before dealing with those, some explanation of certain defined terms is necessary to understand s 382.

24. The relevant definitions of the National Law are contained in s 4 located in Part 1.2 of the National Law. "Corporations legislation" is defined to mean the Corporations legislation to which Part 1.1A of the Corporations Act applies.

25. That part deals with the interaction between the Corporations legislation and State and Territory laws. In essence and relevant to the present jurisdiction, the Corporations Act (among other things) is intended to operate concurrently with the operation of any law of the Territory. However, concurrency does not operate where there is a direct inconsistency between the Corporations Act and the law of the Territory, and the Territory can exclude part of the Corporations Act by declaring a matter to be an "excluded matter".

26. The words "Corporations application legislation" are also defined in s 4 of the National Law, relevantly to mean for the ACT: "the provisions of a law of that Territory that are declared by the Co-operatives National Law Act of that Territory to be the Corporations application legislation of that Territory".

27. Then under the ACT Co-op Act, by a combination of s 24(1)(c) and 25(1), a declaratory provision applies in relation to the matter as if it were a Territory law.

28. Inserting those definitions, it can be seen that the effect of s 382 is to apply (relevantly) Part 5.3A of the Corporations Act to co-operatives in the Territory, with some specified amendments. That is consistent with what occurs in NSW, as confirmed in Re Belmont Sportsmans Club Co-Operative Ltd (admins apptd) [2015] NSWSC 543 at [8].

29. Of the eight modifications listed in the National Law, only two are relevant to the present issue. They are:

(b) a reference in section 436D of the Corporations Act to "section 436A, 436B or 436C" is to be read as including a reference to section 385 of this Law;

(c) a reference in section 436E (4) (a) or 448B of the Corporations Act to an administrator is to be read as not including a reference to an administrator appointed under section 385 of this Law;

30. Those modifications are considered further below, as part of the context to construing s 383, which has been set out above at [14], and is the only other section contained in Division 2.

31. Division 3 of Part 4.1 then commences with s 384 of the National Law, as follows (emphasis added):

Division 3 Administration -- alternative procedure

(1) The provisions of the Corporations Act as applying under Division 2 do not apply to the appointment of an administrator under this Division or to an administrator so appointed.

(2) This Division does not apply to the appointment of an administrator under section 383 or to an administrator so appointed.

32. As is clear from the heading of Division 3 and the emphasised words, Division 3 applies only in the alternative to Division 2.

33. However, as part of determining the proper construction of Division 2, it is important to understand the statutory context in which it sits, and how Division 3 fits in with the application of the Corporations Act under Division 2. Section 385 of the National Law provides:

(1) The Registrar may, by written notice, appoint an administrator to conduct the affairs of a co-operative.

(3) If the appointee's name or business address changes, the appointee must immediately give written notice of the change to the Registrar.

(4) The Registrar must not appoint an administrator unless the necessary grounds for taking the action exist, as referred to in section 455.

34. The remainder of Division 3 deals with matters such as the effect of an appointment of an administrator under s 385, the revocation of appointment, the expenses of administration by an administrator appointed under Division 3, liabilities arising from the administration, additional powers of the registrar, a stay of court proceedings upon appointment of an administrator and the requirement for an administrator to report to the Registrar. As they all relate to an alternative process, none of those sections are material here.

35. Returning to the modifications in ss 382(b) and 382(c), set out above at [29], they operate to incorporate s 385 of the National Law into s 436D of the Corporations Act, but exclude the same section from (relevantly) s 436E(4)(a) of the Corporations Act.

36. As to each of those provisions of the Corporations Act:

(a) Section 436D provides that an administrator cannot be appointed under section 436A, 436B or 436C if the company is already under administration. Thus, the same applies where an administrator is appointed under s 385 of the National Law.

(b) Section 436E(4)(a) provides that at a meeting of the company's creditors, they may remove an administrator from office. Applying the modification, if the administrator was appointed under s 385 of the National Law, the creditors are not able to act to remove the administrator so appointed.

37. From that excursion through the rabbit warren that is the legislative framework for cooperatives in the ACT, a number of points may be made.

38. First, the ordinary meaning of the text of the National Law does not expressly exclude the power under s 436A of the Corporations Act. The words of s 382 of the National Law apply Part 5.3A, and such part includes s 436A.

39. Second, to the extent that Part 5.3A is modified by the list set out in s 382 of the National Law, there is no modification that excludes s 436A (and no other exclusion of its operation in Schedule 1 to the ACT Co-op Act). Indeed, one of the modifications is to s 436D of the Corporations Act, a section which itself refers to the circumstance where an administrator is appointed under s 436A of the Corporations Act - even as modified, the assumption in s 382 of the National Law is that s 436A of the Corporations Act applies.

40. Third, although it might be open to construe s 383 as being the sole conferral of the power to appoint an administrator, and that power is expressly given to the Registrar, not the cooperative, the section does not use language such as "only the Registrar may appoint" or otherwise make it clear that there is an intention that s 383 be the sole source of power to appoint an administrator under Division 2.

41. Each of those textual and contextual features of the framework favour a construction that enables an administrator to be appointed under s 436A of the Corporations Act but gives additional powers to the Registrar as the regulator, through s 383 (and s 385) of the National Law. That is what I consider to be the purpose of s 383. The intention behind that section was not to exclude the ability of a co-operative itself to appoint an administrator, acting through a resolution of its board. Such a modification would have been included in the list in s 382.

42. The purpose here is determinative. Clause 7 of Sch 4 to the National Law requires that in interpreting a provision of the National Law, the interpretation that will best achieve the purpose of the National Law is to be preferred to any other interpretation, whether or not the purpose or object is expressly stated in the National Law itself.

43. If there were any remaining doubt that this was the proper construction, under cl 8 of Sch 4 to the National Law, consideration may be given to extrinsic material capable of assisting in the interpretation. This includes to confirm the interpretation conveyed by the ordinary meaning of the provision.

44. The Explanatory Note to the Co-operatives (Adoption of National Law) Bill 2012 (NSW) confirms the construction of s 383 as an additional, and not exclusive, power of appointment under Division 2 of the National Law. The material passage is at page 5 as follows (emphasis added):

Chapter 4 Structural and other events for co-operatives

This Chapter deals with corporate structural events such as external administration, mergers, schemes of arrangement and transfers of incorporation. Relevant provisions of the Corporations Act are applied and modified to achieve consistency of treatment in most external administration processes. Special provisions for caretaker-type administration and administrative powers of the Registrar of Co-operatives leading to a winding up are also located here.

45. The "special provisions" given to the Registrar are plainly in addition to the powers contained in the Corporations Act. The clear intention of the legislature in NSW, as apparent from the words emphasised above, was to ensure that co-operatives that are put into external administration are done so consistently with the processes that apply to corporations under the Corporations Act, but to then confer upon the Registrar effectively a supervisory power to act_._ In adopting the National Law in the same terms, the Legislative Assembly of the Territory may be taken as having the same intention.

46. For those reasons, I considered it appropriate to declare that the administrators were validly appointed under s 436A of the Corporations Act.

Issue 2 - Do the Insolvency Schedule and Insolvency Rules apply?

47. This issue arose because the legislation governing co-operatives (the National Law and the ACT Co-op Act) did not expressly deal with the provisions for insolvency practice set out in the Insolvency Schedule and the Insolvency Rules, neither of which existed when the legislative scheme governing cooperatives was enacted in 2012.

48. The Insolvency Schedule was introduced through the enactment of the Insolvency Law Reform Act 2016 (Cth) which commenced in 2017. Various provisions of the Corporations Act were repealed. In their stead, the Insolvency Schedule, which comprehensively sets out procedures for external administration, became Schedule 2 to the Corporations Act.

49. The Insolvency Rules were then made pursuant to s 105-1 of the Insolvency Schedule. They include rules in relation to remuneration and procedures for conducting meetings.

50. The difficulty is that under the National Law and the ACT Co-op Act only certain parts of the Corporations Act are applied to co-operatives. If the National Law as applied by the ACT Co-Op Act does not apply a particular part of the Corporations Act, then that part does not apply to cooperatives in the ACT. That is why, for example, the declaration in s 382 of the National Law was necessary - to make co-operatives generally subject to Part 5.3A of the Corporations Act, with the specified modifications.

51. Neither the National Law nor the ACT Co-op Act refer to the Insolvency Schedule or the Insolvency Rules. The administrators were therefore concerned to ensure that there was no doubt those parts of the legislative framework applying to corporations in external administration also applied to the NHC as a cooperative.

52. Having traced through the provisions with counsel for the administrators at the hearing, I was satisfied that on the proper construction of the National Law, the Insolvency Schedule is incorporated as applying to cooperatives. As a consequence, the Insolvency Rules also applied.

53. In this regard, significant assistance was derived from Re University Co-operative Bookshop Limited (admins apptd) [2019] NSWSC 1898 (Co-op Bookshop (No 1)) where Black J also dealt with the application of the Corporations Act to a co-operative under the National Law, and in particular with the same question of whether the Insolvency Schedule and Insolvency Rules applied to a co-operative in administration in NSW.

54. His Honour accepted two propositions. The first concerns the position where a part of the Corporations Act that would have applied under the National Law has been repealed and then re-enacted, with or without modifications, as part of the Insolvency Schedule or the Insolvency Rules. In that case, Black J accepted (at [4]-[5]) that a savings provision operates, being cl 6 in Sch 4 of the National Law. Among other things, it provides (emphasis added):

6 References taken to be included in Law or Act citation etc

(2) A reference in this Law to a provision of this Law or of an Act includes a reference to -

(a) the provision as originally enacted, and as amended from time to time since its original enactment; and

(b) if the provision has been omitted and re-enacted (with or without modification) since the enactment of the reference - the provision as re-enacted, and as amended from time to time since its re-enactment.

55. Such an interpretation should be uncontroversial given that is the plain meaning of the emphasised words in cl 6(2)(b) above.

56. Further, in Co-op Bookshop (No 1) at [4], Black J accepted that those savings provisions extend to provisions included in the Corporations Regulations 2001 (Cth) (Corporations Regulations), which may now have been enacted in corresponding provisions in the Insolvency Schedule or Insolvency Rules. In that regard, Black J relied upon Re Wiggins Island Coal Export Terminal Pty Ltd [2018] NSWSC 1342, which dealt with a corresponding issue and a broadly corresponding saving provision in s 10 of the Acts Interpretation Act 1901 (Cth).

57. I respectfully agree with the approach and reasoning process undertaken by his Honour, which is assisted in the Territory by s 29 of the ACT Co-op Act. Relevantly, that section provides that unless a declaratory provision provides otherwise, the provisions of any regulation made under the applied Corporations law are also taken to apply to a matter that is the subject of a declaratory provision as if they were a Territory law.

58. Black J then stated in Co-op Bookshop (No 1) at [5]:

5 It seems to me that that approach preserves the effect of relevant sections, so far as they were previously contained in the Corporations Act or Corporations Regulations and are now contained in the IPS or IPR, although it would not apply a wholly new provision introduced by the IPS or IPR to a co-operative, and recourse would then need to be made to s 447A of the Act.

59. That passage alludes to the second proposition requiring consideration, namely that there is a wholly new provision in the Insolvency Schedule or Insolvency Rules, the relevant applicant and the Court must utilise a different statutory power. Black J accepted that recourse to s 447A of the Corporations Act was available.

60. In Co-Op Bookshop (No 1), Black J stated at [6]-[7]:

6 In these circumstances... there are two ways in which that issue could be addressed. If, as I noted above, the provisions that have been introduced in the IPS and the IPR correspond to former provisions which are carried over by saving provisions, then the Court could give a direction, which must itself be made under the IPS, to the effect that the administrators are justified in proceeding on that basis. Given the complexity of those issues, it seems to me that such a direction would plainly be warranted, to allow the administrators to go forward in the administration, without being placed at risk by reason of the complexity of those issues. Second, to the extent that there is any gap arising from that process, because a previously existing provision has been omitted, or a new provision introduced in the IPS and IPR in a manner that does not trigger the operation of saving provisions, then it would also arguably be open to the Court to make orders under s 447A of the Corporations Act, modifying the operation of the Act, so as to apply that provision to a co-operative where Pt 5.3A generally applies to co-operatives. That of course should not be taken where the Act, or the co-operative legislation, already preserves those provisions.

7 I am satisfied that the Court can and should make a direction of the kind sought by the administrators, to the extent the new provisions in the IPS and IPR correspond to provisions in the former Corporations Act or Corporations Regulations, and would also have power to vary the Act under s 447A in its operation to the Co-op entities, so far as new provisions have been introduced which needed to apply...

61. In Re University Co-operative Bookshop Limited (administrators appointed) (No 2) [2020] NSWSC 97; 350 FLR 188 (Co-op Bookshop (No 2)), Gleeson J referred to the analysis of Black J at [4]-[7] with approval. In the Territory, consistent with that reasoning process, s 31 of the ACT Co-op Act confirms that the Court may make directions under s 447A of the Corporations Act even though either a particular matter or a statutory provision has not been referred to by express declaration in the National Law.

31 Application of Corporations legislation by other means

Nothing in Part 4 [dealing with the application of the Corporations Act] prevents a territory law from applying any provision of the Corporations legislation, or of an Act, regulations or other instrument forming part of the Corporations legislation, as a territory law otherwise than by means of a declaratory provision.

63. Applying that same reasoning process, I accepted that:

(a) Section 447A of the Corporations Act gave the Court the power to modify the operation of the Corporations Act so as to apply a new provision to a co-operative. (The term "new provision" is to be understood as one which was not simply a repeal and re-enactment of a provision that was previously referred to in the National Law).

(b) The exercise of the power was warranted to allow the administrators to progress the administration of the NHC in the ordinary course.

64. In Co-Op Bookshop (No 1), Black J (at [7]) considered that it was appropriate to identify those matters in respect of which a direction pursuant to s 90-15 of the Insolvency Schedule was sought and those matters in respect of which relief under s 447A of the Corporations Act was sought. His Honour required that task to be undertaken before the Court made any directions, so that the orders that were ultimately made were underpinned by such identification.

65. That process was completed through Co-op Bookshop (No 2). The judgment of Gleeson J was also of significant assistance in dealing with the administration of the NHC here, as it includes at the end of the judgment a schedule identifying which subject matters were applicable in the administration of a co-operative on the basis that they were re-enactments (with or without modifications) of former provisions of the Corporations Act and Corporations Regulations, along with the analysis supporting that conclusion.

66. The matters affected were grouped in the schedule contained in Co-op Bookshop (No 2) under the following headings: remuneration provisions, provisions regarding administration returns, provisions regarding meetings of creditors, committee of inspection provisions and review provisions.

67. It is unnecessary to repeat the detail of the affected provisions for the purposes of these reasons. It suffices to respectfully acknowledge the work done by others as applying to the facts here. More recently in Re The Australian Wine Consumers' Co-Operative Society Limited trading as The Wine Society (admin apptd) [2020] NSWSC 1437, Black J considered (at [6]) that in light of the undoubted correctness of the comprehensive analysis by Gleeson J in Co-op Bookshop (No 2), it was not necessary for a voluntary administrator in each case where the issue arises to seek a direction which will do no more than confirm that the particular provisions of the Insolvency Schedule operate to cooperatives, although it will still be necessary for an administrator to bring an application under s 447A of the Corporations Act in relation to any 'new' provisions.

68. Accordingly, I made Orders 3 to 7 on 5 July 2021, set out above at [7]. It will be apparent from the reasons set out above that the detail contained within those orders - as to precisely what power was being exercised, by reference to the identification of the particular task to be undertaken by the administrator - reflects the somewhat convoluted means by which the Court was empowered to act under the present statutory regime applying to cooperatives. The matters referred to in Order 6 are those that concern new provisions, and accordingly Order 6 solely invokes s 447A of the Corporations Act as the source of power.

Issue 3 - Should the time to convene the second meeting of creditors be extended?

69. The first meeting of creditors was held on 1 July 2021, which accorded with the eight-day statutory requirement set out in s 436E of the Corporations Act.

70. Under s 439A of the Corporations Act, the administrators were required to convene a second meeting of creditors by 19 July 2021 and to hold such meeting by 26 July 2021, unless the Court ordered otherwise. That brought about a degree of urgency in the application and was the primary reason why orders were made separately from the delivery of these reasons.

71. The administrators sought to extend the convening period until 29 October 2021.

72. The applicable considerations on an application to extend the convening period (defined in s 439A(5) of the Corporations Act) have been usefully set out by Black J in the case of In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) & Ors [2015] NSWSC 2002 at [7] (emphasis added):

The authorities as to the circumstances in which the Court may make orders under s 439A of the Corporations Act and s 447A of the Act in respect of the extension of a convening period are well-established. In making such orders, the Court must reach an appropriate balance between the expectation that an administration will be relatively speedy and summary and countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]. In Re Riviera Group Pty Limited (admins apptd) (recs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352, Austin J identified matters which may support such an extension, in a passage which has frequently been cited subsequently, as including the size and scope of the company's business ...; the existence of complex corporate group structures and intercompany loans; the time needed to execute an orderly process of disposal of assets, which is a matter relevant so far as the administrators are here exploring a recapitalisation or sale process; the fact that an extension of time is likely to enhance the return for unsecured creditors ...; and the impact of any extension upon a person who whose claim is affected by the statutory moratoriums under Part 5.3A of the Act ...

73. The authorities relied upon by Black J in the extract above were also applied more recently in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 at [64]- [68]. The judgment of Austin J in Diamond Press Australia Pty Limited [2001] NSWSC 313 (Diamond Press) was also specifically referred to with approval by Nettle and Gordon JJ in Mighty River International Ltd v Hughes [2018] HCA 38, 265 CLR 480 at [73].

74. Applying the guiding principle seen in the words emphasised above, and taking into account the considerations identified by Austin J in Diamond Press (and noting that this is not an exhaustive list), the evidence put before the Court by the administrators established the following:

(a) All of the clinics were continuing to operate through the administration.

(b) NHC presently had 52 employees and a number of contractors. NHC deployed 21 general practitioners and four general practice registrars.

(c) NHC had met its leasing obligations to all landlords, with the exception of the Australian National University (ANU).

(d) NHC was expected to break even until 3 October 2021, following which time the forecast cash position was expected to deteriorate.

(e) If NHC was to be liquidated and its employment contracts terminated, employee entitlements (annual leave, long service leave, redundancy, payment in lieu of notice) would crystallise and form priority in a winding up of NHC.

(f) Closure of the NHC clinics would require members of NHC to be transferred to new clinics, which would require significant coordination and hand over procedures, including the transfer of medical records and data in accordance with NHC's legislative obligations.

(g) Closure of the NHC clinics would also result in the general practitioners having to transfer to other practices. This would be complicated by the fact that 11 of the practitioners were subject to visa restrictions requiring them to work in Distribution Priority Areas, and the visas they presently held were sponsored or proposed by NHC.

(h) The administrators were exploring a restructure or a sale, with a view that this would decrease the total exposure for those potential entitlements and liabilities accruing.

(i) An expressions of interest (EOI) process had commenced, which was to close on 16 July 2021. Suitable submitters were requested to provide final submissions and proposals by early August 2021, which would then require consideration.

(j) As at the date of hearing, 29 parties had requested copies of documents relevant to the EOI process, with 12 of those parties entering into a deed of confidentiality and being provided with access to a data room.

(k) NHC was also involved in the ACT's COVID-19 vaccination rollout and the general public can receive vaccines through the clinics associated with NHC (not just members of NHC).

75. In relation to the creditors of NHC, the evidence established that the unsecured and contingent creditors of NHC were small in number. No creditor objected to the extension of the period for convening the second meeting and no creditor had purported to enforce any security interest against NHC. In particular, there were four creditors who had submitted a claim when the first creditors' meeting was held: the ANU, WSL Investments Pty Ltd, Pharmacy Services (ACT) Pty Ltd and Aussie Broadband Limited. Each of those creditors had either attended the first creditors' meeting where the proposal to extend the convening period was explained, and had not opposed the proposal, or had separately indicated that they had no objection to the application for an extension to that period.

76. The opinion of the administrators was that if there is no extension, the only recommendation they will be able to make is that NHC be wound up. They say there will not be a deed of company arrangement proposed within that time, and the need for restricting NHC and its business model will likely preclude the administrators from recommending that the administration end and control of NHC be returned to its board of directors.

77. Accordingly, the administrators sought an extension of time to enable the restructuring to occur, the business to be sold (in whole or in part), or a cessation of the NHC's operation and commencement of the orderly transfer of members to new clinics. An extension would also allow for the timely preparation of the report to creditors in advance of the second creditors' meeting.

(b) the health consequences for the members of the NHC, and the ACT public more broadly, were significant;

(d) there was no detrimental impact to creditors; and

(e) in any event, they had all agreed to an extension of time being sought from the Court.

79. Further, the extension of time sought was of short duration, and the estimated time for the administrators to produce a satisfactory report appeared reasonable having regard to the circumstances of the NHC. The administrators had diligently attempted to complete the requisite investigations within the statutory timeframe and had brought the application to extend time promptly. It was not in the interests of either the creditors or the members of NHC to require the second creditors' meeting to occur by 26 July 2021. The balancing exercise clearly favoured the extension of time as this would best facilitate a result whereby NHC was able to continue in existence, or otherwise where the administrators were able to improve returns for creditors (these being the stated objectives of Part 5.3A of the Corporations Act in s 435A).

80. Accordingly, it was appropriate to make the order under s 439A(6) of the Corporations Act extending the convening period.

Issue 4 - Notices to creditors and conducting the second meeting of creditors by electronic means

81. The administrators sought orders permitting notices of creditors' meetings to be given by email and for any meetings of creditors to be conducted by audio-video link or telephone.

82. On the evidence of the administrators, it was proposed to hold the meeting of creditors in Slaven Torline's office in Lyneham in the ACT. That location was considered to be convenient to the majority of creditors given that NHC's business is only conducted in the ACT.

83. The reason orders for electronic notices and an electronic creditors' meeting became necessary was because of the current climate of the COVID-19 pandemic and the continued uncertainties regarding whether any or all participants would be able to attend in person at a meeting. The intention of the administrators is now to conduct the creditors' meeting at the same location, through a video-conference platform such as Microsoft Teams or an equivalent provider.

84. Pursuant to s 447A(1) of the Corporations Act, the Court may make such orders as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company, or in this case, co-operative.

85. The Insolvency Rules further facilitated the making of the orders sought. The relevant rules are as follows:

(a) specify the date, time and place of the meeting; and

(b) specify the purpose for which the meeting is being convened; and

(1) The convenor of a meeting must convene the meeting at the time and place that the convenor thinks are most convenient for the majority of persons entitled to receive notice of the meeting.

(2) Subsection (1) does not prevent a meeting from taking place at separate venues provided all persons attending the meeting have a reasonable opportunity to participate in the meeting.

75-35 Notices of meetings held using virtual meeting technology

(1) This section applies if virtual meeting technology is to be used in holding a meeting.

(2) The notice of the meeting must include sufficient information to allow a person entitled to attend the meeting to participate in the meeting by means of the technology.

(3) Subsection (2) also applies in relation to a notice of the adjournment of a meeting if virtual meeting technology is to be used in holding the adjourned meeting.

75-75 Participating in meetings by electronic means

(a) facilities for participating in a meeting of creditors by electronic means will be available for the meeting; and

(b) a person, or a person's proxy or attorney, has given the convenor of the meeting a statement in accordance with paragraph 75-35(2)(b).

(2) The convenor of the meeting must take all reasonable steps to ensure that the facilities are available and operating during the meeting.

(3) The person, or the person's proxy or attorney, is responsible for accessing the facilities during the meeting.

(4) A person who, or whose proxy or attorney, participates in the meeting using the facilities is taken to be present in person at the meeting.

86. Orders in the same terms as those sought here were made by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571; 144 ACSR 310, where his Honour stated (at [26]) that it was now commonplace for orders to be made, including at a very early point in an administration, to permit administrators to give notices to creditors by email and other electronic publication. Middleton J then cited In the matter of BBY Limited [2015] NSWSC 974 at [7], where Brereton J (as his Honour then was) stated:

Courts have become increasingly willing to make orders such as those sought in this case in respect of the manner in which notices may be given of meetings of creditors of companies under external administration, both to save costs and to save time, and thus to conserve the limited available assets for the benefit of creditors. As Black J has pointed out, most recently in In the matter of Creative Memories Australia Pty Limited (administrators appointed) [2013] NSWSC 732 (at [8]), this no doubt reflects, amongst other things, the fact that electronic means of communication are now widely accepted in the investing and commercial communities. There are now many decisions in which the Courts have made orders in respect of meetings of creditors permitting notice to be given by electronic means to those for whom e-mail addresses are available and otherwise by notice, for example, on an administrator's website, or by newspaper advertisement: [see ABC Learning Centres Ltd (Administrators Appointed) (Receivers & Managers Appointed) ACN 079 736 664 v Honey [2010] FCA 353; Silvia, in the matter of FEA Plantations Ltd (Administrators Appointed) [2010] FCA 468; Carson, in the matter of Hastie Group Limited [2012] FCA 626; Carson, in the matter of Hastie Group Limited (No 2) [2012] FCA 717; In the matter of Mothercare Australia Limited (administrators appointed) [2013] NSWSC 263, [8] (Black J); In the matter of Creative Memories Australia Pty Limited (administrators appointed) [2013] NSWSC 732].

87. Those comments had equal application to creditors of cooperatives and the circumstances before this Court. The minutes of the first creditors' meeting confirmed that the creditors had already participated in that meeting through the use of virtual meeting technology. Further, email addresses for the creditors who did not attend the meeting were also supplied to the administrators.

88. The orders facilitated notifying the small number of creditors in a convenient and cost efficient way, and then giving those creditors a full opportunity to participate, electronically or virtually, in the event they found themselves unable to travel to Lyneham for whatever reason. Accordingly, it was appropriate to make the orders sought. Indeed, in light of what subsequently occurred with the ACT moving into a state of lockdown to address an outbreak of COVID-19 in the Territory, such orders were prudent. As events have transpired, they were plainly necessary.

Issue 5 - Should the administrators be permitted to pay any employees of NHC who resign during the period of administration their entitlements in the ordinary way?

89. The administrators sought an order that they were justified in paying employee entitlements in the usual course of business, including upon the resignation of an employee.

90. Absent such an order, an employee who resigned during the administration of the NHC would become a creditor and would get paid only when other creditors were paid. What the administrators sought to do was to be in a position to pay out (at their discretion) the accrued entitlements of any employee who resigned at the time they left, and not at a later date, upon completion of the administration process.

91. Without such an order, any employee who was to resign would stand to suffer great hardship by the delay in payment of their entitlements. Added to this were a number of matters which weighed in favour of such an order being made. The circumstances included: the small number of employees that would potentially be affected, the fact that employee creditors would have priority in the event the NHC was wound up anyway, that the funds of the NHC were estimated to last until the beginning of October, and that no other creditor raised an objection to that order being made. Accordingly, I was satisfied that it was appropriate to make the order sought.

92. For the above reasons, orders were made in the terms set out at [7] above.

I certify that the preceding ninety-two [92] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam

Interpretation Act 1901

(Adoption of National Law) Act 2012

Procedures Rules 2006

In the matter of National Health Co-operative Limited (Administrators appointed) [2021] ACTSC 206 (31 August 2021)

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In the matter of National Health Co-operative Limited (Administrators appointed) [2021] ACTSC 206 (31 August 2021)

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