In the matter of Palace Memories Pty Limited (Administrator Appointed) [2015] NSWSC 2029

Solicitors: Aitken Lawyers (plaintiff) File Number(s): 2015/13470

Judgment (ex tempore)

1. HIS HONOUR: On 15 January 2015, for reasons given that day [see In the matter of Palace Memories Pty Ltd (Administrator Appointed) [2015] NSWSC 56], Black J, on the application of the administrator, made orders pursuant to (Cth) Corporations Act, s 447A, that Pt 5.3A of the Act operate in relation to the company Palace Memories Pty Ltd as if s 439B(2) permitted an adjournment of the creditors' meeting convened under s 439A to a date not later than 31 March 2015, notwithstanding that that exceeded the period of 45 business days referred to in s 439B(2). His Honour made other orders to which it is not necessary to refer for present purposes. The rationale for the orders was summarised in his Honour's judgment as follows: [7] Mr Devine had taken steps to sell the Company's business or assets, and conducted a marketing campaign in that regard, which secured an offer from a third party to purchase the Company's business. It appears that that third party was the preferred tenant of the lessor of the premises occupied by the Company, although I note that final approval for the assignment of the lease to that third party, or an associated entity, has not yet been achieved. The third party has in turn been operating the business, under a business licence agreement and sublicence, since late December 2014. Steps have subsequently been taken to deal with arrangements for the entry into a new lease, or the assignment of the existing lease, to an entity associated with the third party, and an instalment of the purchase price under the business sale agreement has been paid, with a second instalment expected to be paid today. Once the agreement for a sale of the business has been exchanged, which is also expected to occur today, then either an assignment of the lease to an entity associated with the third party, or the entry into a new lease, will need to take place. Steps are currently underway to allow that to occur. Mr Devine identifies the risk that, if the second meeting of creditors were required to proceed today, and the Company were placed into liquidation, in circumstances that the arrangements with the third party and the lessor had not been finalised, then the moratorium which presently applies under s 443B of the Corporations Act would cease to apply and the lessor would be entitled to terminate the lease. While it appears, given arrangements to date, that the lessor might not take that course, it seems to me that Mr Devine is correct in recognising the risk of that course to his ability to complete a sale of the Company's business as a going concern and to the value of the Company's assets. [8] Mr Devine's evidence is that, if the agreement for sale of business goes to completion, there are likely to be sufficient funds to meet his costs, charges and expenses, discharge a liability to a secured creditor, pay the preferred employee creditors and potentially pay a small dividend to unsecured creditors. If, on the other hand, the Company is placed in liquidation, then the amounts available are likely to be reduced, and in particular payment to preferred employee creditors and any dividend to unsecured creditors would be at risk. [9] There is evidence that the secured creditor of the Company consents to this application. The lessor of the premises has not expressly indicated its attitude to the application, although it is involved in the negotiations for the sale of the business to the third party and in arrangements for transfer of the lease to the third party. Mr Smith, who appears for Mr Devine, properly draws attention to the fact that there are two creditors who have judgments against the Company, which may suffer some prejudice by an adjournment of the second meeting, and a prolongation of the administration, so far as their ability to enforce those judgments will be subject to a continuance of the statutory moratorium for a longer period. Other creditors may be affected so far as the finalisation of the administration would be delayed and payment of any dividends potentially delayed, although that potential prejudice needs to be weighed against the fact that the possibility of any dividends for unsecured creditors and potentially preferred employee creditors is maximised by an extension of the administration.