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.
Since those orders were made, the creditors' meeting was adjourned, first, to 25 March 2015. A sale of the business was negotiated and is well advanced, although the purchaser was, for a number of reasons, unable to complete on the expected date for completion and has sought an extension of time, which the administrator is prepared to allow upon certain conditions to which the purchaser has assented. At the adjourned meeting of creditors on 25 March, it was resolved - with only a director of the company opposing - that the meeting be adjourned to today, 31 March at 3pm.
Although one cannot be overly confident that the present sale will proceed to completion, there is at least a reasonable prospect that it will, and the purchaser has indicated a degree of commitment, by payments made and undertakings given to date. If the sale proceeds, it is likely that the secured creditors will be paid in full, and there may be some small dividend available for unsecured creditors.
If the administration does not continue, then there is a significant risk that the landlord would re-enter, the business would be closed, there would be no valuable assets available for sale, and there would unlikely be any assets of significance in a liquidation. The landlord's attitude to a further adjournment of the meeting has been sought, but the landlord has to date not expressed a view one way or the other. To the extent that the landlord is a creditor, it will be able to express its view at a creditors' meeting. The secured creditor who appointed the administrator, this being a s 436C administration, may be taken to consent. The attitude of the unsecured creditors is apparent from the result of the creditors' meeting on 25 March and seems to favour a further adjournment. In any event, as the order I make will simply permit and not require an adjournment, that remains a matter which the creditors can decide at this afternoon's creditors' meeting.
It is really the attitude of the secured creditors and landlord who are adversely affected by a moratorium that is most significant to my consideration and, as I have said, the landlord has not taken the opportunity of responding to a request for an indication of its attitude. It seems to me that an extension of the time in which the meeting must be concluded by a period of about four weeks as sought, is likely to occasion little prejudice to anyone but, on the other hand, may preserve the only opportunity for a significant benefit for the secured creditors and potentially creditors generally.
It is well established by authority that the Court may, by recourse to s 447A, extend the period for which a creditor's meeting may be adjourned beyond that otherwise limited by s 439B(2) [Collective Olive Groves Limited, in the matter of Collective Olive Groves Limited; application by Reidy [2009] FCA 177; Godfrey, in the matter of Drummoyne Sports Club Limited (Administrator Appointed) [2012] FCA 1210; In the matter of Beechworth Land Estates Pty Ltd (admins apptd) and Griffith Estates Pty Ltd (admins apptd) [2014] NSWSC 1918, and other cases].
The Court therefore orders that:
1. pursuant to Corporations Act, s 447A(1), Pt 5.3A of that Act is to operate in relation to Palace Memories Pty Ltd (Administrator Appointed) ACN 151 754 853 ("the company") as if s 439B(2) of the Act omitted the words, "but the period of the adjournment, or the total of the periods of adjournment, must not exceed 45 business days", and included in their place the words "to a date not later than 24 April 2015" and that (Cth) Corporations Regulations 2001, reg 5.6.18(2), operate in relation to the company in the same way;
2. the Administrator give notice of these orders to all known creditors of the company and to ASIC by no later than 5pm on 1 April 2015 by means of a circular;
3. any person affected by these orders, including any creditors of the company, has liberty to apply to vary or set aside these orders on 48 hours' notice to the plaintiff and to the Court; and
4. the administrator's costs of this application be costs in the administration.
These orders are to be entered forthwith.
The exhibits may be returned.
[3]
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Decision last updated: 18 February 2016