Solicitors:
King & Wood Mallesons (Plaintiffs)
File Number(s): 2017/372217
[2]
Judgment - ex tempore
By Amended Originating Process filed today, by leave, Mr John Park and others as joint and several administrators of Surfstitch Group Ltd (admins apptd) and Surfstitch Holdings Pty Ltd (admins apptd) seek an order extending, for the second time, the convening period for a second meeting of creditors of the companies under s 439A(6) of the Corporations Act 2001 (Cth). A previous order extending that convening period was made by the Federal Court of Australia. This further application is appropriately brought in this Court where other proceedings against the companies are listed in the Commercial List of this Court and another application is pending in the Corporations List, of which this application forms a part, in respect of the conduct of the second meeting of creditors of the companies.
The application is supported by an affidavit, and a second confidential affidavit, of one of the administrators, Mr Hansell, each dated 7 December 2017. Mr Hansell's first affidavit sets out the background of the companies' operations and an overview of the position of creditors as at the date of the application, and also refers to the existence of contingent litigation creditors, being persons who have brought class action proceedings against the Company, initially in the Supreme Court of Queensland, which have now been transferred to this Court.
The administrator's assessment is that there is, at least, potential that there will be a surplus available, after payment of the companies' creditors, for distribution to contingent litigation creditors as subordinated creditors or contributories and an application is pending in this Court, which deals, inter alia, with those parties' entitlement to vote at a second meeting of creditors. That application is listed for hearing on 19 February 2018 and that matter strongly supports the extension of the convening period to after that date, since there will plainly be difficulties in the conduct of a second meeting of creditors until that issue is determined.
Mr Hansell also refers to the conduct of the administration to date, including work done in the period since the Federal Court of Australia first extended the convening period on 15 September 2017. Mr Hansell refers to the fact that notice of this application was given to creditors, although none of them has opposed the application, and to steps which have been taken in respect of the conduct of the class action proceedings to date.
Mr Hansell identifies several reasons which support an extension of the convening period, including his view that the options available to creditors at a meeting under s 439A of the Corporations Act would be for winding up or a proposal for a recapitalisation involving a deed of company arrangement, but that the present form of recapitalisation proposals received by the companies are less advantageous to them than could potentially be obtained with an extension of the convening period. The basis of that view is indicated by Mr Hansell's confidential affidavit, and I have had regard to but need not further set out the relevant matters.
Mr Hansell's confidential affidavit also addresses further issues as to the conduct of the administration and steps which have been taken to develop a potential recapitalisation of the companies and, as I noted above, indicates the basis on which a more favourable recapitalisation proposal may be achievable with an extension of the convening period. Mr Warwick, a solicitor acting for the administrators in respect of the application, gives evidence that no creditor has contacted the administrators to object to the extension of the convening period that is sought.
I have had the benefit of having been taken to the judgment of Gleeson J in the Federal Court of Australia ([2017] FCA 1221) in respect of the first extension of the convening period and I will not seek to repeat her Honour's comprehensive analysis of the background to the administration, the conduct of the administration to that time, the litigation involving the companies, the interests of stakeholders or the relevant principles. I have also had the benefit of submissions from Mr Izzo, who appears for the administrators, and draws attention to the applicable principles, as they emerge from Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 and Hayes, in the matter of Dick Smith Holdings Ltd (admins apptd) (recs and mgrs apptd) [2016] FCA 24 at [28]-[30]. The authorities indicate the need for a balancing exercise between, on the one hand, the expectation of a speedy administration and, on the other, the requirement of undue speed should not be allowed to prejudice sensible and constructive action which is directed to maximising the return for creditors.
Mr Izzo also draws attention to one novel aspect of the application, namely that, although the corresponding provisions of the Insolvency Law Reform Act 2016 (Cth) have commenced, on 1 September 2017, and are found in the Insolvency Practice Schedule (Corporations), the former provisions of the Corporations Act continue to apply to this application, in the form they took before the commencement of Sch 2 of the Insolvency Law Reform Act. That results from the application of s 1605 of the Corporations Act, and is consistent with the view that I took in Re TEN Network Holdings Ltd (admins apptd) (recs and mgrs aptd) [2017] NSWSC 1247 at [145]. I proceed on that basis.
I am satisfied that, for the several reasons identified by the administrators, there is a proper case for a further extension of the convening period to 31 March 2018. That extension will allow additional time for the administrators to seek to improve the terms of recapitalisation or restructuring proposals which were or are under negotiation and further to engage with relevant parties in respect of such proposals. An extension will therefore maximise the prospect of an enhanced return for the companies' creditors, including any from continued trading of the companies, and the possible improvement in the terms of a recapitalisation. The extension will also allow the administrators to seek to advance the possibility of settlement of two class actions against the companies. Those matters are connected, since the settlement of the class actions may facilitate a recapitalisation and an improved recapitalisation proposal may, in turn, improve the possible return for contingent litigation creditors in any deed of company administration. The extension of the convening period will also allow the issues as to voting at a second meeting of creditors to be addressed in the balance of this application.
I am satisfied that creditors including employees will not be materially prejudiced by the extension, given the evidence that they are likely to receive their claims in full, at least on a winding up, and interest on those claims. It is also notable that there is no opposition to the application. The Court will also give weight to the considered judgment of administrators of this kind (Re Belmont Sportsmans Club Co-Operative Ltd (admins apptd) [2015] NSWSC 543 at [9]) and Mr Hansell has formed the view, for the reasons set out in his affidavit evidence, that the extension of the convening period is in the best interests of creditors.
The orders sought are otherwise in conventional form. I am satisfied that ancillary orders, including for electronic notification of the extension of time to creditors for which the administrators hold email addresses, should be made, and there are now several cases in which such orders have been made. I am also satisfied that the costs of this application are properly treated as costs and expenses in the administration of the companies, where the application has been brought to advance, and will advance, the conduct of the administration.
For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. I make a further order that the exhibits be returned on condition that the administrators or their solicitors retain them to completion of the administration and any subsequent deed administration or liquidation.
[3]
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Decision last updated: 08 January 2018