Inglewood Farms Pty Ltd v AM No. 1 Pty Ltd

Judgment - EX TEMPORE 1In my judgment delivered on 14 May 2012 ([2012] NSWSC 654), I adjourned a winding up application brought by the Plaintiff, Inglewood Farms Pty Limited ("Inglewood Farms") to today on the application of the administrators ("Administrators") appointed to the Defendant, AM No. 1 Pty Limited (admins apptd) ("AM No. 1"). 2I there noted that the application for an adjournment was brought under s 440A(2) of the Corporations Act 2001 (Cth) and, in the alternative, under the Court's inherent jurisdiction and under s 467 of the Corporations Act which provides that, on hearing of a winding up application, the Court may adjourn the hearing conditionally or unconditionally. I set out the factors relevant to an adjournment application in paragraph 4 of that judgment. 3Generally, an adjournment under s 440A(2) of the Corporations Act requires that the Court is satisfied that it is in creditors' interests to continue the administration in all the circumstances, and this requires that there be sufficient possibility, as distinct from mere optimistic speculation, that creditors' interests will be accommodated to a greater degree in an administration than in a winding up: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457; TCS Management Pty Limited v CTTI Solutions Pty Limited [2001] NSWSC 830 at [15]; Australian Securities and Investments Commission v Storm Financial Limited (recs and mgrs apptd) (admins apptd) (2009) 71 ACSR 81; Deputy Commissioner of Taxation v C-Change Cairns Pty Limited [2011] FCA 1372. Such an adjournment may be granted, inter alia, where there are assets which could produce a larger dividend in a voluntary administration than in an immediate winding up: see the cases cited in Austin and Black's Annotations to the Corporations Act at [5.440A]. 4The Administrators now seek a further adjournment for at least thirty days and potentially to early July 2012, after the date of the second creditors' meeting. They rely upon an affidavit of Glen Shannon sworn 28 May 2012 and Mr Shannon's report to creditors dated the same date, which recommends that the second creditors' meeting be adjourned for a maximum period of thirty days so that an asset sales agreement, which presently exists with Stone Reconstructions Pty Limited ("Stone Reconstructions"), is not jeopardised by the liquidation of AM No. 1 (a risk to which I referred in my earlier judgment) and to allow consideration of a proposal put by a third party for a deed of company arrangement. 5Mr Shannon gives evidence of the receipt of a further improved approach to purchase the assets in the business of AM No. 1 and associated entities ("Super Butcher entities") since an earlier approach made on 21 May 2012, and that document has been tendered on a confidential basis. Mr Shannon also indicates that he has received a valuation for the assets of the Super Butcher entities from a valuer he has retained, which is significantly higher than the valuation previously prepared at the request of an entity associated with AM No. 1, and there have been negotiations with Stone Reconstructions and another bidder for the business with a view to obtaining a better price and better outcome for employees of AM No. 1. 6There is evidence that a sale on a going concern basis is likely to lead to a higher price than a sale on a forced sale basis, in the position taken by potential purchasers to which I referred in my earlier judgment; in the continuing negotiations with purchasers to purchase the business as a going concern and in the second valuation report obtained by the Administrators which values the assets of the business on a going concern basis at a significantly higher figure than on a forced sale basis. 7The Administrators have properly drawn my attention to a communication from solicitors acting for a number of creditors who foreshadowed the possibility of seeking relief in the Supreme Court of Queensland challenging the Asset Sale Agreement with Stone Reconstructions. It would not be appropriate for me to seek to form a view as to the prospects of those proceedings and I do not seek to do so. The Administrators have, properly, offered to give those parties two business days notice of any intention to proceed with that agreement. Another winding up application in respect of an entity associated with AM No. 1 has also been filed in the Supreme Court of Queensland and, by consent, adjourned to 4 June 2012. 8Mr Johnson, who appears for Inglewood Farms, has identified a number of reasons why, Inglewood Farms contends, the winding up should not be further adjourned. First, Mr Johnson points out that a liquidator appointed to AM No. 1 would have the power to carry on its business, so far as it is necessary for the beneficial disposal of winding up of that business and could, in appropriate circumstances, seek to be appointed as administrator of AM No. 1. However, a liquidator would not have the benefit of a statutory moratorium under s 440C of the Corporations Act against actions of lessors to take possession of the leased premises from which the business is conducted, which is presently available during the administration. I can also see little utility, where an administrator is already in place, in declining to adjourn a winding up application and potentially then appointing a different liquidator so as to allow that different liquidator to appoint himself or herself as administrator in place of the present administrator. 9Mr Johnson also emphasises that AM No. 1, was apparently insolvent and points to the remedies for preference transactions and insolvent trading available to a liquidator. However, if creditors take the view that the pursuit of those claims would be preferable to other alternatives, that option would be open to them at the second creditors' meeting even if the winding up is adjourned. Mr Johnson properly accepts that an adjournment of the winding up would delay rather than extinguish the prospect of such claims, which would only be extinguished if creditors resolved, at the second meeting, that the company should enter into a deed of company arrangement which extinguished such claims, rather than, for example, that the company be wound up. The adjournment of the winding up seems to me to keep open real alternatives to a liquidation, where there is a significant prospect that they may be of greater benefit to creditors, for their consideration at the second meeting of creditors. 10Mr Johnson also suggests that the present Asset Sale Agreement may be set aside in the proceedings foreshadowed by some creditors to be brought in the Supreme Court of Queensland. That is one possibility; another is that such proceedings are commenced and do not succeed. A third is that Stone Reconstructions enters a revised agreement with the Administrators which is either not subject to such an attack or where such an attack is not successful because of the different circumstances in which it was reached or because its terms are more favourable to AM No. 1 and its creditors. A fourth possibility is that the Administrators choose to repudiate the agreement with Stone Reconstructions and contract with a third party. A fifth possibility is that creditors resolve at the second meeting that the company should be wound up and the liquidator then disclaims the contracts with Stone Reconstructions. Again, it seems to me, that there are significant advantages to creditors, at least for the present, in keeping these options open for the Administrators to progress them and for the creditors to consider the outcome at a second meeting. 11In my judgment of 14 May 2012, I identified a number of factors which I considered then supported the view that it was in the interests of AM No. 1's creditors for it to continue in administration in the immediate future rather than be wound up. I consider that several of those factors continue to have weight. First, the value of AM No. 1's business is likely to be maximised by its remaining as a going concern, in circumstances that the administrator has the benefit of the statutory moratorium in respect of the leased premises. Second, the sale of AM No. 1's business will not necessarily preclude the subsequent appointment of a liquidator who might pursue insolvent trading or preference claims. These factors continue to exist. I am reinforced in the view that it is in the creditors' interest that the administration continue by the fact that the Administrators' negotiations with potential purchasers are progressing and there appears to be a real prospect of realising a higher price for the Super Butcher entities' business, and by the further valuation evidence confirming that the value of AM No. 1's assets is likely to be higher on a going concern rather than in a forced sale environment. 12In these circumstances, I have formed the view that the requirements of s 440A(2) of the Corporations Act for a further adjournment of the winding up application are satisfied, in that it is in the interests of the company's creditors that the administration should continue. There was debate before me as to the length of such an adjournment. Mr Johnson contended that Inglewood Farms vehemently opposed an adjournment beyond the date of the second creditors' meeting, on the basis that Inglewood Farms might then be presented with a "fait accompli". I should note that that "fait accompli" would have the character of a resolution passed by the majority of the creditors at the second meeting in the manner that the Corporations Act permits such resolutions to be passed. I consider it is preferable to adjourn the winding up until after the likely date of an adjourned second meeting of creditors, so as to avoid exposing the Administrators to further costs and distraction of another appearance before that date. It is open to a party, including Inglewood Farms, to bring a further application before the Court to seek to vary that order, if circumstances arise of the character that would warrant the revisiting of an interlocutory order, in particular, if there is a significant change of circumstances between now and the date on which the second meeting of creditors is held. Accordingly, I will order that the winding up be adjourned to the Corporations List on 9 July 2012. 13Against the contingency that such an order is specifically required and consistent with the observation I have just made, I will order that there be liberty to apply on forty-eight hours notice. 14On the last occasion I reserved costs on the basis they may be best assessed when all relevant information is available. It is possible that the fate of the second meeting of the creditors will cast light on the question of costs, although it will not necessarily do so. 15It seems to me there is no particular advantage in dealing with the question of costs today when it can readily be re-listed before me when the matter is relisted in the Corporations List on 9 July. Equally there may be advantage in further information being available to both parties as to the outcome of the events on that date in developing an argument as to costs. Accordingly, I reserve the question of costs to be determined on 9 July 2012 subject to any further order of the Court.