Kaso, in the matter of Blindware Pty Ltd (Administrators Appointed) [2019] FCA 997

Federal Court of Australia|2019-06-24|Before: Moshinsky J

Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period within which the plaintiffs must convene the second meeting of creditors of Blindware Pty Ltd (ACN 122 203 061) (Administrators Appointed) (Company) is extended to and includes 26 September 2019.
Pursuant to s 447A of the Act, Pt 5.3A of the Act is to operate in relation to the Company as if the second meeting of creditors of the Company required by s 439A of the Act be held at any time during, or within five business days after the end of, the convening period as extended by paragraph 1 of these orders, notwithstanding the provisions of s 439A(2) of the Act.
The plaintiffs give notice of these orders to the Company's creditors by: (a) sending a circular letter to creditors of the Company (by email in respect of those creditors who have informed the plaintiffs that email is their preferred method of communication and by post in respect of all other known creditors) informing them of the substance of these orders and enclosing a copy of the orders; and (b) uploading a copy of these orders on the Cor Cordis website within 3 business days of the making of these orders.
On the ground that it is necessary to prevent prejudice to the proper administration of justice, for a period of 12 months commencing on the date of these orders, access to the documents identified as annexures "GS-10" and "GS-13" to the affidavit of Glenn Spooner affirmed on 21 June 2019 be restricted to the Court, the parties to the proceeding and the parties' legal representatives.
Liberty to apply be granted to any person who can demonstrate sufficient interest to modify or discharge paragraphs 1 or 2 of these orders on not less than 48 hours' notice to the plaintiffs.

Introduction 1 The plaintiffs (the Administrators) are the administrators of Blindware Pty Ltd (administrators appointed) (the Company). 2 The Administrators seek orders under ss 439A and 447A of the Corporations Act 2001 (Cth) to extend the convening period for the second meeting of the Company's creditors from 26 June 2019 to 26 September 2019. 3 In support of their application, the Administrators rely on: (a) an affidavit of Glenn Spooner (one of the two Administrators) dated 21 June 2019 (the Spooner Affidavit); and (b) an affidavit of Hannah Carne, a solicitor, dated 24 June 2019 (the Carne Affidavit). 4 The proposed extension: (a) is sought in circumstances where the Administrators are continuing to operate the business of the Company and are seeking to sell that business as a going concern; (b) will permit the Administrators to complete the sale process and their investigations, such that they can report to creditors in advance of the creditors' meeting that will determine the Company's fate; (c) is for up to 92 days, being the additional period that the Administrators consider necessary for them to be in a position to report to creditors in advance of the meeting; and (d) is not opposed by the Company's key stakeholders, including the Company's major secured creditor and the Company's employees. (The position adopted by one of the Company's landlords will be considered later in these reasons.)

Background 5 The circumstances giving rise to the application are set out in the Spooner Affidavit. 6 The Administrators were appointed to the Company on 28 May 2019 (the Appointment Date). The Company conducts business as a wholesaler of internal blind components to local and international blind manufacturers (the Business). The pre-appointment conduct of the Company's affairs was such that: (a) The Company has shareholdings in a number of suppliers to the Business. (b) The Company leases premises in Bayswater, Victoria from which the Business is conducted. (c) The Company has 17 full-time employees. (d) The Company owns and leases various assets that are deployed in the conduct of the Business. (e) The Company has utilised a debtor finance facility provided by Bendigo and Adelaide Bank Limited (BABL), in respect of which approximately $380,000 is presently owed. (f) At the Appointment Date, the Company had priority creditors with claims totalling $226,000 and ordinary unsecured creditors with claims totalling approximately $14.9 million. 7 In the period since the Appointment Date, in addition to undertaking statutory, administrative and investigative tasks, the Administrators have: (a) operated the Business; and (b) commenced a campaign for the sale or recapitalisation of the Business or the Company. 8 The Administrators consider the trading performance of the Business to be "viable", with the Business generating average weekly sales of $233,000 (inclusive of GST). The Administrators have taken a number of steps designed to stabilise the trading performance of the Business.

Applicable principles 9 The Court has jurisdiction to make orders providing for an extension of the convening period under ss 439A(6) and 447A of the Corporations Act. This application has been made within the convening period (which, as noted above, expires on 26 June 2019). 10 When considering such applications, courts have recognised that it is necessary to strike a balance between the expectation that administration will be a relatively speedy process and the overall object of Pt 5.3A of the Corporations Act (as stated in s 435A), namely, maximising the chances of the company involved or its business continuing in existence or achieving a better result for the company's creditors and members than would otherwise be achieved in an immediate winding up. In particular, courts have referred to the "requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders": see Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (cited in Re Riviera Group Pty Ltd (admins apptd) (recrs and mgrs apptd) (2009) 72 ACSR 352 at [15]; Dixon, in the matter of G.G. Engineering (Aust) Pty Ltd (admins apptd) [2017] FCA 365 at [6]); and Re Harrisons Pharmacy Pty Ltd (admins apptd) (recrs and mgrs apptd) [2013] FCA 458 at [11]. 11 Where the relevant business is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, the administration process is often given more time: see Kaso, in the matter of Speedpanel Australia Ltd (admins apptd) (No 2) [2017] FCA 862 (Kaso) at [20] (citing Re Colorado Group Ltd [2011] VSC 260 at [24] and Silvia, in the matter of FEA Plantations Ltd (admins apptd) [2010] FCA 468 at [19]).

Application of principles in the present case 12 The factors relevant to the Court exercising its discretion to extend the convening period in this case are as follows.

Additional time is required by the Administrators to be able to convey an informed opinion to creditors 13 Mr Spooner's opinion is that the Administrators do not presently have sufficient information to prepare a report to the Company's creditors that would comply with s 439A(4) of the Corporations Act. This is a product of the characteristics of the Business and the administration of the Company (which continues to entail the trading, and marketing for sale, of the Business). 14 To discharge their function properly, administrators should have sufficient time to investigate the affairs of the company under administration and provide considered and informed opinions to the creditors as to the Company's future. As was noted in Re Gunns Plantations Ltd (admins apptd) (recrs and mgrs apptd) [2012] VSC 513 at [23]: It has been recognised ... that the interests of creditors can be prejudiced not only by delay but also by the convening of premature meetings where the administrator has been unable to obtain information for the preparation of the report and statements required by s 439A(4) in the form on which creditors can make an informed decision. 15 At [44] of the Spooner Affidavit, Mr Spooner deposes to the reasons for seeking the extension, including: (a) to enable the Administrators to complete the investigations required in order to report to creditors in accordance with s 439A of the Corporations Act; (b) to permit the Administrators to continue trading the Business, which is expected both to preserve the value of the Company's assets and to assist with the proposed sale of the Business (the continued operation of the Business is also in the interests of the Company's employees (who are priority creditors)); and (c) to enable the Administrators to seek to conclude the sale of the Business and/or the assets of the Business, in circumstances where a process for such a sale has been commenced but is not yet concluded (as final offers from prospective purchasers are not due until 28 June 2019). 16 Mr Spooner's evidence is that, in the absence of an extension, the Administrators would recommend that the meeting of creditors be adjourned. This would not be in the creditors' interests due to the significant costs of holding a meeting for this limited purpose (estimated by Mr Spooner to be up to $40,000 to $50,000) and the fact that the maximum period of an adjournment (i.e. 45 days) is unlikely to be sufficient to enable the Administrators to complete their investigations.

Lack of opposition to an extension of the convening period 17 The Administrators have provided notice of the proposed extension to the Company's major secured creditor (BABL), the employees (via a representative of those employees), the landlords of the premises leased by the Company, the Company's director and a major supplier to the Company (being the entity that warehouses approximately 79% of the Company's stock on hand). 18 The only disquiet that has been expressed about the proposed extension has been conveyed by one of the Company's landlords, Hillglen Enterprises Pty Ltd (Hillglen). In an email dated 19 June 2019, Fred Thearle of Hillglen stated that Hillglen would be happy with an extension of 45 days, but if any longer was needed "then we would have to re-consider at that time". A copy of the application has been served on Hillglen. As detailed in the Carne Affidavit, Scott Benger of the Administrators' staff has had two conversations and exchanged emails with Mr Thearle. The emails are annexed to the Carne Affidavit. On the basis of these emails, it appears that Hillglen does not have an objection to the length of the extension sought. Further, Hillglen has not appeared today to oppose the application. 19 If an extension is granted, the Administrators will inform creditors of the Company via circular and publication on their firm's website. In addition, the proposed orders provide liberty to any affected party to seek to vary or discharge the orders.

The period of the proposed extension is not excessive 20 The length of the extension sought by the Administrators is not itself a determinative factor as to whether an extension should be granted. Rather, the authorities indicate that the Court is generally willing to tailor the timeframe in Pt 5.3A to suit the needs and circumstances of the particular company or companies, having regard to the achievement of the objects of Pt 5.3A: see Kaso at [21], citing Re ABC Learning Centres (No 8) (2009) 73 ACSR 478 at [52]. 21 In light of the matters that remain to be addressed by the Administrators, the length of the proposed extension strikes an appropriate balance. It will enable the Administrators' diligent pursuit of the outstanding items, but will also ensure that the creditors' exercise of their right to determine the future of the Company is not unduly delayed.

Ancillary orders 22 The Administrators also seek: (a) an order that the meeting may be held at any time within the (extended) convening period and the period of five business days thereafter (see Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446); (b) orders protecting the confidentiality of documents that were annexed to the Spooner Affidavit (as "GS-10" and "GS-13") but which are sought to be kept confidential in order to preserve the integrity of the ongoing sale process; and (c) an order regarding the costs of the application (which is in the standard form).

Conclusion 23 The nature of the task faced by administrators in a given case, having regard to the circumstances of the subject company, is critical to whether, and for what period, the Court should exercise its discretion to extend the convening period. 24 The reasons given by Mr Spooner for requiring a 92-day extension in this instance are persuasive and are consistent with the object and purpose of Pt 5.3A of the Corporations Act (as set out in s 435A). In those circumstances, I will make orders providing for an extension of the convening period until 26 September 2019, as well as the ancillary orders sought by the Administrators. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

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