Mann v Abruzzi Sports Club Ltd

REASONS FOR JUDGMENT 1 This is an application to extend the convening period for a second meeting of creditors pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act). 2 The application is supported by an affidavit of Michael John Morris Smith, who is the administrator of Claycon Pty Ltd (the company). Mr Smith is a Chartered Accountant and Official Liquidator. He was appointed as the administrator of the company by a resolution of directors on 11 May 2011 under s 436A of the Act. Mr Smith held and chaired the first meeting of creditors of the company on 20 May 2011. Under s 439A(5) of the Act, the second meeting of creditors is required to be convened no more than 20 business days thereafter, being Wednesday 8 June 2011. 3 Mr Smith, in his affidavit, explains that his investigations to date have disclosed that: the company holds approximately $346,000 of public company shares; there is $161,296.41 cash held in the trust account of the company's solicitor and intended to cover the solicitor's costs in acting for Mr Smith in relation to issues concerning the Australian Tax Office (the ATO); trade debtors that are not the subject of current garnishee notices from the ATO and work in progress as yet unbilled totalled approximately $132,000 at the date of Mr Smith's appointment; and unsecured creditors totalled approximately $83,000 at the date of Mr Smith's appointment. 4 Mr Smith's affidavit discloses that he has continued to trade the business of the company since his appointment as administrator. 5 On or about 25 May 2011, the company received Amended Tax Assessments from the ATO specifying a total liability for excise tax in excess of $4.5 million. Mr Smith has been informed by a director of the company that the Amended Assessments were disputed prior to his appointment, and that an objection had been lodged with the ATO. 6 In addition, on or about 5 May 2011 the company also received an Interim Report from the ATO which detailed further potential claims and foreshadowed further assessments in relation to a number of matters. According to Mr Smith, the foreshadowed assessments could theoretically lead to the company being liable to the ATO for a total of some $29 million. Mr Smith intends, in his capacity as administrator, to lodge a full response to the Interim Report, and has requested an extension of time from the ATO to do so. 7 However, also according to Mr Smith, it is possible that if the objection to the Amended Assessments and the proposed response to the Interim Report are both upheld, the company's liability to the ATO could be significantly reduced - perhaps even to the point where the company would be able to pay the ATO from its own assets. In this case the company would be solvent as, in the absence of any debt to the ATO, it is solvent now. 8 Mr Smith says he is not properly able to prepare his report to the creditors of the company under s 439A(4) of the Act until he can determine more accurately the extent of its indebtedness, if any, to the ATO. In particular, in the absence of a response to the Freedom of Information request Mr Smith has made to the ATO, and a determination of any response he subsequently gives to the Interim Report, Mr Smith cannot form firm enough conclusions to estimate the potential return to the company's creditors. The determination of the ATO's debt position is therefore critical to Mr Smith's ability to make a recommendation to all creditors as to the future direction of the company. Mr Smith believes it will take at least three months for him to arrive at a more certain determination on this issue. 9 According to the decision of Young J in Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611, the objects of the relevant parts of the Act must be held firmly in view. His Honour said that it would be "quite contrary to the whole spirit" of Pt 5.3A to allow administration to be unduly extended or, indeed, to over-encourage administrators to apply it to the court." His Honour also noted, however, that the "spirit and object of [Pt 5.3A Div 5]" - which is "to maximise the chances of the company continuing in existence or, alternatively, terminating its existence in the most appropriate way" - must equally be kept in mind; and noted that he did not want it thought that administrators "can only apply where they have special grounds." 10 In Re Riviera Group Pty Ltd (2009) 72 ACSR 352; [2009] NSWSC 585, Austin J determined that he would extend a convening period. The headnote to his Honour's decision identifies the relevant principles, namely that: …the courts do not have a predisposition against extending the convening period. Rather they apply the "balancing test". That is, they seek to strike an appropriate balance between on the one hand, the expectation that the administration will be a relatively speedy and summary matter, and on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising the return to creditors and any return for shareholders. 11 His Honour also identified a number of relevant considerations at [13] of his reasons for decision. 12 In the present case, I consider that the extension of time sought (that is, until 5 October 2011) is overgenerous. Nevertheless, I accept that an appropriate balancing of the need for the speedy resolution of the administration against the need to maximise the company's chances of surviving and continuing to trade requires that there be some extension of time to enable Mr Smith, in his capacity as administrator, to determine (if possible, in a timely manner) the issues which concern the ATO. 13 While I accept that Mr Smith is not in a position to control the timeliness or otherwise of the ATO's dealings, he is in a position to do his best to expedite his dealings with it. This, of course, he should do. 14 Under these circumstances, I am prepared to make the orders sought under s 439A(6) of the Act extending the time for the second meeting of creditors up to and including 5 September 2011. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.