- Mann v Abruzzi Sports Club Ltd

Judgment - ex tempore 1Application is made by Mr John Morgan and Mr Stephen James in their capacities as administrators of Photo Corporation of Australia Pty Limited (admin apptd) ("Company") for an extension of the convening period for the second meeting of creditors, by a period of approximately a month, to 20 September 2013. The orders sought are in a common form in applications of this kind, including providing for the meeting to be convened earlier if the administrators are in a position to do so. 2The application is supported by an affidavit of Mr Michael Roubicek affirmed on 15 August 2013. Mr Roubicek is the Group Commercial Manager of the Company, and was a director of the Company in the period until 13 May 2011. He is also a director of an associated entity, PCW Properties Pty Limited, which owns the premises from which the Company carries on its business. Mr Roubicek gives evidence as to the background of the Company's Australian business, and as to several events which occurred in the period prior to the appointment of the administrator. The application is also supported by an affidavit of Mr Morgan, one of the administrators, sworn 15 August 2013. 3Mr Morgan and Mr James were appointed as voluntary administrators on 25 July 2013, and the application is made within the convening period, allowing the Court jurisdiction to extend that period under sections 439A and 477A of the Corporations Act 2001 (Cth). 4Mr Morgan sets out the nature of the business carried out by the Company at the time of his appointment, which included, first, providing photographic services at studios in certain department stores, which have since been closed, although there remain some residual services to be provided in that regard. Second, the Company conducted the business of providing photographic services to schools, which had been sold prior to the appointment of the administrator, although the Company is completing the provision of photographs to schools in respect of that business, as contemplated by the contract for sale of the business. The Company also conducted a laboratory at which photographs were processed for the relevant businesses, located at premises at Granville owned by the related company. 5There were a relatively large number of employees of the Company at the time of the administrators' appointment, at that time 217 employees, since reduced to 25 employees. Some of those staff were located at the Granville premises and others were located at the various photographic studios operated by the Company which have since been closed. Mr Morgan refers to information which has been provided by Mr Roubicek, which is in turn addressed in Mr Roubicek's affidavit, as to the process for calculation of employee entitlements. Mr Morgan's evidence is that those figures will play a significant part in the consideration of the Company's future and in the administrators' report to creditors and that evidence is consistent with the information provided as to the number of the Company's employees and the fact that many of them have been employees for a considerable period. I will refer further to the question of calculations of those entitlements below. 6There is evidence that there is only one secured creditor of the Company, Westpac in respect of a car leasing facility, which presently holds funds significantly exceeding the amount which it is owed in respect to the leases. There does not appear that there will be any prejudice to Westpac in respect of an extension of the convening period. This is also not a case where, as commonly arises in matters of this kind, a lessor would be prejudiced by an extension of the convening period, since here the Company's premises are occupied by permission of a related party, which is supportive of that continued occupancy for the purposes of continuing and progressing the administration. 7Mr Morgan's evidence is that, without information as to employee entitlements, he would be unable to report to creditors as to his opinion as to the future of the Company or make a recommendation in respect of a deed of company arrangement which has been foreshadowed by interests associated with the directors. Mr Roubicek also refers to the prospect of such a deed of company arrangement, but that also appears to depend, at least in part, upon the completion of the calculation of employee entitlements. 8Mr Morgan's evidence is supportive of a request for an extension of an extra month in order to convene the second meeting of creditors, but foreshadows the possibility that that meeting will be convened sooner. He notes that that extension would allow the completion of the calculation of employee entitlements; further consideration by the directors of the form of any deed of company arrangement; Mr Morgan's and Mr James' consideration of any such proposal, and the formulation of a recommendation to creditors. 9Mr Roubicek also gives detailed evidence in respect of the Company's contractual arrangements in respect of the sale of its school photography business, which provide for further consideration payable depending on certain events over the next 12 months, which suggests that there may be some advantage to the Company and its creditors in entry into a deed of company arrangement. Mr Roubicek also gives evidence of the process which needs to be adopted for the calculation of employee entitlements, which is complicated by the use of several different payroll systems in the period of the Company's operation, the length of employees' service, and the fact that many employees have at various times worked on a full-time, part time or casual basis, and some have taken maternity leave in that period. Mr Roubicek also expresses the view that it is more likely to be more accurate and more cost effective for company staff to undertake those calculations, rather than to use external consultants to do so, and there is no reason to doubt that view. 10Mr Roubicek notes that it is presently the directors' intention to ensure that employee entitlements are paid as soon as possible, and he refers to the anticipation of a deed of company arrangement and to the possibility of subordination or deferral of debts due to company directors and priority payments owed to himself and another senior employee of the Company, in order to facilitate that objective. He notes, that in his view, the directors will be in a better position to formulate a deed of company arrangement after employee entitlements are calculated, and anticipates that such a proposal could be put within a week after that has occurred. His evidence is that he anticipates that such calculations will be completed by late August 2013, and that in turn suggests that any proposal for a deed of company arrangement might become available early in September 2013. 11With this background, the principles which are applicable to an extension of this kind are well established by the case law. The Court's function in determining an application of this kind is to reach an appropriate balance between the expectation that an administration will be relatively speedy and summary and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; Re Kavia Holdings Pty Ltd [2013] NSWSC 721 at [14]. 12Mr Fordyce, who appears for the administrators, draws attention to the decision of Austin J in Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352, which has frequently been applied in the subsequent case law, where his Honour summarised the reasons which may support an extension of the convening period as including the size and scope of the Company's business; any complex corporate group structures or intercompany loans; whether an extension of time is likely to enhance the return for unsecured creditors; and the impact of any extension on a person whose claim is affected by statutory moratoriums under Part 5.3A, which is a matter I have already noted is unlikely to cause difficulty in this case in respect of either the secured creditor or the related company which owns the property occupied by the Company. 13In Re Austcorp Group Ltd (admins apptd) [2009] FCA 636 at [18], Lindgren J similarly pointed to the object of speed in an administration on the one hand and the desirability of maximising the return for creditors and any return for shareholders on the other. His Honour noted that the prospects of a better outcome for creditors through a longer period of administration may in some cases outweigh the general expectation of a prompt resolution of the administration, and specifically noted the relevance of whether the administrator would need additional time so as to adequately inform the creditors at a second meeting to allow them to decide whether to terminate the administration, execute a deed of company arrangement or place the Company in liquidation. His Honour also noted that it is often desirable that an extension be accompanied by an order permitting the meeting to be held at any time during the convening period as extended, and such an order is proposed by the administrators in this case. 14Another relevant factor, which has frequently been recognised in the cases, is the interests of employees. In the present case, the evidence indicates that the employees of the Company are numerous, and they plainly have an interest, as creditors of the Company, in maximising the return that will be available to them, by reason of any deed of company administration. This is a matter which supports the extension of time which is sought by the administrators. The Court will also typically give weight to the considered judgment of an administrator in matters of this kind: Re Owen; RiverCity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26]. 15In the present case, it seems to me there is a strong case for the extension of the convening period sought. First, the evidence indicates that, without such an extension, employee entitlements could not properly be calculated, the prospect of a deed of company arrangement would be reduced and the Company and its creditors potentially deprived of the advantage that may arise from such a proposal, and the administrator would be less likely to have useful information to convey to the creditors at a second meeting. The fact that an extension of time will assist the administrator in conveying such useful information supports the grant of that extension. So too, the fact that there seems to be a real prospect that a deed of company arrangement will be proposed, and that the extension of time will preserve the opportunity for that to occur, is a factor supporting that extension. I have noted above the probability that such a course is in the interests of the Company's employees and former employees as creditors of the Company. 16There is as I have noted, little if any prejudice to parties who will be bound by the statutory moratorium in this matter. The period of extension is not so long that it could be said that it undermines the overall objective of speed under Part 5.3A of the Corporations Act, when assessed with regard to the competing objective of the need to provide the best available information and the most advantageous options to the creditors at the second meeting. 17In these circumstances, I am comfortably satisfied that the application for the extension and the consequential orders sought by the administrators should be granted. The administrators seek, as is often the case in applications of this kind, an order that the cost for the proceedings for the administrators be paid as a cost of the administration of the Company. I am satisfied that that is an order that is properly made in this case. 18Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed on the file.