Mann v Abruzzi Sports Club Ltd

Judgment - ex tempore 1Mr Pino Fiorentino, in his capacity as administrator of Tendiris Pty Limited (receivers and managers appointed) (administrator appointed) ("Company") seeks orders under section 439A(6) and 447A of the Corporations Act 2001 (Cth) extending the convening period for the second meeting of creditors of the Company to 24 May 2013 and permitting the second meeting of creditors to be held on any business day after 24 April 2013 on five business days' notice to creditors. 2Section 439A(6) of the Corporations Act allows the Court to extend the convening period on an application made during the relevant period. In the present case, Mr Fiorentino was appointed administrator of the Company on 22 January 2013. Under s 439A(1) of the Corporations Act, he was required to convene a second meeting of creditors within the period specified in s 439A(5), namely, the period of 20 business days beginning on the date the administration began, unless that period was extended by the court under s 439A(6). He acknowledges that period expired on 20 February 2013. 3It is therefore necessary for Mr Fiorentino to make his application for extension of the time of the convening period on the basis contemplated by s 439A(7) of the Corporations Act, which provides that the Court may only extend that period after that time has elapsed if it is satisfied that it would be in the best interests of creditors if that period was extended. I note that the Court must also have regard, in making an order as to the costs of the application, to the fact that it was made after that period, any other conduct of the administrator and any other relevant matter (s 439A(8)). If the convening period is not now extended under s 439A of the Corporations Act, the administration will end in accordance with s 435C(3) of the Act. For completeness, I note that section 447A of the Corporations Act, on which Mr Fiorentino relies for a further order, allows the court to make such order as it thinks appropriate as to how Part 5.3A of the Corporations Act, which includes the provisions relating to the convening period, should operate in relation to a particular company. 4The application is supported by Mr Fiorentino's affidavit dated 19 March 2013, and certain exhibits have also been tendered in respect of the application. Mr Fiorentino's evidence is, in summary: (a) Prior to his appointment as administrator, another party, Bligh Tanner Pty Limited, had filed an application to wind up the company in the Supreme Court of Queensland. Those proceedings were subsequently adjourned, by consent as between the administrator and Bligh Tanner, on 25 February 2013 to 24 April 2013. Those orders also provide that the administrator will convene the second meeting of creditors on a date after 24 April 2013. It will be noted that the second order could only be complied with if the administrator is successful in this application, because otherwise the administration will terminate and no second meeting could be convened, whether after 24 April 2013 or at all. (b) A secured creditor, Suncorp-Metway, has purported to exercise a power under a registered charge, securing an amount claimed in excess of $3.6 million, over the Company's only asset, a leaseholding. (c) Mr Fiorentino has been hampered in preparing his report to be provided to creditors in connection with the second meeting because he has received a substantial volume of documents from the Company's single director relating to court proceedings, but not the Company's books and records in the usual sense. He has received accounts from the Company's accountants which show a deficiency in excess of $49 million comprised of amounts claimed to be payable and liabilities to the Company's sole director. He has not yet been able to verify the accuracy of the information contained in those accounts without access to the Company's ledgers and cash books. (d) Unsecured creditors other than the Company's sole director have claims of about $345,000 against the Company. The director has submitted two proofs of debt which are relevantly in excess of $14.5 million and in excess of $55.9 million and claims to rank in priority to Suncorp-Metway. The director's claims rely on complex transactions over a lengthy period and the director contends that Suncorp-Metway's charge is variously, and inconsistently, void, voidable, unenforceable, or held on trust for or previously assigned to the director. The administrator has sought legal advice as to the matters raised by the director. (e) There is a wide range in valuations of the Company's single land holding, and it is possible that there may either be a deficiency or a surplus on the sale of that land by Suncorp-Metway in exercising its claimed rights under the charge, depending on which valuation is accurate. (f) The director has submitted a proposed deed of company arrangement which provides for an immediate payment to unsecured creditors and, subject to conditions, a further payment. Mr Fiorentino has expressed the view that there would be no dividend on a winding up, although it seems likely that that conclusion must depend, at least implicitly, upon the value of the Company's land holding. It may also depend upon the value of any rights which the Company might assert in a liquidation; however, Mr Fiorentino's draft report to creditors in respect of the second meeting notes that the value of any such claims has to be assessed having regard to the lack of funding to a liquidator to pursue them. (g) It appears that all but one of the creditors present at the first meeting expressed support for the proposed deed of company arrangement. A list of creditors present at that meeting which has been tendered before me suggests that substantially all of those creditors are at arm's length and not persons related to the Company's sole director. That suggests that the views of those creditors as to what is in their own interests should be given greater weight. 5In determining an application for an extension of time to hold a second meeting in respect of an administration, the Court must 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 maximizing a return for creditors, and the desirability of allowing the administrator time to present meaningful choices to creditors at the second creditors' meeting: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611. 6In Re Austcorp Group Ltd (admins apptd) [2009] FCA 636 at [18], Lindgren J similarly pointed to the objective of speed in an administration on the one hand, and the desirability of maximizing the return for creditors and any return for shareholders on the other. His Honour noted that the prospects of a better outcome of the 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 was often desirable that an extension be accompanied by an order under s 447A of the Corporations Act, permitting the meeting to be held at any time during the convening period as extended. Mr Fiorentino seeks an order in that form in this case. As noted above, where the application is made after the convening period, the Court must be satisfied of the matter specified in s 439A(7), namely that it would be in creditors' best interest to extend the convening period, in order to grant that extension. I note, however, that that issue also arises where such an application is made in the convening period. 7It seems to me that this is not the strongest case for an extension of time for the convening period of a second meeting. There are limits to the available evidence in respect of the comparative outcomes of an administration and a liquidation, although I accept that those limits are in one respect the consequence of the difficulties which the administrator has had, which in turn prompt the application for the extension. I am, on balance, satisfied that it is in the best interests of creditors to extend the convening period, for several reasons: (a) An extension of the time for the convening period will increase the likelihood that the administrator's report to creditors can convey useful information and that the administrator will be able to express a properly informed opinion for the purposes of s 439A(4) of the Corporations Act as to the options available to creditors at the second meeting. (b) An extension of time will preserve the opportunity for creditors to approve the execution of a deed of company arrangement which would otherwise be lost. That opportunity would have some significance if, depending on the issue of valuation of the properties and potential recoveries in a liquidation, the administrator is ultimately correct in the view expressed in his affidavit that there would not be a dividend payable to unsecured creditors in a liquidation, so that a deed of company arrangement, even one which provides for a modest payment, may be more advantageous to creditors than a liquidation. (c) The grant of such an extension of the convening period will allow the administrator to comply with the orders made by the Supreme Court of Queensland on 27 February 2013, in circumstances that it would otherwise be beyond his power to do so. (d) 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 sometimes competing objective of the need to provide the best available information and the most advantageous options to creditors at the second meeting. 8In these circumstances, I am, on balance, satisfied that the application for the extension and the consequential orders sought by the administrator should be granted. I will, however, slightly amend the orders contained in the originating process. 9I have had regard to the factors specified in s 439A(8) of the Corporations Act in making an order that the costs of the application be costs of the administration in this matter, as I am required to do where an application is made after the expiry of the convening period. It would, of course, have been preferable had that application been made within that period. However, the evidence before me indicates that the administrator has faced significant complexities and, I have been informed from the bar table, constraints in funding. There is no suggestion that creditors have been prejudiced by the delay in the application or that there is any other reason that the administrator's costs of that application should not be made the costs of the administration. I will also make an order granting liberty to any person to apply, in recognising that this application has been made on an ex parte basis, so that a person affected by it should have the opportunity to vary or set aside the order, if they can persuade the Court that there is appropriate reason to do so. 10I make the following orders: