Solicitors:
Russells (First to Fourth Defendants)
File Number(s): 2014/229138
[2]
Judgment - ex tempore
By Interlocutory Process filed on 3 October 2014, Messrs Neil Cussen and others as joint and several administrators of Beechworth Land Estates Pty Ltd (Administrators Appointed) ("Beechworth") and as joint and several administrators of Griffith Estates Pty Ltd (Administrators Appointed) ("Griffith") seek orders under s 447A of the Corporations Act 2001 (Cth) or alternatively under s 439A(6) of the Corporations Act altering the operation of s 439B(2) of the Corporations Act and reg 5.6.18(2) of the Corporations Regulations 2001 (Cth), so that the date on which a second meeting of creditors of the relevant companies could be held would be extended from the date on which they would be presently required to be held until 28 October 2014.
Mann v Abruzzi Sports Club Ltd [2014] NSWSC 1918 | Case summary | Zoe
The administrators have noted, in the course of submissions, that the period of extension sought may ultimately be too short, although it is presently sought by consent of other affected parties. I will reserve leave for the administrators to approach the Court in chambers to extend that period, by consent, by reference to the evidence relied upon in this application, or indeed to make a further application to extend that time period if so advised, even if such consent cannot be obtained.
I should say something as to the relevant provisions and the authorities before turning to the factual circumstances of the application. Section 439B(2) of the Corporations Act provides that a second meeting of creditors convened under s 439A of the Corporations Act may be adjourned from time to time, but the period of the adjournment, or the total of the periods of adjournment, must not exceed 45 business days. In the present case, as I will note below, a second meeting of creditors has been held in respect of each of Beechworth and Griffith but that meeting was adjourned for the maximum period permitted under s 439B(2), namely 45 days, and could not be adjourned further without an order made by the Court.
The Court has power to make such an order in an appropriate case, at least under s 447A of the Corporations Act. The circumstances in which such an order can be made have been considered two cases including Re Collective Olive Groves Ltd [2009] FCA 177 and Godfrey; Re Drummoyne Sport Clubs Ltd (admin apptd) [2012] FCA 1210. In the former, an application for an adjournment was made by an administrator in circumstances that discussions were ongoing between the administrator and a secured creditor which would be relevant to the steps which could be taken at the second meeting. Jacobson J observed (at [18]) that, although the application was not an application to extend the convening period under s 439A of the Corporations Act of the kind that is commonly made in complex administrations, it seemed to him that the principles which should inform the exercise of his discretion were those which were referred to in earlier authorities as to the extension of such a convening period. His Honour noted, consistent with those authorities, that the task for the Court was to strike an appropriate balance between the expectation that the administration would be relatively speedy and summary and the requirement that undue speed not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders. That language is, of course, familiar and was referred to by Mr Katekar, who appears for the administrators, in the course of his submissions today. It reflects the principles applied in an application for an extension of a convening period considered, for example, in Mann v Abruzzi Sport Clubs Ltd (1994) 12 ACSR 611 at 612; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; and Re Riviera Group Pty Ltd (admin apptd) (recs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 532 at [13]-[14].
The decision of Jacobson J in Re Collective Olive Groves Ltd above was in turn followed by Jagot J in Godfrey; Re Drummoyne Sports Club Ltd (admin apptd) above, where her Honour referred to his Honour's observations and to earlier authorities as to the Court's power to extend a convening period under s 447A of the Corporations Act and again considered that the convening period should be extended in circumstances that nothing usefully could be done at the adjourned second meeting of creditors in that case.
With that background, I turn now to the circumstances of this application, which are set out in a detailed affidavit of Mr Cussen dated 5 September 2014 and a further affidavit of the solicitor acting for the administrators, Mr Mattiussi, dated 3 October 2014. The administrators were appointed by persons claiming to be secured creditors to Beechworth and to Griffith under s 436C of the Corporations Act. The status of those persons as secured creditors and subsequently their entitlement to appoint administrators has been the subject of a challenge brought in this Court on various grounds. The relevant proceedings have been set down for hearing in mid-October 2014 over several days and it is likely to be at least some time before a judgment can be delivered, given the complexity of the issues in those proceedings. There is also a challenge to the appointment of the administrators, which is partly consequential to the challenge to whether the persons appointing them were secured creditors and it appears that there may also be other challenges to the administrators' appointment on other grounds. The consequence of the challenge to the status of the secured creditors is also that there is considerable doubt as to the position of the companies, since whether those persons are in fact creditors, and for how much, is a significant issue in assessing the company's financial position.
Mr Cussen sets out, in his affidavit, comprehensive, albeit not wholly successful, attempts by the administrators to obtain access to relevant documents from various parties, made more difficult because of contests between persons interested in the companies as to who are its proper shareholders and who are its current directors. My attention has also been drawn to the report to the creditors prepared by the administrators for the second meetings of creditors in respect of each of the companies, as at 8 August 2014, and to the investigations which have been undertaken by the administrators as set out in those reports to creditors.
Second creditors' meetings, to which the relevant reports were directed, were convened on 18 August 2014 and, on that date, the administrators recommended that the meetings be adjourned, for the maximum 45 day adjournment permitted by the Corporations Act, in circumstances that the existing proceedings meant that there would be considerable difficulty to the administrators in making any meaningful recommendation to the creditors, or indeed the creditors making any informed decision between the options available to them, including whether the companies should be, for example, placed in liquidation or returned to their directors.
The resolutions to adjourn the meeting for that period was unanimously passed at the second meeting of creditors of Beechworth held on 18 August 2014, albeit in circumstances that the legal representative for the plaintiffs who challenged the administrators' appointment was not present. By the time of the second meeting for Griffith, that legal representative was present and the plaintiffs who challenged the administrators' appointment voted in favour of that resolution. The administrators today bring this application and mention the appearance of the legal representatives for both the secured creditors, who appointed them, and the plaintiffs, who challenge their appointment, each of whom consent to the relevant extension.
As Mr Katekar points out, there are obvious advantages to the relevant extension. Indeed, it is difficult to see that the administrators could provide any meaningful information to second meetings of creditors and it is difficult to see that any meaningful decision could be made at such second meetings of creditors, where issues that are fundamental to such a decision will remain unclear until after the Court determines the proceedings relating to the status of the secured creditors. The difficulty is exacerbated because, as Mr Katekar points out, the last day of the convening period for a second meeting, as it presently stands, would occur in the midst of the court hearing, to which the administrators are party. There is also no significant prejudice by reason of such an extension because, as Mr Katekar also points out, the companies' assets are real property, and the practical difficulties which presently arise are such that it is unlikely that that property could properly be dealt with in any event; to the extent that the secured creditors are subject to a continuing statutory moratorium, it adds little to the difficulties which would arise in exercising their rights when their status is under challenge; and there are no other persons such as employees or lessors of premises who are presently subject to the statutory moratorium.
In these circumstances, applying the factors which would be applied in an extension of the convening period for the second meeting, by way of analogy, it seems to me that, if the date for the second meeting were not to be extended, it would be impossible for the administrators to take sensible and constructive actions directed to properly inform creditors, let alone to maximise the return for them, and it would equally be impossible for creditors to exercise an informed decision at that second meetings of creditors. In these circumstances, I am comfortably satisfied that orders should be made in the form proposed by the administrators.
I note that that application seeks, as I indicated earlier, an extension to 28 November 2014, and that is the extension to which the Plaintiffs and the Fifth and Sixth Defendants, the secured creditors, have consented. Mr Katekar raised, in the course of submissions, the possibility that that extension may not be sufficiently long, and it seems to me there is significant force in that concern. It is entirely possible that it will take some time for a trial judge hearing this matter to deliver a decision, given the complexity of the issues, and it will also take some time for the administrators to analyse that decision and assess its potential implications for the secured creditors and for the financial position of the companies, so as to properly inform creditors of those matters at second meetings of creditors. However, the course that the administrators prefer is that the Court should at this stage make the orders extending the time period for the second meeting to 28 November 2014.
I will, as I noted above, reserve leave to the administrators to approach the Court in chambers, by consent of the other parties whose appearance they have mentioned, to extend that time period. I should also indicate that it seems to me that the matters to which I have been referred by evidence and in submissions would warrant an extension of that time period for a reasonable time, which may well be another fortnight or another month, on the usual basis that an order could be made granting leave to the administrators to convene the meeting earlier, if events developed in a manner that permitted them to do so. I will also grant leave to the administrators to approach the Court, even if orders cannot be made by consent, if it ultimately appears to them that the orders which are presently being made will not allow sufficient time for the relevant issues to be resolved.
I therefore make the following orders:
Order, pursuant to s 447A of the Corporations Act 2001 (Cth), that Pt 5.3A of the Act is to operate in relation to Beechworth Land Estates Pty Ltd (Administrators Appointed) ("Beechworth") as if:
(a) Section 439B(2) omitted all words after the words "a day that is" and included, instead of the omitted words, the words "later than 28 November 2014 (IN ORDERS WAS 31 DECEMBER 2014)"; and
(b) that Part allowed an adjournment of the meeting convened under s 439A of the Act to a date not later than 28 November 2014 (IN ORDERS WAS 31 DECEMBER 2014), despite the operation of reg 5.6.18(2).
Order, pursuant to s 447A of the Act, that Pt 3A of the Act is to operate in relation to Griffith Estates Pty Ltd (Administrators Appointed) (Griffith) as if:
(a) Section 439B(2) omitted all words after the words "a day that is" and included, instead of the omitted words, the words "later than 28 November 2014 (IN ORDERS WAS 31 DECEMBER 2014)" and
(b) That part allow an adjournment of the meeting convened under s 439A of the Act to a day not later than 28 November 2014 (IN ORDERS WAS 31 DECEMBER 2014), despite the operation of regulation 5.6.18(2).
Grant liberty to the applicants to approach the Associate to Black J in respect of any further extension of time sought in respect of orders 1 and 2 above, whether by consent or otherwise.
The costs of this application be costs in the administrations of each of Beechworth Land Estates Pty Ltd (Administrators Appointed) and Griffith Estates Pty Ltd (Administrators Appointed) respectively.
[3]
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Decision last updated: 23 February 2015