By Originating Process filed today, by leave, Mr Trent Devine in his capacity as administrator of Palace Memories Pty Ltd ("Company") seeks, primarily, an order under s 447A of the Corporations Act 2001 (Cth) that Pt 5.3A of the Corporations Act is to operate in relation to the Company as if s 439B(2) of the Corporations Act had omitted all words after "but the period of the adjournment" and included instead reference to the words "later than 31 March 2015" and as if that Part allowed adjournment of a second meeting of creditors convened under s 439A of the Corporations Act to a day not later than 31 March 2015 despite the operation of reg 5.6.18(2) of the Corporations Regulations 2001 (Cth).
Mr Devine originally also sought relief, by way of a direction under s 447D of the Corporations Act, that he would be justified in postponing the holding of the adjourned second meeting of creditors, which would otherwise be held on 15 January 2015, to a date not later than 31 March 2015. It seemed to me that the relief which was sought by that direction related, in substance, to the making of a commercial decision by Mr Devine, which would not generally be the subject of a direction made under s 447D of the Act, and that relief was ultimately not pressed.
Certain other relief was sought, but that relief was primarily to give effect to the primary relief which was sought. The relevant relief was sought on the basis that the voluntary administrator, Mr Devine, would give notice of the application to creditors of the company and the Australian Securities and Investments Commission, and that their ability to vary these orders on application to the Court would be reserved.
I should refer to the legal basis of the application, before referring to the evidence on which Mr Devine relies. The application is directed to modifying the operation of s 439B(2) of the Corporations Act, which 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 periods of adjournment, must not exceed 45 business days. In the present case, the second meeting of creditors had been held, on one occasion, in respect of the Company but was adjourned for the maximum period permitted under the Act, and could not be adjourned further without an order made by the Court.
The authorities establish that the Court has power to make such an order in an appropriate case, at least under s 447A of the Corporations Act, on which Mr Devine relies. The circumstances in which such an order may be made were considered by the Federal Court of Australia in Re Collective Olive Groves Ltd; application by Reidy [2009] FCA 177 and Re Godfrey; Drummoyne Sports Club Ltd (admin apptd) [2012] FCA 1210 and in this Court in Re Beechworth Land Estates Pty Ltd (Admins Apptd) and Griffith Estates Pty Ltd (Admins Apptd) [2014] NSWSC 1918. In Re Collective Olive Groves Ltd above, an application for an adjournment of a second meeting of creditors 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 of creditors. 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 would inform the exercise of his discretion were those which were referred to in authorities as to the extension of such a convening period. His Honour noted, consistent with those authorities, that the Court's task was to strike an appropriate balance between the expectation that an administration would be relatively speedy and summary matter and the requirement that undue speed not be allowed to prejudice sensible and constructive actions directed to maximising the return for creditors and any return for shareholders. His Honour's approach reflects the principle applied in an application for an extension of a convening period considered, for example, in Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 at 612 and numerous subsequent authorities. The decision of Jacobson J in Re Collective Olive Groves Ltd above was in turn followed by Jagot J in Re Godfrey, in the matter of Drummoyne Sports Club Ltd (admin apptd) above, where her Honour held that the period for a second meeting should be extended in circumstances that nothing could otherwise usefully be done at the adjourned second meeting. I also followed that approach, in respect of a complex administration, in Re Beechworth Land Estates Pty Ltd (Admins Apptd) above.
With this background, I turn now to the evidence in support of this application. Mr Devine, in his affidavit dated 14 January 2015, sets out the circumstances in which he was appointed as administrator of the Company, which conducts a restaurant business in George Street Sydney. The Company trades from leased premises, and has a long-term lease, with a significant option for renewal attached, and the administrator has continued to conduct that business since his appointment in order to maximise the prospects of a sale of the Company's business. There is evidence that the Company has significant creditors, including secured creditors totalling in excess of $800,000, preferred (employee) creditors totalling in excess of $495,000, and unsecured creditors totalling in excess of $2 million. Mr Devine's evidence is that employees have cooperated with the continued trading of the business, notwithstanding that some of them had outstanding wages as at the date he was appointed, presumably in order to maximise their prospects of continued employment within an ongoing business. Mr Devine's evidence is the second meeting of creditors was held on 19 November 2014, at which point it was adjourned for the maximum permitted period of 45 business days, and would otherwise have had to be held today.
Mr Devine had taken steps to sell the Company's business or assets, and conducted a marketing campaign in that regard, which secured an offer from a third party to purchase the Company's business. It appears that that third party was the preferred tenant of the lessor of the premises occupied by the Company, although I note that final approval for the assignment of the lease to that third party, or an associated entity, has not yet been achieved. The third party has in turn been operating the business, under a business licence agreement and sublicence, since late December 2014. Steps have subsequently been taken to deal with arrangements for the entry into a new lease, or the assignment of the existing lease, to an entity associated with the third party, and an instalment of the purchase price under the business sale agreement has been paid, with a second instalment expected to be paid today. Once the agreement for a sale of the business has been exchanged, which is also expected to occur today, then either an assignment of the lease to an entity associated with the third party, or the entry into a new lease, will need to take place. Steps are currently underway to allow that to occur. Mr Devine identifies the risk that, if the second meeting of creditors were required to proceed today, and the Company were placed into liquidation, in circumstances that the arrangements with the third party and the lessor had not been finalised, then the moratorium which presently applies under s 443B of the Corporations Act would cease to apply and the lessor would be entitled to terminate the lease. While it appears, given arrangements to date, that the lessor might not take that course, it seems to me that Mr Devine is correct in recognising the risk of that course to his ability to complete a sale of the Company's business as a going concern and to the value of the Company's assets.
Mr Devine's evidence is that, if the agreement for sale of business goes to completion, there are likely to be sufficient funds to meet his costs, charges and expenses, discharge a liability to a secured creditor, pay the preferred employee creditors and potentially pay a small dividend to unsecured creditors. If, on the other hand, the Company is placed in liquidation, then the amounts available are likely to be reduced, and in particular payment to preferred employee creditors and any dividend to unsecured creditors would be at risk.
There is evidence that the secured creditor of the Company consents to this application. The lessor of the premises has not expressly indicated its attitude to the application, although it is involved in the negotiations for the sale of the business to the third party and in arrangements for transfer of the lease to the third party. Mr Smith, who appears for Mr Devine, properly draws attention to the fact that there are two creditors who have judgments against the Company, which may suffer some prejudice by an adjournment of the second meeting, and a prolongation of the administration, so far as their ability to enforce those judgments will be subject to a continuance of the statutory moratorium for a longer period. Other creditors may be affected so far as the finalisation of the administration would be delayed and payment of any dividends potentially delayed, although that potential prejudice needs to be weighed against the fact that the possibility of any dividends for unsecured creditors and potentially preferred employee creditors is maximised by an extension of the administration.
I must weigh the relevant considerations, including the advantage to the administration, the advantage to preferred employee creditors and unsecured creditors of maximising the proceeds of the administration, the disadvantage to the lessor and to those with judgment debts of an extension of the statutory moratorium period, mitigated in the case of the lessor by its involvement in the process, and having regard to the statutory purposes of the administration regime under Pt 5.3A of the Act, which include maximising the prospect that the Company may continue in existence and maximising the potential return to its creditors, and I also have regard to the relatively short period for which the further extension is sought. I am satisfied that this is a proper case in which to extend the period in which the second meeting of creditors may be convened, having regard to the matters to which I have referred.
I noted above that the administrators accepted that leave should be reserved to third parties, who are to be given notice of the orders I have made, to approach the Court to vary those orders on notice to the administrator, if they are so advised. That is a proper order, made in applications of this kind, and will allow any third party whose interests may be adversely affected to have an opportunity to be heard in respect of these orders, if it seeks to do so.
For these reasons, I have previously made orders in accordance with Short Minutes of Order initialled by me and placed in the file.
I should indicate that, in the course of the application before me, Mr Smith drew attention to a claim by the purchaser of the business that the purchase price paid was commercially confidential. It seems to me to be desirable, in all the circumstances, to respect the purchaser's claim for confidentiality over that purchase price. Accordingly, I make an order that the affidavit of Mr Devine and page 497 of exhibit A1 in this application be placed in a sealed envelope, which is to be held confidential and not opened other than by order of a judge of the Court. The administrator has helpfully provided a replacement copy of that affidavit, and a replacement copy of page 497 of exhibit A1, redacting the information to which a claim for confidentiality is made, which will be placed with the relevant material.
I will, however, also order that the exhibits in this application be returned, on condition that the administrator's solicitors must retain those exhibits, pending the finalisation of the administration, so that they would be available if any application is made by a third party in respect of the matter.
[2]
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Decision last updated: 04 March 2015