Mann v Abruzzi Sports Club Ltd

The applicable principles

1. I will first refer to the applicable principles, although, as will emerge below, the facts of this case involve unusual features. In making an order to extend the convening period for a second meeting of creditors, under s 439A or s 447A of the Act, the Court must reach an appropriate balance between an expectation that an administration will be relatively speedy and summary and the counterveiling factor that undue speed should not be allowed to prejudice sensible and constructive action directed to maximising a return to creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313; Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2002 at [7]. Several relevant factors were identified by Austin J in Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352, in a case which has subsequently been cited on many occasions, including the size and scope of a company's business; the time needed to execute an orderly process of disposal of assets; whether an extension of time is likely to enhance the return for secured creditors; and the impact of any extension upon a person whose claim is affected by the statutory moratoriums under Part 5.3A of the Act.

The evidence in support of the application

1. As will emerge below, Fearndale's operations are very simple, but its affairs are extraordinarily complex; the approach adopted by creditors has caused considerable difficulties, and is likely to continue to cause considerable difficulties, for the orderly management of the administration; and the process of an orderly disposal of assets has been complex and time consuming, and is likely to continue to be so, given litigation which is presently under way in respect of Fearndale's principal asset. I will return to the evidence of those matters below.
2. Mr Cook relies, in support of the application, on his affidavit dated 24 October 2018, which set out the circumstances of his appointment as administrator of Fearndale, pursuant to orders made by Leeming JA in May 2018, in place of an administrator previously appointed by a secured creditor of Fearndale. The circumstances of Mr Cook's appointment at that time were unusual, so far as they involved complex orders made in contested proceedings, with a view to seeking to restore order to the realisation of Fearndale's assets. It appears that aspiration has not been wholly successful. Mr Cook also there referred to Fearndale and the persons interested in it and to its primary asset, namely land situated at Luddenham in New South Wales, and to matters which might give rise to potential value for that land, and issues arising in respect of quarrying activities on that land. Mr Cook also there referred to incomplete books and records of Fearndale, a matter which has been addressed, in part, by subsequent examinations conducted by Mr Cook, and to uncertainties arising out of the suggested existence of a trust associated with Fearndale, the Fearndale Trust, and as to loan arrangements in respect of Fearndale and competing claims to the land.
3. By Mr Cook's further affidavit dated 26 November 2018, paragraphs 1-10 of which were read today, Mr Cook provided further information as to known creditors of Fearndale and as to the position of unitholders in the Fearndale Trust.
4. I referred to aspects of these affidavits in my earlier judgment in respect of an earlier application determined on 4 December 2018, when I modified the orders previously made by Leeming JA extending the convening period for the second meeting of creditors to a date seven days after the completion of the sale of Fearndale's land, on Mr Cook's application, so that the convening period of the second meeting of creditors was extended to a specified date, expressly reserving his opportunity to apply for a further extension of the convening period. Although that application was not, strictly, an application for an extension of the convening period, but rather an application to replace a date specified by reference to an event with a calendar date, I had regard to the principles which would apply to an extension of the convening period, in determining that that order should then be made.
5. Mr Cook also relies on further affidavit evidence, dealing with subsequent events, in support of this application. He relies on an affidavit dated 11 April 2019 of Mr Lincoln Blackledge, a real estate agent, who refers to his view that the land owned by Fearndale has "unique" features; that a sale by public auction would not be an appropriate method for sale; and that an expressions of interest campaign was likely to be the preferable method for sale. Mr Blackledge also there referred to the impact on any sale process of a lease held by Drama Unit Pty Ltd ("Drama Unit"), which was the subject of earlier proceedings and is now the subject of further proceedings which have been tentatively listed for hearing on 17 May 2019.
6. Mr Cook also relies on his further affidavit dated 12 April 2019, which referred to the position in respect of Drama Unit; to the position in respect of public examinations to obtain further information in respect of Fearndale's affairs; and to the uncertainties as to a return to creditors, which largely depended upon the value that was capable of being realised in respect of Fearndale's land, and also on the extent of any claim to Fearndale by a secured creditor of Fearndale, Consolidated Capital and Funding Pty Ltd ("CCF"), which is presently the subject of a reference and is expected to be determined shortly.
7. Finally, Mr Cook relies on the affidavit of Ms Doyle dated 24 April 2019, which indicates that notice of this application has been given to creditors of the company. CCF, the secured creditor, has indicated that it neither consents to nor opposes the application, and I referred above to the position adopted by Equivest and Torpoint at this hearing.

Mr Cook's submissions

1. In submissions, Mr Golledge sets out the history of the appointment of Mr Cook and summarises the position in respect of Fearndale's land holding, and the uncertainties as to the value which will be realised from the land, including the position in respect of the lease with Drama Unit, which is the subject of the proceedings to which I have referred. Mr Golledge refers to the well-established principles in respect of the extension of a convening period to which I have referred above, but points out that, unusually, Mr Cook was here appointed by the orders made by Leeming JA which contemplated that the administration would continue until the land was sold. The orders which I subsequently made in December 2018 to indicate a fixed date were made on the same basis, at a time that it was hoped the land would be sold earlier than has been achieved.
2. Mr Golledge submits, persuasively in my view, that the continuation of the administration, and the extension of the period for the second meeting of creditors, will give effect to the orders which were initially made by the Court, and that they should not be disturbed, particularly on an application by persons who were involved in the making of those orders by consent. Mr Golledge also refers to the steps which have been taken by Mr Cook to seek to be in a position to sell the land, in a manner that would maximise its value for creditors, albeit that will likely require a determination of the issues in respect of Drama Unit's lease. Mr Golledge also refers to the fact that the extent to which creditors' claims will be met is not yet known, and cannot be known until the likely or actual sale proceeds of the land are known, which will depend on the position in respect of Drama Unit's lease, and will likely also depend upon the amount to which CCF has a proper claim, which is the subject of the ongoing reference.
3. Mr Golledge points out that there is no prejudice to creditors in a continuation of the administration, where CCF does not oppose that position; there are no employees of Fearndale and it has no leased property which is presently subject to a moratorium arising by way of the administration; and any distribution to creditors, including in a liquidation, could only be made after the land was realised.
4. It seems to me that, in the present circumstances, there are three reasons to extend the administration, in the manner proposed by Mr Cook, although I will refer further to the period of that extension below. The first is that, as matters stand, Mr Cook is unlikely to be able to provide meaningful information to creditors, at a second meeting of creditors, to assist them in a determination whether Fearndale should be placed in liquidation; or a deed of company arrangement should be implemented, if one was proposed; or Fearndale should be returned to the control of its directors. The range of options available to Fearndale is likely to be narrower, at a second meeting of creditors held now, than it would be in circumstances where there was greater clarity as to the value of its land.
5. The second reason for such an extension is that it would, as I have noted above, be consistent with the orders originally made by Leeming JA, by the consent of affected parties, which contemplated that the administration would provide a means of realising the relevant land, where there was a significant level of dispute between creditors, and uncertainty in respect of Fearndale's position. The third reason to extend the convening period is that it will maximise the opportunity for Fearndale to realise the value of the land and, consistent with the observations I have made above, potentially increase the range of options which may be available to creditors at the second meeting of creditors.
6. While I am conscious that the administration will have continued for a substantial period, and much longer than would ordinarily be the case, that appears to be the consequence, not of any lack of activity or diligence on Mr Cook's part, but of the difficulty of the circumstances in which Fearndale finds itself, and the range of disputes that have emerged in respect of its land and its creditors' claims. I also have regard to the authorities which emphasise that, in applications of this kind, considerable weight should be given to the administrator's view.
7. I note, for completeness, that Mr Golledge drew attention to a question whether an order under s 439A(6) of the Act could be made in the present circumstances, if this application is properly treated as a second extension of the convening period. That depends, in part, upon the history of earlier events, including the position in respect of an earlier application by the previous administrator appointed by CCF, and whether the orders previously made by Leeming JA, to which I have referred above, could be characterised as an extension of the convening period. It is not necessary to resolve those questions since it is plain the Court has a broad plenary power under s 447A of the Act to make an order, varying the operation of Part 5.3A of the Act to extend the convening period so as to promote the purposes of that Part. Such an order would, in my view, promote the purposes of Part 5.3A of the Act, and I would, to the extent the power is not available under s 439A(6) in the relevant circumstances, make that order under s 447A of the Act.

Period of the extension

1. I have given consideration to whether the convening period should be extended for a shorter period than sought by Mr Cook, for example to the end of June 2019 or the end of July 2019, rather than to 30 September 2019. Mr Cook has sought an extension for that longer period by reference to the time in which he anticipates a sale of the land would be possible, at least if Fearndale is successful in the proceedings in respect of Drama Unit, and possibly if it is unsuccessful in those proceedings. That may well be known by the end of June or July 2019 since, as I noted above, a tentative hearing for those proceedings has been set, albeit that there is always the prospect of an appeal from a decision at first instance. However, as Mr Golledge points out, there are a range of uncertainties as to that matter, including a suggestion by Drama Unit that it may seek a deferral of the hearing which has been tentatively set, and the possibility of other developments, depending upon the outcome of that hearing.
2. Mr Golledge also fairly points out that, if the convening period was extended to the end of June or the end of July 2019, then a further extension application may then be required, depending upon the outcome of the proceedings, and such an application would itself involve additional costs in the administration, ultimately to the prejudice of creditors. Conversely, where an extension of time is granted for a longer period, it is still open to Mr Cook, under the proposed orders, to convene a second meeting of creditors at an earlier date if he is in a position to do so.
3. On balance, in the unusual circumstances, I am satisfied that the longer extension of time for the second meeting of creditors that is sought is appropriate.

The position of Equivest and Torpoint

1. I should now return to the position of Equivest and Torpoint and other creditors in this application. Equivest and Torpoint were represented by Counsel, Mr Barham, but made no substantive submissions. At the commencement of the hearing, Mr Barham indicated that Equivest and Torpoint were giving consideration to the replacement of Mr Cook, although no application of that kind was brought today. It seems to me that such an application, if brought in the future, may face a potential difficulty arising from delay, and the failure to bring it contemporaneously with this application.
2. Mr Barham also foreshadowed, in the course of submissions, that such an application might not be brought before the Court, presumably contemplating the possibility that creditors might seek to replace the administrator by the exercise of powers available under Div 90 of the IPSC. It seems to me that that course involves potential difficulties, in this case, given the unusual circumstances of the administrator's appointment. These difficulties may include the extent to which, following consent orders appointing a particular administrator, it is open to the parties or their associates to exercise powers under Div 90 to reverse those orders and whether the Court would, in the particular circumstances, set aside such a resolution of creditors on Mr Cook's application under s 90-35 of the IPSC.
3. It is not necessary to address those questions at this stage, other than to note the possibility that the course foreshadowed by Equivest and Torpoint may add further complexity and costs to an already complex, difficult and costly administration. That issue can be addressed if and when it arises.

Costs of the application

1. Mr Cook and Fearndale seek an order, common in applications of this kind, that their costs of the Interlocutory Process filed 15 April 2019 seeking the extension of the convening period, be costs in the administration of Fearndale.
2. Equivest and Torpoint sought to be heard in respect of that application, and I allowed them an opportunity for such a hearing. Mr Barham then indicated he did not have instructions to make any specific application as to costs on the part of Equivest or Torpoint, but sought to have costs reserved or to have the Court make a provisional order, granting leave to creditors to apply if they sought to have a different order from that now made by the Court. I am not persuaded that that approach should be adopted.
3. It seems to me that this application has been brought in order to promote the interests of the voluntary administration, and the interests of creditors, and that provides sufficient basis for the common order, in respect of applications of this kind, that the company's and the administrator's costs of the application be costs in the administration of the company. It seems to me that there is no reason to reserve those costs, where any creditor who wished to make submissions about them, including Equivest and Torpoint, had the opportunity to do so today. There is also no reason to make such orders on a tentative basis, granting leave to a creditor to apply to set them aside, where anything that a creditor wished to say could have been said today, rather than left to a future date. It seems to me that it would be contrary to the just, quick and cheap resolution of the real issues in dispute in this application to leave open future applications as to matters which would properly have been determined by addressing all relevant matters today.

Orders

1. For these reasons, I make orders in accordance with paragraphs 1-4 of the short minutes of order, initialled by me and placed in the file. I make a further order that exhibits A1 and A2 from the application heard in December 2018 and exhibits LJB1 and TJC4 from the application today be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2019