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[2020] FCA 24
plaintiff. Application granted: the convening period for second meetings of creditors for Bounty and four subsidiaries extended to 30 June 2020; pursuant to s 447A(1) Part 5.3A to operate so meetings may be...
The Federal Court granted an administrators' application to extend the period to convene second creditors' meetings for a group of coal-mining companies until 30 June 2020 and allowed those meetings to be held at any time during that period. The extension was granted because the businesses are complex, a receivers-led sale as a going concern could produce a benefit to creditors (especially unsecured creditors who otherwise would likely receive nothing in liquidation), creditors had been informed and not opposed, and expedition must be balanced against maximising returns. The Court required administrators to convene earlier if the proposed sale would not proceed.
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The joint administrators of Bounty Mining Limited and four wholly owned subsidiaries applied under ss 439A(6) and 447A(1) of the Corporations Act 2001 (Cth) for an extension of the convening period for the second meetings of creditors to 30 June 2020, and for permission under s 447A(1) to allow those second meetings to be held at any time during the extended convening period (Orders and para 1). The administrators were appointed by the directors on 17 December 2019; on the same day the secured creditor QCoal appointed receivers and managers over all of the companies' assets (para 3). The businesses operate an underground coal mine and associated processing facilities and pursue other coal projects (para 2). The receivers were actively pursuing a sale of the businesses as going concerns and asked the administrators to seek the extension so that the sale process would not be stunted by an immediate winding up (para 8). The administrators had only recently received the s 438B(2) report from the directors and had not completed their investigations, including possible voidable transactions and causes of action that would inform a recommendation at the second meeting (paras 4, 7).
The administrators informed creditors at the first meeting (31 December 2019) that they would seek an extension and recorded no opposition (para 10). Applying established principles balancing the need for expedition in administration against allowing time for sensible steps to maximise creditor returns, Perram J concluded the facts justified a five month extension, finding likely benefit from a sale, complexity of the businesses, and no apparent prejudice to creditors (paras 9, 11-12). The Court ordered the convening period extended to 30 June 2020 and permitted meetings to be held during that period under s 447A(1), with the administrators to notify creditors and to convene earlier if investigations showed the sale would not proceed (Orders; para 12).
Perram J framed the decisive question as whether the extension would be consistent with the objects of Part 5.3A and the requirement for expedition in an administration, tempered by the countervailing consideration that undue speed must not prevent sensible, constructive actions aimed at maximising returns to creditors (para 11). That balancing approach is grounded in prior authorities: Re Renex, Mann v Abruzzi, Re Riviera and was said to have been recently confirmed by the High Court in Mighty River (para 11).
Applying that framework, the Court accepted the administrators' and receivers' evidence that a sale as a going concern offered a realistic prospect of returning value to creditors, and that the complexity of the mining business and the due diligence a purchaser would require made a five month extension reasonable (paras 6, 8-9). The administrators had only just received the directors' s 438B(2) report and had not completed inquiries necessary to form a reliable recommendation at the second meeting; that delayed state supported the need for time (paras 4, 7). The administrators had informed creditors of the proposal at the first meeting and there was no recorded opposition (para 10). On balance the Court concluded there was a likely benefit from permitting time for the sale process and no evident prejudice to creditors; therefore granting the extension best served the objectives of Part 5.3A (paras 9, 12).
The Court also took a pragmatic approach to flexibility: recognising that if investigations later showed the sale would not proceed, the administrators should convene the second meetings as soon as practicable and not unnecessarily use the extended period; accordingly the Court applied s 447A(1) to allow meetings at any time during the extended period (para 12).
Before this decision the controlling approach to extensions under s 439A(6) was well established in the cases the Court cited: courts must weigh expedition against allowing time for actions that could improve creditor returns, with complexity and time needed for an orderly sale being relevant (see Re Renex; Re Riviera; Mann v Abruzzi (para 11)). The High Court in Mighty River had recently confirmed the same approach (para 11). Perram J applied that established framework.
After this decision the legal test remains unchanged; what this decision adds is an application of established principles to a particular fact pattern, an administration that overlaps with a receivership, substantial secured creditor control, complex mining operations, recently produced director reports, and a receivers' sale process. The decision illustrates that a five month extension can be appropriate where a receivers' sale as a going concern is a realistic prospect of benefit to creditors and where the administrators have not yet completed the inquiries required to make a recommendation at the second meeting. The Court's insistence that administrators convene earlier if the sale will not proceed underscores the continuing duty of expedition and the conditional nature of such extensions (para 12).
Passage: "The principles applicable to the extension of a convening period granted under s 439A(6) are straightforward. The Court will have regard to the objectives of Pt 5.3A of the Act and the need for expedition in an administration, but will also have regard to the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors" (para 11).
Passage: "The unsecured creditors are likely to get nothing in a winding up so their best chance lies in a sale of the business." (para 9).
Passage: "This is a clear case for the exercise of the extension power. There is a likely benefit from the sale if it occurs and there appears to be no prejudice to creditors." (para 12).
Passage: "If ... it becomes apparent that the sale will not proceed ... then this five month period should not be used up and the administrators should convene the second meetings as soon as practicable." (para 12).
Practitioners should consider this decision when dealing with applications to extend convening periods where:
By contrast, the precedent is less useful where the sale prospect is speculative, creditors would be prejudiced by delay, administrators have sufficient information to make a recommendation, or the administrators/receivers cannot articulate a plausible timeframe and sale process.
This judgment itself cites and follows established authorities (Mann v Abruzzi; Re Renex; Re Riviera; Mighty River) in paragraph 11. The present decision is an application of those authorities rather than a source of novel principle. The judgment does not record subsequent judicial treatment of Perram J's orders. Therefore, for guidance on how later courts have treated these particular factual conclusions or any refinement of the balancing test in different contexts, users must consult subsequent cases; none are discussed within this judgment.
Several practical and doctrinal issues remain for future case law and practice:
Quantifying acceptable extension length: Perram J accepted a five month extension on these facts (paras 8, 12), but the judgment does not supply a formula for when five months is or is not excessive. Future disputes will need to articulate clearer criteria for proportionality of the extension period relative to sale complexity and likely timeframe.
The interaction of administrators' duties and receivers' commercial decisions: Here the receivers sought the sale and administrators supported the extension (para 8). The judgment leaves open how courts will approach conflicts where administrators and receivers diverge in their view of whether a sale should proceed or in the appropriate timetable for convening meetings.
Precise proof required to establish 'likely benefit' to creditors: Perram J emphasised likely benefit (para 12) but did not outline the minimum evidentiary threshold. Future litigants will need to clarify the degree of commercial or valuation evidence necessary to establish a sufficient prospect of benefit.
Treatment of creditor dissent and procedural fairness: In this case creditors were informed and voiced no opposition (para 10). The decision does not elaborate the consequences where significant creditor opposition exists, or where notice and explanation of the proposed extension are inadequate.
Administrators' obligations during the extended period: The Court required administrators to convene earlier if investigations show the sale will not proceed (para 12). The precise monitoring and reporting obligations expected of administrators during an extended convening period remain to be defined: what material changes must trigger early convening, and what level of ongoing reporting to creditors or the Court is required.
Multiple secured interests and competing sales: The companies had multiple registered securities and a dominant secured creditor (para 3). The judgment does not explore how competing security interests might constrain the utility of an extension where a sale may be affected by other secured parties' rights.
Practitioners applying this decision should therefore present clear, contemporaneous evidence of the sale process, expected timelines, creditor communication, and why the extension is proportionate, so that the Court can apply the balancing exercise Perram J described (para 11) with transparency and predictability.
PERRAM J: 1 This is an application pursuant to ss 439A(6) and 447A of the Corporations Act 2001 (Cth) ('the Act') to extend the convening period for the second meeting of the creditors of Bounty Mining Limited (administrators appointed) (receivers and managers appointed) ('Bounty') and also the corresponding second meetings for the creditors of its four wholly owned subsidiaries to which receivers and managers have also been appointed and which are also in administration (together, 'the Companies'). An extension to 30 June 2020 is sought. The Plaintiffs also seek an order permitting these second meetings to be held at any time during the convening period (and not just at its end). The Plaintiffs are the joint and several administrators of each of the Companies. 2 Bounty is a public company whose shares were traded on the Australian Stock Exchange until 18 December 2019. The Companies presently conduct an underground coal mine called Cook Colliery which is located south of Blackwater in central Queensland. They also operate a coal handling and processing plant nearby which processes not only the coal from the Cook Colliery but also coal mined by other entities (in return for a fee). In addition they are pursuing three other coal projects in Queensland which are in various stages of development. 3 On 17 December 2019 the directors of Bounty and its subsidiaries resolved to appoint the Plaintiffs as administrators. On the same day, a secured creditor, QCoal Bounty Holdings Pty Ltd ('QCoal'), appointed receivers and managers to the Companies. This was done pursuant to a registered security interest held by it over all of the property of the Companies. The receivers and managers have continued to conduct the Companies' businesses and are in control of all of their assets and undertakings. There are a large number of other registered security interests in respect of particular assets such as cars, mining equipment and printers. 4 On 15 January 2020 the directors provided the administrators with their report about the Companies' activities and property which was required by s 438B(2) of the Act. This was due at an earlier date but the administrators granted the directors an extension to that date. The administrators have, therefore, only just received this report and have not yet had a chance fully to digest its contents. 5 Based on their review of the Companies' books to date, however, the administrators believe there are about 197 unsecured creditors of the group on a consolidated basis and that each of the subsidiaries also have unsecured creditors ranging in number from 1 to 176. In addition, the Companies have 42 employees on their books. The largest creditor is the secured creditor QCoal which appears to be owed $80,425,084.00. The unsecured creditors are owed $31,218,754.54 and the employees have entitlements totalling $1,706,406.62. The administrators are not yet sure of the precise position of the subsidiaries. 6 The administrators have expressed the view that the business of the Companies is a complex one which I accept. 7 The first meeting of creditors took place on 31 December 2019 at which time committees of inspection were established for two of the Companies. Given the time of year, the administrators have not yet completed their inquiries and given the complexity in the underlying businesses do not expect to do so for some time. As part of that process, they are investigating whether there have been any voidable transactions and whether there might be any causes of action available to the companies if they were ultimately to be placed into liquidation. At the second meeting, a decision should be made as to whether the Companies should be placed in liquidation or instead whether a deed of company arrangement should be executed. The administrators are bound to provide a recommendation as to which of these two paths should be pursued but they do not feel that they are presently in a position to make such a recommendation. 8 In parallel, on 27 December 2019, the receivers and managers advised the administrators that they are seeking to sell the whole of the Companies' businesses as a going concern. That process would be stunted if the Companies went into liquidation and they ceased to trade as a going concern. The receivers and managers have advised the administrators that they would like to see the convening period extended by five months. This would have the practical effect of postponing any winding up sufficiently to allow a sale to occur. The administrators agree with this proposal. Given the complexity of the business the administrators do not regard a five month period as excessive especially having regard to the due diligence enquiries any purchaser would need to make on the acquisition of a complex geological business with significant plant and equipment. 9 It seems to me that it would be in the interests of all concerned to see if the business can be sold as a going concern. The unsecured creditors are likely to get nothing in a winding up so their best chance lies in a sale of the business. The business is substantial and of a kind which can plainly be sold and would be best sold as a going concern. 10 The administrators are presently required by s 439A to convene the second meeting of creditors by 23 January 2020 and that meeting must be held by 30 January 2020. They seek an extension of the convening period to 30 June 2020. The creditors were informed that the administrators would pursue this path at the first meeting of creditors on 31 December 2019 and none voiced opposition. I am satisfied that the creditors have been informed of the proposal. 11 The principles applicable to the extension of a convening period granted under s 439A(6) are straightforward. The Court will have regard to the objectives of Pt 5.3A of the Act and the need for expedition in an administration, but will also have regard to the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Re Renex Holdings (Dandenong) 1 Pty Ltd (admins apptd) [2015] NSWSC 2002 at [7] per Black J; Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611. Included in that assessment is a consideration of the complexity of the business and group structure and the time needed to effect an orderly sale process: Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; 72 ACSR 352 at 355 per Austin J and the cases there cited. This approach was recently confirmed by the High Court in Mighty River International Limited v Hughes [2018] HCA 38; 92 ALJR 822 at 839-840 [73] per Nettle and Gordon JJ. 12 This is a clear case for the exercise of the extension power. There is a likely benefit from the sale if it occurs and there appears to be no prejudice to creditors. Accordingly, I will make the orders sought in the originating application. If, once the Plaintiffs' investigations into the Companies are complete, it becomes apparent that the sale will not proceed and that there will be no deed of company arrangement, then this five month period should not be used up and the administrators should convene the second meetings as soon as practicable. They have indicated in their evidence before me that they intend to do so. In that circumstance, I will make an order that the second meeting may occur at any time during the convening period or within five days after the expiration of the convening period pursuant to s 447A(1). This varies the usual requirement in s 439A(2) that the second meeting be held within five days before or five days after the end of the convening period. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.
SCHEDULE OF COMPANIES QUD 13 of 2020 Bounty Minyango Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 103 192 829 Bounty Cook Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 111 762 924 Bounty Mining Investments Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 165 575 815 Bounty Operation Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) ACN 103 192 838
Mann
Abruzzi Sports Club Ltd
Application granted: the convening period for second meetings of creditors for Bounty and four subsidiaries extended to 30 June 2020; pursuant to s 447A(1) Part 5.3A to operate so meetings may be held together or separately at any time during, or within five business days after, the end of the extended convening period; administrators to notify creditors within seven business days; liberty to apply on two business days' notice; costs to be administration expenses (Orders 1-5).