Mann v Abruzzi Sports Club Ltd

Introduction 1 This is an application by Mr John Park, Mr Benjamin Campbell and Ms Kelly-Anne Trenfield in their capacity as the joint and several voluntary administrators of the company, Collection House Limited (Administrators Appointed) (the Company). The application is made pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Corporations Act) for a further extension of the convening period for the calling of a second meeting of creditors of the Company. The convening period is now sought to be extended to 30 September 2022. That is an extension of a further five weeks in circumstances where the administrators were appointed to the Company, and by the Company pursuant to Pt 5.3A of the Corporations Act, on 29 June 2022.

Background 2 The Company, which is a listed public company, has conducted, and continues to conduct, the business of providing debt collection and purchasing services. Its business is carried on in Australia, New Zealand and the Philippines. It employs approximately 460 employees, who are utilised in the course of its operation and the operations of its subsidiaries. At a very high level of generality, the presently available financial information indicates the Company has debts which may exceed $23.2 million, with approximately $13.2 million owing to its secured creditors, and a further $3.4 million owing to priority unsecured creditors such as employees. 3 As mentioned above, the administrators were appointed on 29 June 2022, with the consequence that the second meeting of creditors was required to be convened under s 439A on or before 27 July 2022. Her Honour, Downes J made an order on 19 July 2022, pursuant to s 439A(6) of the Corporations Act, extending the time within which the second meeting was to be convened to 26 August 2022. Her Honour also made the now ubiquitous orders permitting the meeting to be convened at any time before 26 August 2022, provided that the administrators gave notice of it in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) not less than five business days prior to the meeting. 4 The present application to further extend the convening period has been sought for the purposes of allowing the administrators sufficient time to sell the business of the Company as a going concern by adopting one of two processes, being either a competitive sale of the business or a recapitalisation process. On the evidence available to the Court, a disposition by either of those methods appears to be near completion with a preferred bidder. If that fails, the administrators wish to dispose of the Company or its business to one of the other potential bidders. 5 The administrators, by the affidavit of Mr Park, indicate that they might be in a position to convene the second meeting prior to 30 September 2022, and they seek orders as were made by Downes J under s 447A(1) to convene the meeting earlier if necessary. 6 The circumstances in which the orders were made by Downes J were that the administrators had engaged in a substantial amount of work in the performance of their statutory duties, including the assumption of managerial control of the Company, and the explanation of the process to employees, suppliers, customers and creditors. Importantly, before her Honour was evidence that the administrators had also commenced an urgent process to restructure or recapitalise the business of the Company, and they had taken several steps to achieve those ends. Importantly, they had also negotiated with, and entered into a financing agreement with the major secured creditor, Westpac Banking Corporation, to fund the operations pending the completion of the recapitalisation process. An aspect of this was that the administrators sought and obtained advice from the Supreme Court of Queensland to the effect that they would be justified in entering into and performing that funding agreement. Further, the administrators had also engaged in the usual tasks of dealing with the landlords of premises leased by the Company and conducting a review of the Company's insurance position and holding the first meeting of creditors. 7 Since the orders made by Downes J, the administrators have continued to undertake the administration in an expeditious manner, including by continuing to conduct the Company's business and, in the process, maintaining the employment of all of the Company's 460 employees. They have also concluded their negotiations with the landlord of the Company's head office, reduced the size of the premises which the Company occupies, and have continued to comply with their obligations to monitor the Company's reporting obligations. For present purposes, and for the purpose of the application, they seek time to undertake the following steps: (a) identify potential purchasers whose proposals contemplate a purchase of the Company pursuant to a deed of company arrangement with an associated creditor's trust and a transfer of shares in the Company; (b) assess the proposals to identify the preferred bidder; (c) negotiate the terms of the draft documents; and (d) await responses from the preferred bidder or any other person, or re-engage with other potential purchasers. 8 The matters which were deposed to by Mr Park in his affidavit in support of this application indicate that the administration is presently at a delicate stage, and in order to finalise the sale, further time is needed. 9 There is no doubt that this Court is empowered to grant a further extension of the convening period. That was made clear by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 7) [2020] FCA 1182 (Strawbridge) and it is a power that has been exercised on numerous occasions. It is also not doubted that, in the exercise of the Court's power to grant the further extension, it should adopt the same principles as it does on a first application to extend the period.

Power to further extend the convening period 10 Mr Psaltis, counsel for the applicants, set out the relevant principles for a further extension of the convening period in his written outline which have been adopted as follows: (a) Section 439A(2) of the Corporations Act requires the second meeting to be held within five business days before, or within five business days after, the end of the convening period. By s 439A(6) the Court is empowered to extend the convening period identified in s 439A(5). That section does not permit a further extension to the convening period, however, s 447A(1) confers that power on the Court: Owen v Madden (No 4) (2012) 92 ACSR 255 (Owen v Madden) at [31] and Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) (No 2) [2010] FCA 499 at [36]. (b) In Strawbridge, Middleton J explained at [12] - [14] that: The Court has power to make orders under s 447A(1) of the Corporations Act to extend, on a subsequent occasion, the convening period for the second meeting of creditors of a company. There are many occasions in which Courts have granted further extensions of the convening period (that is, after an initial extension). The principles that apply when considering a further extension are the same as those that apply for any extension of the convening period. (Citations omitted). (c) In Diamond Press Australia Pty Limited [2001] NSWSC 313, after being referred to various authorities, Barrett J said at [10]: The function of the Court on an application such as this is, as I see it, to strike an appropriate balance between, on the one hand, the expectation that administration will be a relatively speedy and summary matter and, on the other, the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders. His Honour's approach resonates with the object of Pt 5.3A as articulated in s 435A. When considering whether to exercise the power to extend the convening period, that object should be kept "firmly in view": Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 at 612. (d) In Re Riviera Group Pty Ltd (2009) 72 ACSR 352 (Re Riviera) at [13] - [14], Austin J listed various reasons given in previous cases for extending the convening period. That list included, relevantly to this application, "the size and scope of the business", "large number of employees with complex entitlements", "the time needed to execute an orderly process of disposal of assets", "where the extension will allow the sale of the business as a going concern", and "more generally, that additional time is likely to enhance the return for unsecured creditors": see also Owen v Madden at [32]. (e) As was stated in Kirk, Re RL Adams Pty Ltd (Administrators Appointed) [2017] FCA 1111 (at [23]), "[o]f all the factors propounded by the administrators [to support an application to extend the convening period], the most significant is the administrator's ability to sell the business as a going concern as part of a restructure or deed of company arrangement". (f) The attitude of creditors is also relevant, as is whether any creditor is likely to be prejudiced by the extension: Re Riviera at [18]. Another potentially relevant factor is the attitude of the Australian Securities and Investment Commission (ASIC) towards the application for the extension: Owen, in the matter of Rivercity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd) v Madden [2011] FCA 295 at [38]. (g) The Court should give weight to the opinion of the administrator as to how long the extension should be. In Re Riviera, Austin J stated at [14]: The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category), the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator's estimate of time has a reasonable basis.

Application of the principles 11 In the application of those principles to the facts of this case, the evidence, as appears from the affidavit of Mr Park, warrants the granting of the orders sought. Firstly, the process which the administrators are undertaking is well advanced. It is obvious that they have engaged carefully and assiduously to attempt to achieve the best outcome for creditors by disposing of the Company's business. The potential purchasers of the business have been identified, negotiations have continued with the preferred bidder, and some additional time is required to ascertain whether or not an agreement can be reached with that preferred bidder. If not, further negotiations will recommence with other bidders. The close proximity to the finalising of a sale of the business is, in this case, an important factor in the granting of the extension. 12 Second, the granting of the extension is somewhat important at this delicate stage of the negotiations. It would be unfortunate if the impending limitation for the calling of the second meeting were to impose undue pressure on the administrators to accept an offer from one of the bidders. It is significantly more preferable for the administrators to have the indulgence of more time such that they may reasonably negotiate without the additional pressure of the requirement to call a further meeting. In his affidavit Mr Park was, as always, open and candid about the circumstances of the Company. He acknowledges that negotiations may not succeed with the preferred bidder, but the extension sought would be sufficient to allow him to finalise negotiations with the current preferred bidder, and if those negotiations do not succeed, to negotiate with others. He remains of the opinion that the greatest return to creditors is likely to be derived from a sale of the business of the Company as a going concern, or recapitalisation of the Company so that it may continue to operate as such. 13 Mr Park and his fellow administrators are also of the opinion that the best prospect of achieving that outcome is by preserving the assets of the Company as a whole and the Company continuing to employ its employees while the sale process continues. The extension of the statutory imposed moratorium while those further steps are completed also promotes the potentially favourable outcome. 14 In summary, the administrators remain of the opinion that the process which they are currently pursuing should maximise the prospects of the business of the Company remaining in existence or otherwise being sold, which would result in a better return to the creditors than would liquidation. That outcome is also likely to secure the retention of the numerous existing employees. 15 In his very helpful submissions Mr Psaltis candidly identified that, on one view, an extension of five weeks might seem somewhat significant. He identified two recent cases where the convening period was extended by about three months in circumstances where the foundation for the sought extension was an attempt to finalise a sale of the assets: Weston, in the matter of Flush Fitness Pty Ltd (Administrator Appointed) [2017] FCA 172; Hancock and Tonks, Re Blackwater Quarries & Concrete Pty Ltd (Admins Apptd) [2017] FCA 447. 16 Whether or not extension should be granted is very much a fact dependent question involving a multifactorial analysis of the particular circumstances of the case. The matters referred to by Mr Park in his affidavit as have been set out above disclose more than adequate reasons to allow the extension sought. 17 Mr Psaltis has also very properly identified to the Court that in the slightly unusual circumstances in which the application had to be made, there was insufficient time to provide notification to all of the Company's creditors. The secured creditors of the Company were notified and there does not appear to be any objection from them. In order to address the concerns which might arise from the absence of notification to the creditors, the administrators have proposed orders which will enable the creditors to apply to the Court to modify the operation of any orders made on this application and that is appropriate remedy to the problems which might otherwise arise as a result of the inability to serve them. 18 The evidence before the Court also shows that ASIC have been informed of this application. At present, it has not provided any response to the repeated requests by the solicitors for the applicants for it to indicate its attitude. There is no criticism in that and nothing has been read into ASIC's present non-response. Nevertheless, there is no opposition from it as the regulator. 19 In those circumstances, the Court should make the orders sought. It is appropriate to make the usual order that if the applicants are able to convene the second meeting of creditors earlier than they presently anticipate, then they are able to do so without the need of returning to Court for the purposes of a further order. That is infinitely more efficient in the current case. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.