Mansfield, in the matter of GSP Group Pty Ltd (Administrators Appointed) [2015] FCA 409

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 473 of 2015

IN THE MATTER OF GSP GROUP PTY LTD (ADMINISTRATORS APPOINTED) ACN 142 854 144 BETWEEN: DAVID IAN MANSFIELD AND NEIL ROBERT CUSSEN IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF GSP GROUP PTY LTD (ADMINISTRATORS APPOINTED) ACN 142 854 144 Plaintiffs

JUDGE: GLEESON J DATE: 4 MAY 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application under ss 439A and 447A of the Corporations Act 2001 (Cth) ("the Act") to extend the convening period for the second meeting of creditors of GSP Group Pty Ltd (Administrators Appointed) ("the company") to 30 July 2015 (a period of three months), and for consequential orders. 2 The matter was listed before me as Commercial and Corporations Duty Judge at 2:15 pm on Thursday 30 April 2015. The matter required urgent attention because the convening period was due to expire on Friday 1 May 2015. After hearing submissions from Mr Krochmalik of counsel on behalf of the administrators, I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by the administrators. What follow are my reasons for making those orders. 3 The basis of the application is, in essence, that the extension is necessary to enable the administrators to form an opinion as to what recommendation should be made to the creditors regarding the future of the company. 4 The first-named plaintiff, Mr Mansfield, has expressed the view that allowing the company to continue in voluntary administration to allow the administrators to continue their investigations and consider the viability of a possible deed of company arrangement ("DOCA") will provide the company with a greater opportunity to provide a better return for the company's creditors and members than would result from a winding up of the company. 5 To date, three creditors or possible creditors of the company have been identified, none of which is a secured creditor. As to these: (1) the Commissioner of Taxation does not oppose this application; (2) Confederal Tax Law Accounting, the company's former accountant, supports the application; (3) Dyldam Developments Pty Ltd ("Dyldam"), has not yet lodged a proof of debt. I was informed from the Bar table that Dyldam's accountant is Nicolas Karam ("Mr Karam") of Confederal Tax Law Accounting. 6 Mr Mansfield's opinion is that there is unlikely to be any material disadvantage or prejudice suffered by any of the creditors of the company should the convening period be extended.

Background facts 7 The company was registered on 29 March 2010. 8 In November 2010, the company entered into written agreements with be100 Property Investment Pty Ltd as trustee of the be100 Property Investment Trust ("be100") and Guangyu International Pty Ltd (also referred to as Guangyu International Holding Pty Ltd) ("Guangyu") ("the partnership companies") for the development of 38 townhouses at 9 Verley Drive Homebush in New South Wales. By one of these agreements, the partnership companies agreed to appoint Dyldam as the manager to conduct the development project. 9 From the limited material currently available to the administrators, it appears that the development was completed in June 2013. All 38 townhouses were sold. It appears that the company has not traded since the completion of the development. The company has no physical assets, no employees and does not operate a bank account in its own name. 10 The administrators have not been able to account for or reconcile how the proceeds from the project were distributed. Based on the administrators' investigations to date, the company was entitled to at least 25% of the profits earned on the development project. 11 By letter dated 18 August 2014, the Australian Taxation Office ("ATO") informed the company that it had completed an audit of the partnership companies and had determined that a total amount of $4,553,046.50 was payable by those companies for tax liabilities and penalties. 12 According to Mr Karam, be100's accountant lodged an objection to the ATO determination. 13 On 18 March 2015, William Hamilton was appointed administrator of be100. 14 The administrators were appointed voluntary administrators of the company on 26 March 2015 pursuant to a resolution passed by the sole director, Wei Ping Cao ("Mr Wei Ping"), under s 436A of the Act. 15 On 8 April 2015, the first meeting of creditors required by s 436E of the Act was held for each company. A representative of the ATO attended the meeting. Confederal Tax Law Accounting gave a proxy to the Chair of the meeting. 16 The second meeting of creditors required under s 439A of the Act has not been scheduled. Subject to intervention by this Court, the second meeting of creditors must be convened by 1 May 2015 and must be held by 8 May 2015.

Conduct of the administration to date 17 The administrators have conducted initial investigations into the company's business, property, affairs and financial circumstances, including various meetings with Mr Wei Ping and Mr Karam. 18 Despite requests, the administrators have not received from Mr Wei Ping either a completed director's questionnaire or a completed report as to affairs, or other documents requested by the administrators pursuant to s 438B of the Act. Mr Mansfield has been informed by Mr Wei Ping and Mr Karam that the report as to affairs cannot be completed due to the unknown nature and quantum of a claim against either be100 or NR Wolli Creek Pty Ltd ("NR Wolli Creek"), explained further below. 19 The administrators have made written requests for records together with formal demands for books and records to ten parties, including Mr Wei Ping and Mr Karam. 20 Attempts to obtain a full set of the book and records of the company have been hampered, at least in part because some records are intermingled with the records of be100 and Guangyu. For example, the administrators have been provided with the financial accounts for the partnership companies ("partnership accounts"). However, Mr Karam disagrees with those accounts insofar as they relate to construction costs and partners loans/distributions. Mr Mansfield has not been provided with the general ledger accounts used in preparing the partnership accounts and cannot independently verify them. 21 Further, Mr Karam has told Mr Mansfield that he will be preparing correct accounts for both the company and the partnership companies but, so far, these have not been provided. 22 On 23 April 2015, the administrators received bank statements for the partnership bank account. According to Mr Wei Ping and Mr Karam, the profits from the proceeds of sale of the development project were paid into this account. The administrators have not yet had an opportunity to ascertain the recipients of funds from that account. 23 Mr Mansfield has been told by Mr Karam that, prior to be100 going into administration, that entity invested the proceeds or a portion of the proceeds of the development project into another construction project at Wolli Creek, being developed by NR Wolli Creek. This information raises the possibility that the company might have a claim against either be100 or NR Wolli Creek.

Financial position of the company 24 The available material is insufficient to permit the administrators to identify a date of insolvency. 25 On the basis of his investigations to date, Mr Mansfield has prepared the following draft statement of assets and liabilities of the company: GSP GROUP PTY LTD (ADMINISTRATORS APPOINTED) ACN 142 854 144 Statement of Assets and Liabilities Assets $ Cash at Bank 0 Related party loans Unknown Total Assets 0 Liabilities (4,163,508) Australian Taxation Office (35,000) Confederal Tax Law Accounting (2,330,324) Dyldam Developments (Contingent Claim) (6,528,832) Total Liabilities __________ NET ASSETS (6,528,832)

Possible assets 26 Mr Mansfield has identified potential claims against be100 and NR Wolli Creek. Counsel for the administrators, Mr Krochmalik, told the Court that the company may also have claims against a Shumiao Zhu. Shumiao Zhu is the sole director of each of be100 and NR Wolli Creek.

Tax debt 27 The amount owing to the Commissioner of Taxation is disputed by Mr Karam and by Mr Hamilton. They claim that: (i) The net GST payable on the construction project in its entirety and after taking into account all revenue and expenses over the life of the project is $725,000; and (ii) As the company received $900,000 in GST credits from the ATO during the operation of the business, then this amount must be added to the ATO debt in (i) so that a total of $1,625,000 is owing; and (iii) Additional penalties and interest on the above brings the total debt owing to the ATO by the partnership companies to $1.8 million. (iv) In addition, Mr Wei Ping and Mr Karam are of the view that the Company is not jointly and severally liable for the ATO debts in light of the terms of the partnership agreement and joint venture agreement which stipulate that the company is only liable for 25% of any tax liabilities. 28 If correct, the amount due to the Commissioner of Taxation by the company may be as low as $450,000 (25% of $1.8 million). 29 The objection previously lodged on behalf of be100 has been withdrawn, but Mr Hamilton intends to lodge a fresh objection which Mr Mansfield considers may be binding on the company. Mr Mansfield intends to participate in the new objection process to protect the company's interests. He has been informed by Mr Wei Ping that he also intends to participate, in the event that a DOCA is implemented. 30 Mr Hamilton has caused examination summonses to be issued by this Court, listed for hearing on 16 June 2015. He has also obtained orders for production of documents on 13 May 2015. Mr Hamilton's intention is to use information obtained through the public examinations and production of documents to support a fresh objection or objections.

Possible DOCA 31 Mr Mansfield's evidence includes a draft "non-binding" proposal from Mr Karam. 32 According to Mr Mansfield, he has been informed by Mr Wei Ping and Mr Karam that the DOCA proposal is one that Mr Wei Ping is inclined to make if it would be more beneficial than the company going into liquidation. The proposal provides for: (a) [Mr Wei Ping] making a formal objection to the ATO Determination ("the Objection"); (b) A Deed Fund to be established by payment of Deed Contributions totalling $475,000 to be paid as follows: (i) $25,000 on execution of the [DOCA]; (ii) $450,000 within 28 days of the objection being settled and/or the ATO lodging an amended proof of debt; (c) Related parties not participating in the Deed. In this regard [Mr Mansfield is] advised by [Mr Wei Ping and Mr Karam] that Dyldam would be considered a related party and [should] not participate in the Deed; (d) The Company not trading during the term of the [DOCA].

Statutory framework 33 Section 439A of the Act provides relevantly: (1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6). (2) The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period. (3) The administrator must convene the meeting by: (a) giving written notice of the meeting to as many of the company's creditors as reasonably practicable; and (b) causing a notice setting out the prescribed information about the meeting to be published in the prescribed manner; at least 5 business days before the meeting. (4) The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of: (a) a report by the administrator about the company's business, property, affairs and financial circumstances; and (b) a statement setting out the administrator's opinion about each of the following matters: (i) whether it would be in the creditors' interests for the company to execute a deed of company arrangement; (ii) whether it would be in the creditors' interests for the administration to end; (iii) whether it would be in the creditors' interests for the company to be wound up; and also setting out: (iv) his or her reasons for those opinions; and (v) such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and (c) if a deed of company arrangement is proposed--a statement setting out details of the proposed deed. (5) The convening period is: … (b) …the period of 20 business days beginning on: (i) the day after the administration begins; or (ii) if that day is not a business day--the next business day. (6) The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires. (7) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application. (8) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to: (a) the fact that the application was made after that period; and (b) any other conduct engaged in by the administrator; and (c) any other relevant matters. 34 By s 447A(1), the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company.

Relevant principles 35 In Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683, Jacobson J said: [22] The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales. [23] The matters which courts have tended to take into account in deciding whether to exercise the discretion under the Act have been usefully stated by Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 352 at [13]. It is unnecessary to repeat his Honour's summation of the relevant categories which inform the exercise of the power to grant an extension of time. The principles have been referred to recently by Farrell J in Re Harrison's Pharmacy Pty Limited [2013] FCA 458 at [11] and by me in Re CMA Corporation Ltd [2013] FCA 875 at [21]. Those authorities also make it clear that the length of the extension is one in respect of which the Court must be satisfied that the extension is reasonable and appropriate in the circumstances. 36 In Moodie and Reidy, in the matter of Harrison's Pharmacy Pty Limited [2013] FCA 458 at [13], Farrell J said: [13] Section 439A(4) of the Act requires an administrator to provide to creditors, with the notice of the second meeting, a report about the company's business, property, affairs and financial circumstances. The administrator must also provide a statement of his or her opinion about whether it would be in the creditors' interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. The statement must also provide the administrator's reasons for that opinion and any other information which is known to the administrator and would enable the creditors to make an informed decision among those alternatives. If a deed of company arrangement is proposed, the statement must set out details of the proposed deed. In order for administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: see [Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30] at [16]. See also: In the matter of Pan Pharmaceuticals Limited [2003] FCA 598, in which Lindgren J concluded at [41] that the essential issue is whether the extension is necessary to enable the administrators to arrive at an opinion so as to place creditors in the position to choose between those alternatives.

Reasons for proposed extension 37 The proposed extension is sought having regard to the following matters: (1) As explained above, the administrators' investigations have been hampered by delay in the provision of crucial books and records of the company. The intermingling of the company's financial records with the records of the partnership companies has increased the difficulty of verifying the company's financial position; (2) The administrators wish to know the outcome of Mr Hamilton's investigations in May and June 2015, to better assess the quantum of the liability to the Commissioner of Taxation; (3) The administrators are presently unable to calculate a meaningful liquidation versus DOCA scenario and are therefore unable to discharge their obligations under s 439A(4) of the Act to provide the company's creditors with a meaningful report which would allow them to decide on the company's future; (4) The DOCA proposal may be one that the administrators can recommend to creditors if it advances the objects of Part 5.3A of the Act in that it may provide a better and more certain return to the unsecured creditors than liquidation, having regard to the fact that, if the company were to be placed into liquidation, there would be no money readily available for distribution to the creditors. 38 Mr Mansfield's opinion is that it is in the best interests of creditors for the company to continue under administration rather than be wound up so that: (a) his investigations can continue; (b) so as to enable the creditors of the company to receive a report pursuant to section 439A of the Act in order that the creditors can be properly informed as a result of further investigations, analysis, and the administrators' recommendation in relation to Mr Wei Ping's proposal; and (c) so as to enable the creditors of the company to consider whether to accept any proposal/DOCA or alternatively to wind up the company.

Work proposed if extension granted 39 Mr Mansfield proposes that the extension of the convening period be used to undertake the following activities: (a) to ascertain the possibility and quantum of any possible claim against be100, NR Wolli Creek, Shumiao Zhu or against the directors for insolvent trading; (b) to ascertain and properly assess the documents produced to the administrator of be100 and the evidence obtained by him at the public examination in order to assess the likelihood of reducing the debt owed to the ATO; (c) to assist the administrator of be100 to complete all aspects of the objection to the ATO debt; (d) to finalise the [DOCA] proposed by the director; and (e) obtain legal advice with respect to the joint venture and/or partnership structure of the group of companies, and particularly the Partnership companies' joint and several liability in relation to the ATO debt, as this will be crucial in providing a meaningful calculation of liquidation versus a deed of company arrangement and appropriate returns.

Consideration 40 I am satisfied that the convening period should be extended for each company having regard to the following matters: (1) The administrators have not had access to records necessary to enable them to assess the financial position of the company; (2) The known creditors do not oppose the application and one of the creditors supports the application; (3) The administrators need time to assess the quantum of the company's liability to the Commissioner; (4) The administrators need to obtain documents to investigate possible claims against the director, former director and third parties. (5) There is no suggestion that the administrator has delayed in the exercise of his functions. An extension of time will increase the likelihood that the administrator can convey useful information to the creditors and a properly informed opinion as to the options available to the creditors at the second meeting; (6) The proposed orders provide for liberty to apply to any creditor or other interested party; (7) The proposed extension is for a reasonable period having regard in particular to the scheduled public examinations and the need to consider what flows from the evidence obtained at them: cf Ayres, in the matter of CMA Corporation Ltd (Administrators Appointed) [2013] FCA 875 at [23]; Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (Administrators Appointed) [2010] FCA 30 at [22].

Conclusion 41 I am satisfied that the orders sought are in the best interests of the creditors of the company. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.