Mansfield, in the matter of Highrise Telecoms Pty Limited (administrators appointed) [2018] FCA 1654

YATES J: 1 The plaintiffs were purportedly appointed as joint and several administrators of Highrise Telecoms Pty Limited (administrators appointed) (the company) on 5 October 2018 by Buroserv Australia Pty Ltd (Buroserv) pursuant to s 436C of the Corporations Act 2001 (Cth) (the Act). The period for convening the second meeting of creditors will expire on 2 November 2018. The plaintiffs seek, amongst other orders, an order that the convening period be extended to 4 February 2019, a period of some three months. Their reasons for seeking that extension are as follows. 2 The plaintiffs' appointment was disputed by Francesco Andreone, the husband of Leah Andreone, the recorded sole director of the company, shortly after the appointment was made. The plaintiffs have asked for a written explanation of why it is said their appointment is invalid. No written explanation has been forthcoming. However, on 8 October 2018, Mr David Deutsch of Deutsch Partners confirmed that he acts for Ms Andreone and, on 15 October 2018, he confirmed that the plaintiffs' appointment is challenged. 3 As best the plaintiffs know, the challenge is based on an allegation that a security agreement into which the company entered with Buroserv was not validly executed, with the consequence that Buroserv was not a person who was entitled to enforce a security interest in the whole or substantially the whole of the company's property within the meaning of s 436C(1) of the Act. 4 Notwithstanding that claim, Ms Andreone submitted a report as to affairs, dated 17 October 2018, to the plaintiffs, which included a list of the company's creditors. Other than the report as to affairs and the list of creditors, the plaintiffs have not received any records of the company from Ms Andreone. 5 The first creditors' meeting was held on 16 October 2018. Buroserv was the only creditor in attendance, and no quorum was achieved. However, since their appointment, the plaintiffs have received correspondence and/or proofs of debt from seven creditors. Buroserv is by far the largest creditor, with a claimed debt of $428,399.97. Other significant creditors include Macquarie Leasing Pty Ltd, with a claimed debt of $50,037.82; Thorn Australia Pty Ltd, with a claimed debt of $9,922; and the Australian Taxation Office, with a claimed debt of $9,633.82. 6 These creditors have not challenged the plaintiffs' appointment as administrators, and Buroserv supports the plaintiffs' present application to extend the convening period to 4 February 2019. 7 In an affidavit made on 26 October 2018, Mr Mansfield - the first-named plaintiff - has reported on the work undertaken to date by the plaintiffs pursuant to their appointment on 5 October 2018. Mr Mansfield has deposed that, apart from this work, the plaintiffs are unable to conduct further inquiries into the affairs of the company because, as I have said, the only information they have received from Ms Andreone, who is said to be the company's sole director, is the report as to affairs and a list of creditors. Further, given the uncertainty around the validity of their appointments, the plaintiffs have not been in a position to actively trade the company's business, or sufficiently explore appropriate avenues to best serve the interests of the company's creditors, because they do not wish to attract personal liability for their actions without indemnification from the assets of the company should it be the case that their appointments are invalid. Mr Mansfield has deposed that, if the convening period is not extended, it is likely that the plaintiffs will be left with no option but to recommend that the company be placed in liquidation. 8 The company carries on business as a reseller of telecommunications products and services, including products and services from Buroserv. Since their appointment, the plaintiffs have notified affected parties of the administration and informed stakeholders that their (the plaintiffs') consent is required when dealing with the company. 9 The evidence presently before the Court indicates that, notwithstanding the plaintiffs' appointment, Mr Andreone and Ms Andreone are continuing to trade the company's business. The plaintiffs' solicitor, Mr Athanassios, has sought an undertaking from Mr Andreone and Ms Andreone that they will not engage with or deal with customers, suppliers, employees, and contractors of the company. This undertaking was sought on 11 October 2018, but to date no undertaking has been received. There is some evidence that approximately 971 customers of the company have been transferred, after the plaintiffs' appointment, to a new reseller (in place of the company) and a new service provider. As late as 12 October 2018, information came into the hands of the plaintiffs that Mr Andreone is continuing to trade the company's business. 10 As I have noted, the convening period for the second meeting of creditors will expire on 2 November 2018. Due to the challenge to the validity of the plaintiffs' appointment, the lack of cooperation from Ms Andreone, and the conduct of Mr Andreone in dealing with the company's business throughout the administration period, the plaintiffs have not been in a position to attend to and complete the steps typically taken during the administration process to ascertain the best interests of the company's creditors. For this reason, and to allow the controversy surrounding their appointment to be ventilated and determined, they seek the extension to 4 February 2019. 11 I am satisfied that it is appropriate to grant the extension that is sought. I accept that the resolution of the question concerning the validity of the plaintiffs' appointment ought to occur prior to the expiration of the convening period because, on Mr Mansfield's evidence, the only alternative available to the plaintiffs, if the convening period is not extended, would be to recommend to the creditors that the company be wound up. Should this occur, and the appointment of the plaintiffs be determined to be invalid, then, by that time, the company may well be in the process of being wound up and, potentially, expose the plaintiffs to personal liability for which they may not have appropriate recourse. 12 The plaintiffs have foreshadowed that if it be found that their appointment is invalid, they will seek to argue at some appropriate time that Pt 5.3A of the Act is to apply to the company as though their appointment was valid: see prayer 10 of the originating process. A case management decision will need to be made at some time in the future as to how and when such an application should be dealt with. At the present time, I will say no more than that it may be desirable that the plaintiffs' application for a declaration pursuant to section 447C of the Act concerning the validity of their appointment (see prayer 9 for relief in the originating process) be determined separately from and prior to any application under section 447A as to how Pt 5.3A is to operate. 13 The convening period will be extended accordingly. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.