McInerney, in the matter of Fairview Architectural Pty Ltd (Administrators Appointed) [2020] FCA 1251

Federal Court of Australia|2020-08-20|Before: Gleeson J

Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, "Exhibit JEM-4 (Confidential)" to the affidavit of John Edgar McInerney sworn 19 August 2020, is made confidential and prohibited from disclosure to any person other than the plaintiffs and their legal representatives until the conclusion of the administration or any subsequent liquidation.
The affidavit of Matthew Kelly filed 14 August 2020 and exhibit MK-1 be removed from the electronic court file by my Associate.
Pursuant to section 447A of the Corporations Act 2001 (Cth) (Act), the convening period within which the first plaintiffs must convene the second meeting of creditors of the second plaintiff pursuant to section 439A of the Act (Second Meeting) is extended up to and including 13 October 2020.
Pursuant to section 447A(1) of the Act and further or alternatively section 90-15 of the IPSC, Part 5.3A of the Act is to operate and to have effect in relation to the second plaintiff as if the Second Meeting may be held at any time during, or within five business days after the end of, the convening period as extended by order 1, notwithstanding the provisions of section 439A(2) of the Act.
The first plaintiffs are to take all reasonable steps to cause notice of any orders made by this Honourable Court to be given to the creditors of the second plaintiff by 4:00 pm on 21 August 2020, by, in the first instance: (i) where the first plaintiffs have an email address for a creditor, notifying each such creditor via email of the making of the orders and attaching a sealed, scanned .pdf of the orders or providing a link to a website where the creditor may download the orders; (ii) where the first plaintiffs do not have an email address for a creditor but have a postal address for that creditor, notifying each such creditor in writing of the making of the orders and providing a copy of the orders; and (iii) otherwise, placing scanned, sealed copies of the originating process and the orders on the website maintained by the first plaintiffs at .

GLEESON J: 1 On 3 August 2020, the Court made an order pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act) extending the convening period for the second meeting of creditors to 25 August 2020. The convening period had been due to expire on 4 August 2020. 2 By their originating process, the first plaintiffs, the joint and several voluntary administrators (administrators) of the second plaintiff (company) sought an extension to 13 October 2020. Stewart J ordered a short extension to enable interested parties to decide whether to oppose the administrators' application. In accordance with orders made by Stewart J, the administrators informed all known creditors of the making of the first extension application and the foreshadowed making the second extension application. 3 At the hearing on 20 August 2020, the administrators sought the extension of time proposed in the originating process. In support of the application, the administrators relied on affidavits of the first-named plaintiff, Mr McInerney, sworn 3 August 2020 and 19 August 2020, and accompanying exhibits. 4 Mr Kelly, the Head of Operations of the company, was granted leave to be heard without becoming a party pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000. 5 Although Mr Kelly had indicated an intention to oppose the extension to 13 October 2020, ultimately he did not oppose the administrators' application in the light of information provided shortly before the hearing. 6 One other creditor had notified the administrators of his opposition to the extension, but did not appear at the hearing on 20 August 2020. 7 After hearing submissions from Mr Henry SC, I was satisfied that the convening period should be extended to 13 October 2020. Accordingly, I made orders in the terms sought by the administrators. These are my reasons for making those orders.

Background to application 8 The administrators were appointed on 7 July 2020. 9 The appointment occurred following claims against the company relating to the supply of allegedly defective cladding products. The company has been operating for more than 30 years in the business of designing, manufacturing and supplying cladding and composite panel products. 10 In June 2019, proceedings NSD940/2019 were commenced in this court as a class action against the company. In addition, the company is a party in three other legal proceedings commenced in the Supreme Court of New South Wales in 2019: proceedings 2019/89234, 2019/00089234 and 2019/00147541. 11 A significant aspect of the administration concerns investigating the legal proceedings identified above in order to form an opinion as to the best interests of the company's creditors. 12 On 1 July 2020, the company entered into a business sale agreement (BSA) with a related entity, FVA Group Pty Ltd (FVA Group). Whilst the BSA contains a purchase price it also contemplates the receipt of better offers for the business from an external party. If that occurs, FVA Group has a contractual entitlement to match any new offer and, if it is minded to do so, there is to be a price adjustment mechanism under the BSA. Entry into the proposed deed of company arrangement (DoCA), identified below, is a condition precedent of the BSA. 13 The company has been operating through the administration under an operating licence with FVA Group. 14 Significant legal issues that have arisen during the administration include: (1) the validity and enforceability of certain intellectual property assignments and licencing arrangements; (2) the company's prospects of success in defending the class action and what position the class action claimants have in the voluntary administration; and (3) recovery actions, whether under the Act or otherwise, in respect of certain transactions and dealings between the company and parties with a close association or relationship to the company. 15 Regarding the intellectual property assignment and licencing arrangements in particular, potentially significant new information was received late on 18 August 2020 in respect of which the administrators are considering the commercial aspects and have sought legal advice. 16 The administrators have received a proposed DoCA from Fairview Architectural Holdings Pty Ltd. Under the proposed DoCA all creditors of the company are not paid in full. Instead, one class of creditor stands to be materially prejudiced at least based on what they have claimed by way of proof of debt for voting purposes.

Grounds for a further extension of the convening period 17 The administrators submitted that the legal advice that they are presently seeking is required to enable them to consider the merits of the DoCA. 18 On Mr McInerney's evidence, which I accepted, the administrators reasonably require until 29 September 2020 to finalise their report to creditors. 19 The administrators submitted that it was in the interests of creditors to extend the convening period for a further two weeks to enable the completion of the sale process that has been initiated, which will currently conclude on 2 October 2020. I accepted this submission on the basis that the sale process provides an opportunity for the business and assets of the company to be sold at a higher price than is currently contained in the BSA. Whether all creditors could be paid in full in a liquidation scenario requires further investigation and assessment by the administrators. At this stage, the administrators' preliminary view is that recoveries may be available to a liquidator as a result of transactions entered into by the company prior to their appointment. However, additional time is needed to further explore these claims, including with legal advice that has been sought, in order to determine whether creditors could obtain a better return in a liquidation scenario than under the proposed DoCA and BSA - at least on their present terms.

Legal framework 20 By s 447A(1), the Court may make such order as it thinks appropriate about how Pt 5.3A (which includes s 439A and s 447A) is to operate in relation to a particular company. There is no doubt that the power to grant a subsequent extension of the convening period exists in s 447A(1): see Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (recs & mgrs apptd) (No 2) [2015] FCA 401 (Sherwin Iron) at [33] and the cases there cited. 21 The decision to grant an extension of the convening period involves a balancing exercise 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: Sherwin Iron at [34]-[38].

Conclusion 22 Understandably, creditors who expect to be paid out in full under the proposed DoCA are anxious to vote in its favour. 23 However, where the extension was ultimately unopposed (except by a single creditor for an amount of less than $10,000 who did not appear at the hearing), I was satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application, to provide the administrators with additional time to assess the merits of the proposed DoCA for all creditors and to enhance the prospects of a sale of the business on terms that are more favourable than the BSA, to the benefit of all creditors. There was no suggestion that the administrator has delayed in the exercise of his functions and no evidence of any prejudice to creditors arising from the proposed extension. 24 Accordingly, I made the orders proposed by the administrators. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.

Corporations Act 2001(Cth)ss 439A, 447A, Pt

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