Mighty River International Limited v Hughes

YATES J: 1 The first plaintiffs are the joint and several administrators (the administrators) of the second plaintiff, McWilliam's Wines Group Ltd ACN 000 024 108 (administrators appointed) (McWilliam's), and the third plaintiff, Mount Pleasant Wines Pty Ltd ACN 000 024 813 (administrators appointed) (Mount Pleasant). They were appointed on 8 January 2020, pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). They seek orders, pursuant to s 439A(6) of the Act, extending the convening period for the second meeting of creditors of each company to 31 July 2020. If the convening periods are not extended, the administrators must convene the meetings by 6 February 2020 and the meetings must be held by 13 February 2020. 2 The application is supported by the affidavit of Gayle Dickerson, made 3 February 2020. Ms Dickerson is one of the administrators. 3 McWilliam's is an unlisted public company, whose members are members of the McWilliam family and their relatives. It is the ultimate holding company of Mount Pleasant. The two companies, which comprise the McWilliam's Group (the Group), operate as a vertically integrated wine producer and distributor of wine products nationally and internationally. The Group has an extensive portfolio of vineyard and winery operations in the New South Wales Riverina and Hunter Valley regions, which are conducted under the "McWilliam's" and "Mount Pleasant Estate" brands. 4 The Group is one of Australia's top 10 wine producers, measured by revenue. Accounts for the year ended 30 June 2018 record that the Group's gross sales revenue was approximately $115 million. For the year ended 30 June 2019, the Group's recorded gross sales revenue was approximately $97 million. The Group's assets include the business as a going concern, including two major standalone winery operations; stock at hand; water rights; and a portfolio of leasehold and freehold assets relating to the vineyard, winery and warehouse properties. Since their appointment, the administrators have continued to trade the Group's business. 5 The first meeting of creditors of each company required by s 436(E) of the Act was held on 20 January 2020. The meetings were held concurrently. In her affidavit, Ms Dickerson deposed that a committee of inspection was formed for each company. At the hearing of this application, counsel for the administrators submitted that this was incorrect and that the minutes of the relevant meetings indicate that a committee was only formed in respect of McWilliam's. 6 In her affidavit, Ms Dickerson gave an account of the administrators' investigations, the conduct of the administrations to date, and of the Group's financial position. The administrators hold the preliminary view that the Group is cash flow insolvent. I say "preliminary view" because Ms Dickerson has made it clear in her affidavit that the administrators have not been able to complete their investigations in this regard. I note, for example, that the directors of each company are yet to provide a Report on Company Activities and Property for the reasons discussed in Ms Dickerson's affidavit, which include difficulties caused by the recent bushfire activity. I further note that the administrators are still in the process of obtaining and assessing valuations of the Group's assets; determining employee entitlements; preparing a trading cash flow; determining retention of title claims; meeting with the Group's financiers; attending to creditors' calls and the calls of other interested parties; reviewing the Group's accounts; and ascertaining the existence of claims. 7 The administrators have advanced a number of reasons for why an extension of the convening periods is necessary. 8 First, due to the size and complexity of the Group's business and operations, it is necessary for the administrators to carry out further investigations into the extent of the available assets of the Group, including potential civil and statutory claims available to them, and to seek to resolve disputes which have arisen about the ownership of some of the Group's assets. It is also necessary for them to investigate further a number of asserted liabilities of the Group. Ms Dickerson has expressed the view that these matters cannot realistically be concluded within the time presently available to the administrators. 9 Secondly, the administrators are of the view that it is in the creditors' best interests that they continue to trade the Group's business with a view to realising the maximum value for that business and the Group's assets as a going concern. 10 I note that, as part of continuing to conduct the Group's business, the administrators have sourced, and committed to pay, growers to grow the '2020 Vintage' of wine to be produced by the Group. The '2020 Vintage' is expected to be completed by the middle to end of March 2020, with payments to be made by the administrators to the growers in three instalments in May, June and September 2020. 11 The administrators have also disclaimed a lease held by McWilliam's of a warehouse at Chullora in New South Wales. To that end, they have given their consent under s 440B(2) of the Act to the landlord, Pipeclay Lawson Ltd, to take possession of the property. 12 Further, the administrators have taken steps to repay in full the amount of a debtor finance facility that was triggered upon their appointment. 13 Thirdly, the administrators require time to pursue a going concern sale of the Group's business. To this end, they have engaged and entered into an exclusive Agency Agreement with Colliers International (NSW) Pty Ltd (Colliers) to act in relation to the sale. They have received advice that, for a business of the size and turnover in question, a timeframe extending to a possible sale with exchange of contracts in late April to early May 2020 would be warranted to maximise the prospect of receiving the highest sale price. 14 To date, a large number of informal expressions of interest have been received from local and overseas parties in relation to the sale of the whole or part of the Group's business. Based on those expressions of interest, Colliers have advised the administrators that an extended completion date may need to be considered. If, for example, a further 60-day period for the settlement process were to be negotiated, then completion of a successful sale in late June or early July 2020 is a prospect. In her affidavit, Ms Dickerson said that once an agreement for sale is in place, the administrators propose to enter into negotiations with the successful purchaser and key stakeholders, such as landlords and equipment lessors, for the assignment of leases. It can be anticipated that this too will take time. 15 Fourthly, an extension of the convening periods would allow time for the formulation, proposal and consideration of a deed of company arrangement (DOCA) which, of course, might emerge independently of the sale process, or be part of or complementary to it. The administrators have not received any formal DOCA proposal as yet. Ms Dickerson has expressed the view that it is too early in the administrations for such a proposal to emerge. 16 Fifthly, as matters presently stand, the administrators are unable to form the opinions required by r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth). 17 Ms Dickerson has expressed the view that additional time is required, given the scope and complexity of the Group's operations, to allow these investigations to be completed. Understandably, the administrators' efforts to date have been concentrated on identifying the Group's assets and liabilities, trading the business, and preparing a sale of business campaign. 18 The simple fact is that at the present time, their ability to provide meaningful recommendations to the creditors on the future course of the two companies has been limited. In her affidavit, Ms Dickerson said that the administrators expect that after completing their investigations and undertaking the other steps to which I have referred, they will be in a much better position to provide the creditors of the companies with meaningful information as to the Group's financial position and the likely return to creditors in a winding up, and to make a recommendation to creditors concerning the decisions to be taken by them at the second meetings. 19 In her affidavit, Ms Dickerson expressed the view that an extension of the convening periods is unlikely to adversely affect the interests of secured, employee and unsecured creditors. I note that, at the first meetings of creditors, the creditors were informed of the likely need for an extension of the convening periods by approximately six months. I also note that the creditors were similarly informed by a circular sent to them dated 23 January 2020. Ms Dickerson said that, at the time of making her affidavit, no opposition to such an extension has been voiced. 20 As to the secured creditors, the Group's main secured creditor, Margaret River Wine Production Pty Ltd (MRWP), has been specifically contacted by the administrators and given notice of this application. MRWP has not made any express response, but the evidence before me indicates that it supports the sale process being carried out by the administrators. I note in this connection that it has sought and been granted an extension of the decision period in which it might seek to enforce its security. As yet, it has given no indication that it will enforce that security and, whilst I recognise that that remains a possibility, the present position is that the administrators will continue to be in control of the sale process they envisage. 21 The administrators have contacted five of the Group's landlord creditors. At the present time, there has been no opposition from those creditors to the extension that is sought. I note that the present application has not been raised specifically with the committee of inspection. In her affidavit, Ms Dickerson said that each member of the committee was, however, present at the first meetings of creditors, and none expressed an objection to the convening periods being extended. 22 The administrators' investigations to date have revealed that the companies are not subject to any legal proceedings, winding up proceedings or enforcement actions, potential claims, or litigation in respect of which they, their creditors or any other party would be prejudiced as a result of the administrations being prolonged. 23 The principles on which the Court proceeds in applications to extend the convening period for the second meeting of creditors of a company in administration have been discussed in a number of cases. These principles are not contentious. They are well established and no point would be served by me surveying them here. At root is the Court reaching an appropriate balance between the legislature's expectation that an administration be a relatively speedy and summary process, and the countervailing factor that, in a given case, undue speed should not prejudice sensible and constructive actions directed to maximising a return to creditors. 24 In this connection, I note that the objects of Pt 5.3A of the Act, as set out in s 435A, are to maximise the chances of a company or as much as possible of its business continuing in existence or if that is not possible, to result in a better return for the company's creditors and members than would result from immediate winding up. I would add that, provided the evidentiary case for an extension has been properly prepared, as is the case here, and there is no evidence of material prejudice to those affected by the moratorium imposed by the administration, the courts have exhibited a willingness to act on an administrator's estimate of time, where that is shown to have been supported on a reasonable basis: Mighty River International Limited v Hughes [2018] HCA 38; 92 ALJR 822 at [73] per Nettle and Gordon JJ. 25 I am satisfied that an extension of the convening periods is warranted in the present case. The only question is: how long should the extensions be? The administrators seek a period of approximately six months. That is a lengthy extension. However, in the present case, I accept that the administrations are of some complexity and that there is virtue in taking whatever steps are necessary to maximise the return to creditors. 26 I am particularly mindful of the professional advice that the administrators have received, which informs them that in order to achieve its potential, a sales campaign of the Group's business will take some months and that an extended settlement period following a successful sale is a prospect. I also accept that until an opportunity is given to achieve a sale, the administrators will not be in a position to give a meaningful and informed recommendation to the creditors as to the companies' fates. Further, I take into account that (at least to date) no creditors have come forward to oppose any extension of time. 27 Finally, I note Ms Dickerson's evidence that the administrators intend to convene the second meetings of creditors at the first opportunity following a sale of the business or, failing such sale, at the earliest possible opportunity so that those meetings may be held earlier than the latest possible time during the extended periods that are sought. 28 In the circumstances, I propose to accede to the administrators' request. However, in accordance with usual practice, I will grant liberty to any person with sufficient interest to move the Court to vary or discharge the orders I propose to make. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.