Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd

Federal Court of Australia|2022-06-16|Before: Anderson J

Extension of convening period

Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act) and/or s 90-15 of the Insolvency Practice Schedule (Corporations) (the IPSC), the convening period defined in s 439A(5)(b) of the Act in respect of each of the Second to Fifth Plaintiffs (the Companies) be extended to 22 August 2022.
Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to each of the Companies such that the meetings of creditors required by s 439A(1) of the Act may be held at any time during, or within five business days after the end of, the convening period as extended by Order 1 above, notwithstanding s 439A(2) of the Act.

Entry into funding agreement 3. Pursuant to s 447A(1) of the Act and/or s 90-15 of the IPSC, Part 5.3A of the Act is to operate in relation to the administration of the Second Plaintiff as if s 443A(1) provides that: (a) the liabilities of the First Plaintiffs (the Administrators) incurred with respect to any obligations arising out of, or in connection with, any funding agreement entered into by the Administrators in the same or substantially the same form as that set out in Annexure MWC-12 to the affidavit of Matthew Wayne Caddy affirmed on 10 June 2022 (the Funding Agreement) are in the nature of debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of the Second Plaintiff; and (b) notwithstanding that the liabilities referred to in Order 3(a) are debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of the Second Plaintiff, the Administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the indemnity under s 443D of the Act out of the property of the Second Plaintiff is insufficient to satisfy the debts and/or liabilities incurred by the Administrators arising out of, or in connection with, the Funding Agreement. 4. Pursuant to s 90-15 of the IPSC, the Administrators are justified, and would otherwise be acting reasonably in: (a) entering into the Funding Agreement and procuring the Second Plaintiff to enter into the Funding Agreement; and (b) drawing down under the Funding Agreement.

Ancillary orders 5. The Administrators (or their solicitors) inform the creditors of the Companies of these orders by means of a circular forwarded by post or e-mail (as the case may be) within seven days after the making of these orders. 6. Any person who can demonstrate sufficient interest to vary or discharge order 1 or order 2 above has liberty to apply on not less than 72 hours' notice to the Administrators. 7. The Administrators have liberty to apply before Justice Anderson for any purpose connected with the administration of the Companies, including but not limited to seeking a further extension of the convening period prior to 22 August 2022. 8. The Administrators' costs of and incidental to this application be costs and expenses in the administration of the Companies and be paid out of the property of the Companies. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

introduction 1 The first plaintiffs (Administrators) are the administrators of four companies: Khaled El-Sheikh Pty Ltd (Administrators Appointed) (ACN 089 155 948), El-Sheikh Family Holdings Pty Ltd (Administrators Appointed) (ACN 609 721 735), Tristar Medical Group Pty Ltd (Administrators Appointed) (ACN 130 389 589) and Tristar Property Holdings Pty Ltd (Administrators Appointed) (ACN 128 467 461) (collectively, the Companies). 2 The Companies, which are the second to fifth plaintiffs, form part of the corporate group known as the "Tristar Medical Group" (Group), which operates a business providing medical services to regional and rural communities (Business). 3 The Administrators seek orders of the Court: (a) extending the convening period for the second meetings of the Companies' creditors; and (b) in connection with the Administrators' entry into a proposed funding agreement (Proposed Funding Agreement) designed to permit the ongoing operation of the Business until the Business can be sold. 4 Unless extended, the convening period for the second meetings of the creditors of the Companies will end on 22 June 2022. The Administrators seek orders under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) (Act) extending the convening period to 22 August 2022 (that is, an extension for up to two months). 5 The Administrators are in the process of seeking to sell the Business, the extension sought will permit the Administrators to make an informed recommendation, in advance of the creditors' meetings, regarding the fate of the Companies.

background 6 The circumstances giving rise to the application are set out in the affidavit of one of the Administrators, Matthew Wayne Caddy, affirmed on 10 June 2022 (Caddy Affidavit). The Administrators rely upon the Caddy Affidavit and a further affidavit of Mr Caddy affirmed on 15 June 2022 (Further Caddy Affidavit). 7 The Administrators were appointed to the Companies on 24 May 2022. 8 The Group is one of the largest privately-owned health service providers in Australia where the Business entails the operation of 24 medical clinics in a number of states and territories, employs in excess of 200 staff and works with a pool of 62 doctors. 9 As at the date of the Administrators' appointment: (a) The Companies had 605 creditors, collectively owed debts exceeding $25 million, the largest of which was the Australian Taxation Office. (b) Doctors engaged to provide services to the Business were owed in excess of $3.6 million in unpaid fees. (c) Employees of the Business were owed in the order of $2.8 million in respect of unpaid entitlements. (d) The Companies' major secured creditor is Westpac Banking Corporation (Westpac), which was owed in excess of $8.5 million as at 8 June 2022. (e) The second plaintiff (Trading Company), being the entity that operates the Business, was the defendant to various court proceedings (including a winding up proceeding in the Supreme Court of Victoria and a separate winding up proceeding in this Court). 10 Meetings of the creditors of the Companies were held on 3 June 2022, at which creditors were informed of the Administrators' intention to apply for an extension of the convening period for the second meetings of creditors for a period of up to two months. Creditors of the Trading Company resolved to appoint a committee of inspection comprising five members (including Westpac, a general practitioner and two employee representatives) (Committee of Inspection). 11 In the period since their appointment on 24 May 2022, in addition to undertaking statutory, administrative and investigative tasks, the Administrators have continued to trade the Business and explored options for a sale and/or recapitalisation of the Group (including via a formal process for the sale of the Business). 12 The Business was advertised for sale in the Australian Financial Review on 2 June 2022. Under the current indicative sale timeline, the Administrators expect to receive non-binding indicative offers from prospective purchasers by 17 June 2022 and binding offers by 8 July 2022. More than 50 persons have expressed interest in purchasing or recapitalising the Business, including several blue-chip medical platforms. 13 The Business is loss-making and requires weekly funding of up to $200,000 to meet trading expenses. The Administrators estimate that ongoing trading of the Business until 10 July 2022, to complete the proposed sale or recapitalisation, will require funding of up to $1.16 million. Westpac has agreed to provide funding to the Administrators of up to $1,478,335, which will be the subject of the Proposed Funding Agreement.

Extension of convening periods - relevant principles 14 Sections 439A(6) and 447A appear in Part 5.3A of the Act. The overall object of Part 5.3A of the Act (as stated in s 435A) is to maximise the chances of the company involved, or as much as possible of its Business, continuing in existence or achieving a better result for the company's creditors and members than would otherwise be achieved in an immediate winding up. 15 Section 439A(1) of the Act requires the administrator of a company under administration to convene a meeting of creditors within the convening period as fixed by s 439A(5), unless extended by the Court under s 439A(6). The meeting must be held within five business days before, or within five business days after, the end of the convening period: s 439A(2). 16 The purpose of the second meeting of creditors required by s 439A is to consider the company's future. At the s 439A meeting, the creditors may resolve that either: the company execute a deed of company arrangement; the administration end; or the company be wound up: s 439C. Rule 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRC) requires an administrator to provide a report to creditors about the company's business, property, affairs and financial circumstances to assist the creditors with making their decision at the s 439A meeting. 17 The principles and authorities governing an application such as this were set out by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 (Virgin (No 2)) (at [64]-[68]): [64] The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J) [65] The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Ltd [2019] FCA 11 at [3]-[8],where his Honour endorsed the comments of Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs. apptd) [2009] NSWSC 585 ('Re Riviera') at [13] as to the categories of cases in which an extension is granted including, relevantly: (1) where the size and scope of the business in administration is substantial (citing Lombe, in the matter of Babcock & Brown Limited (Administrators Appointed [2009] FCA 349; Worrell; In the matter of Storm Financial Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70; and ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947); (2) where the extension will allow sale of the business as a going concern, citing Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, in the matter of Kleins Franchising Pty Ltd (administrators appointed) (ACN 007 348 236) [2008] FCA 721 [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, in the matter of Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619 [2006] FCA 1423; and (3) more generally, where additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, In the matter of Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; in the matter of Marrickville Bowling & Recreate Club Ltd (under Administration) [2008] FCA 622. [66] An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company's assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 (Jacobson J); Re Riviera (Austin J); Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 (Lindgren J) ('Re Austcorp'); and In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 (Black J). [67] In Mighty River International Ltd v Hughts (as deed administrators of Mesa Minerals Ltd) (2018) 359 ALR 181 at 201-202, [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded: … Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. … [68] Finally, the administrator's own opinion as to the need for an extension will be given weight in an application of this kind: Owen and Others in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (ACN 116 665 304) (admins apptd) (recs and mgrs. apptd)) v Madden (No 4) (2012) 92 ACSR 255 at [26] (Logan J); In the matter of Belmont Sportmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J). 18 To discharge their function properly, administrators should have sufficient time to investigate the affairs of the company under administration and provide considered and informed opinions to the creditors as to the company's future. As was observed in In the matter of Gunns Plantations Limited (Administrators Appointed) (Receivers and Managers Appointed) [2012] VSC 513, [23]: It has been recognised...that the interests of creditors can be prejudiced not only by delay but also by the convening of premature meetings where the administrator has been unable to obtain information for the preparation of the report and statements required by s 439A(4) in the form on which creditors can make an informed decision. 19 Section 447A of the Act provides the Court with a general power to make such orders as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. Relevantly, s 447A(1) empowers the Court to make a "Daisytek" order (see Re Daisytek Australia Pty Ltd (Administrators Appointed) [2003] FCA 575; (2003) 45 ACSR 446 at [10] to [14] per Lindgren J) enabling the Administrators, if they see fit, to hold the second meetings of creditors at any time during, or within five business days after the end of, the convening period as extended by the Court under s 439A(6). "Daisytek" orders have been described as "sensible and now almost routine".

Extension of convening periods - application of principles to the present case 20 The Administrators submit that extending the convening period to 22 August 2022 is in the best interests of the creditors of the Companies. The evidence serves to confirm that the administration of the Companies is complex, entailing (in addition to the discharge of the Administrators' statutory, administrative and investigative tasks) the ongoing trading of the Business (at 24 medical clinics across Australia) and the conduct of the sale process. Such is the complexity of the administration that Mr Caddy's evidence is that the Administrators do not yet have sufficient information to prepare the report to creditors required by s 75-225(3) of the IPRC. 21 The Administrators submit that the extension sought will allow for the prospect of the Business continuing by way of an effective sale process, the benefits of which for creditors are expected to include: (a) preservation of the value of the Companies, likely resulting in a better return to creditors; (b) increased prospects of employees and contracted doctors retaining their jobs; (c) the prospect of landlords having the benefit of the assignment of their leases to the purchaser of the Business or the entry into new leases with the purchaser; and (d) ongoing provision of services to local communities. 22 The Administrators submit that in the absence of an extension, it is likely that they would recommend that creditors place the Companies into liquidation. The Administrators submit that liquidation of the Companies will be an adverse outcome for creditors, where it raises the prospect of the sale process being compromised, leased premises being repossessed, the cessation of operations and the termination of employment of the staff of the Companies.

Creditor support for extension 23 As recorded in the minutes of the creditors' meetings held on 3 June 2022, creditors were informed that, "it was the Administrators' intention to seek an extension of the convening period for a period of up to two months to provide time for the orderly sale to progress". No creditor raised any opposition to the proposed extension. In addition, four of the five members of the Committee of Inspection have expressed support for the Administrators' application, with the remaining member not opposing the application. 24 The absence of creditor opposition has been recognised as a relevant consideration to whether an extension should be granted. 25 If the extension is granted, the Administrators will inform creditors of the Companies via circular. In addition, the Administrators do not oppose the making of an order preserving liberty to any affected party to seek to vary or discharge the orders.

The period of the proposed extension is appropriate 26 The length of the extension sought by the Administrators is not itself a determinative factor as to whether an extension should be granted, having regard to the statutory time period prescribed by s 439A of the Act. Rather, the authorities indicate that courts are generally willing to tailor the timeframe in Part 5.3A to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Part 5.3A. 27 The Administrators submit that in light of the matters that remain to be attended to by the Administrators, the length of the proposed extension strikes an appropriate balance. It will enable the Administrators' diligent pursuit of outstanding tasks (most notably, the sale process) while at the same time ensuring that the creditors' exercise of their right to determine the future of the Companies will occur at a time when they are apprised of all relevant information. 28 I am satisfied that an extension of the Convening Period will produce an outcome which is consistent with the overall object and purpose of Part 5.3A of the Act. I will therefore make the orders sought by the Administrators.

Limitation of prospective personal liability under the Proposed Funding Agreement - relevant principles 29 The Administrators seek relief in respect of the Proposed Funding Agreement in circumstances where it is well established that the court has power under s 447A of the Act to make orders limiting an administrator's personal liability under s 443A. 30 The considerations and case law relevant to such an application were surveyed by Sloss J in Re Unlocked Limited (Administrators Appointed) & Ors [2018] VSC 345. Reference was made to the observations of Gordon J in the leading case of Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493 at [23]: Section 447A(1) of the Act empowers the Court, in an appropriate case, to modify the operation of s 443A to exclude personal liability on the part of a voluntary administrator, and to provide that a loan taken by the company via the voluntary administrator is repayable on a limited recourse basis. Orders in similar terms have frequently been made in circumstances where the Court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors. [Citations omitted] 31 More recently, in Virgin (No 2), Middleton J referred to orders being commonly sought "limiting an administrator's personal liability where a company borrows funds from an external financier to fund the ongoing trading of the business", stating (at [91]): There can be no doubt that in the appropriate circumstances, personal liability can be excluded with respect to any arrangement where that enables the company's business to continue to trade for the benefit of the company's creditors. 32 As to whether such orders should be granted, the Court will have regard to the interests of creditors. In Re Great Southern Infrastructure Pty Ltd; ex parte Jones [2009] WASC 161, Sanderson M observed (at [13]): The material consideration on such an application is whether the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Pt 5.3A of the Act. To put that proposition positively - the question is whether the court is satisfied the proposed arrangements are for the benefit of the company's creditors. To put it negatively - the question is whether the court is satisfied the company's creditors are not disadvantaged or prejudiced by the proposed arrangement.

Limitation of prospective personal liability under the Proposed Funding Agreement - application of principles to the present case 33 As was observed by Banks-Smith J in Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 4) [2021] FCA 644 (at [29]): The orders typically sought and made in such cases have the effect of limiting the recourse of the counterparty to a funding or loan agreement to the administrator personally to the extent to which they are able to be indemnified from the assets of the company. 34 The Administrators submit that description reflects the order sought by the Administrators under s 447A(1) of the Act in the present case. Further, the Administrators submit that the Court can be satisfied that the Proposed Funding Agreement is in the interests of the creditors of the Companies and that granting the relief sought is consistent with the objectives of Part 5.3A of the Act for the following reasons: (a) The ongoing trading of the Business is in the interests of creditors. Where, in the absence of funding, the Administrators will be unable to continue to trade the Business, the Administrators' assessment is that entry into the Proposed Funding Agreement is in the interests of creditors as a whole. (b) The Administrators consider the terms of the Proposed Funding Agreement to be reasonable commercial terms. Westpac does not intend to charge interest on the funds advanced, which funds will only become repayable from the proceeds of realisation of property of the Trading Company. (c) Unless the Administrators' personal liability is limited in the manner proposed, the Administrators cannot be expected to continue to trade the Business at a loss by incurring debts attracting personal liability, nor accept unlimited personal liability for the borrowing required to meet those trading debts. (d) Having been provided with a copy of the Proposed Funding Agreement, the members of the Committee of Inspection support or do not oppose the relief sought by the Administrators in respect of the Proposed Funding Agreement. 35 I am satisfied on the evidence that the Proposed Funding Agreement is in the interests of creditors of the Companies and that granting the relief sought is consistent with the objects of Part 5.3A of the Act for the reasons advanced by the Administrators and referred to above. 36 The Administrators also seek an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) in schedule 2 to the Act that they are justified and would be acting reasonably in entering into the Proposed Funding Agreement, procuring the entry into the Proposed Funding Agreement by the Trading Company and drawing down under the Proposed Funding Agreement. Where such judicial advice is sought in the context of a corporate administration, the only statutory constraint on the exercise of that power is the need to consider whether or not the provision of the advice advances the objects of Part 5.3A of the Act. 37 Where issues of propriety and reasonableness are raised by the Administrators' decision to enter into the Proposed Funding Agreement, the Court has the power to give the advice sought. 38 I am satisfied on the evidence that the ongoing trading of the Business is in the interests of creditors as a whole. I am also satisfied on the evidence that the actions of the Administrators in entering into the Proposed Funding Agreement are both reasonable and justified in all the circumstances. Accordingly I will make the orders sought by the Administrators as they are consistent with the objectives of Part 5.3A of the Act.

disposition 39 I will make the orders sought by the Administrators. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.

SCHEDULE OF PARTIES VID 322 of 2022 Second Plaintiff KHALED EL-SHEIKH PTY LTD (ADMINISTRATORS APPOINTED) (ACN 089 155 948)

Third Plaintiff EL-SHEIKH FAMILY HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 609 721 735)

Fourth Plaintiff TRISTAR MEDICAL GROUP PTY LTD (ADMINISTRATORS APPOINTED) (ACN 130 389 589)

Fifth Plaintiff TRISTAR PROPERTY HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 128 467 461)

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