By Originating Process filed today, by leave, the Plaintiffs, Mr White and Ms Burdett-Baker as joint and several administrators of White Motor Corporation (Australia) Pty Limited (admins apptd) and two associated companies seek orders, in common form, that the convening period fixed by s 439(5) of the Corporations Act 2001 (Cth) within which they must convene meetings of creditors of those three companies be extended by 59 days to end on 31 December 2015. They also seek an order, again in common form, under s 447A of the Corporations Act that the meeting of each of the creditors may be held at any time during or within five business days after the end of the convening period as extended, notwithstanding the provision for s 439A(2) of the Corporations Act. Such an order is commonly made where an extension of a convening period for a second meeting of creditors is ordered.
The application is supported by a comprehensive affidavit of Mr White, which sets out the basis on which the application is sought. I will first refer to Mr White's evidence, before returning to the applicable principles and the way in which Mr Harding, who appeared for the administrators, drew together the relevant facts and those principles.
The administrators were appointed to each of the companies by their boards of directors on 2 October 2015. There is evidence that each of the companies has a significant number of secured creditors, including several creditors which have purchase money security interests registered on the Personal Property Securities Register. In particular, one entity claims to be a secured creditor or owner in respect of a large number of buses and trucks in the possession of the companies. I pause to note that the companies are, it appears, whether directly or indirectly, an importer and distributor of buses and trucks which are manufactured in China, and the companies or their associated companies also have an import licence permitting the import of such vehicles and various arrangements in respect of the import of those vehicles with the Chinese manufacturers to which I will refer below. The companies operate from leased premises at Milperra, New South Wales and two lessors of properties are identified in the administrators' evidence. There are also a significant number of unsecured creditors, including approximately 22 priority employee creditors, of whom 18 continue to be employed by the companies and four have had their employment terminated.
Mr White refers to a degree of complexity in the arrangements for the conduct of the companies' business which include, in particular, the fact that a third party pays invoices directly to the Chinese manufacturers of the buses and trucks and appears to have an involvement as, at least in a general sense, a financier of the relevant purchases, although the precise nature of those arrangements is one of the matters which is the subject of ongoing enquiry by the administrator. Mr White also refers to a number of agreements, which are exhibited to his affidavit, which provide for the conduct of the business, which themselves give rise to a degree of complexity.
Mr White notes that the first meeting of creditors was held on 13 October 2015 and, as matters stand, the administrators would be obliged to convene the second meeting of creditors by 2 November 2015. As Mr White rightly recognises, the administrators would be required to make a recommendation to the companies' creditors at that second meeting, as to whether the companies should be returned to the control of their management, the entry into a deed of company arrangement or termination of the administration, such that the companies' pass into voluntary administration.
The administrators set out the work undertaken since they have been appointed, which has plainly been substantial, and the current status of their enquiries, in particular, as to the mechanics of the companies' business and the nature of the arrangements with the Chinese manufacturers, and also their ability to deal with those agreements, by for example a novation or other dealing with them, in respect of any sale of the companies' business. Mr White notes that there have been discussions as to a potential sale of the companies' business, as to which it is not necessary to say anything further in this judgment, but Mr White recognises a risk that, if the companies were placed in liquidation, the benefit of their distribution arrangements, dealership agreements and import licence would be lost and the business may be worthless. The identification of that risk is plainly plausible, in circumstances where an entity operates under relatively complex contractual arrangements, all of which might be expected to include termination events at least in respect to liquidation.
Mr White seeks an extension of the convening period, at least initially, to 31 December 2015 and identifies several reasons for that application. The first is that additional time is required for the administrators properly to inform themselves as to the complexities of the companies' business and the associated question whether the agreements under which the companies conduct business would permit a sale of the business as a going concern, presumably involving novation, assignment or renegotiation of relevant agreements. Mr White also identifies the need to form a view as to whether securities and PPSR registrations of entities involved in the administration are valid, which may be a matter of considerable significance, to the extent that there are relatively substantial secured debts, or potentially secured debts, of the companies.
Mr White addresses, as an administrator's affidavit should do in an application of this kind, the interests of persons who may be affected by an extension of time. Secured creditors and lessors of the relevant premises have been given notice of the application, and have not sought to intervene in the application. The orders which are sought contain the usual, and desirable, provision which would permit any person with a sufficient interest to vary or amend the order extending the convening period, so their position would to some extent be preserved by that order. Mr White's evidence is that, as matters stand, the lessors would continue to be paid rent on a weekly basis during the continuance of the administration, and their interests are likely to be advantaged, to some extent, by the payment of rent on that continued basis and the prospect that any sale of the business will involve a continuance of the relevant leases. There is no indication that the position of secured creditors will be significantly prejudiced by the extension sought, and none of them have indicated opposition to the application.
The extension which is sought is not, in absolute terms, a particularly long one. Employees, other than those four whose employment had been terminated, will remain employed in the business during that period, and their interests are also likely to be promoted by that continuing employment, and the prospect that their employment may be preserved with any sale of the business as an ongoing concern.
Mr White identifies one other significant matter in his evidence, namely that as matters stand, the administrators do not consider that they would have sufficient basis to make a proper recommendation to creditors as to what would be done at a second meeting. That is, on the authorities, a significant issue in an application of this kind.
Mr Harding draws attention to well-known authorities in this area, including the decision of Austin J in Re Riviera Group Pty Limited [2009] NSWSC 585; (2009) 72 ACSR 352, which has frequently been cited in applications of this kind. It has often been noted, including in Re Diamond Press Australia Pty Limited [2001] NSWSC 313 at [10] and in Re Dimidium Group Pty Limited [2010] NSWSC 1086, to which Mr Harding refers, that applications of this kind involve a balancing exercise between, on the one hand, the need for appropriate expedition in an administration, and the desirability that undue haste not be allowed to prejudice sensible and constructive actions which would maximise the return for creditors and any return for shareholders. These principles have often been applied, including in the case of potential sales of company businesses, and Mr Harding draws attention, as one example of such an application, to my decision in BCD Resources NL (receivers and managers appointed) (administrators appointed) [2015] NSWSC 777.
Mr Harding draws attention to the relevance in this case of several of the relevant factors identified by Austin J in Re Riviera Group Pty Limited above at [13]-[15]. It appears that the scale of the companies' business is substantial, given the number of vehicles that are referred to, and it involves intrinsic complexities so far as several entities, a third party funder, and overseas manufacturers, and a complex contractual scheme. To that extent, the element of complex transactions entered into by the companies, in respect of its import arrangements, is satisfied. Mr Harding also refers to the fact that time is likely to be required to execute an orderly process of disposal of assets, and I am satisfied on Mr White's evidence that that is the case, so far as novation or assignment of the relevant agreements is almost certainly going to be essential to a disposition of the business as a going concern. Mr Harding also points to the relevance of the fact that additional time is likely to enhance the return for unsecured creditors where, on Mr White's evidence, there may be no appreciable return to such creditors on a liquidation, and any return may depend upon the ability to achieve a sale of the companies' business as a going concern.
I have also referred above to Mr White's evidence that the information which is presently available to the administrators is unlikely to permit a useful recommendation to creditors, and that is a significant matter so far as convening the second meeting of creditors within the present timetable is concerned. I have also previously noted, in other cases, that the assessment by an administrator, who has made significant inquiries in respect of the company's business, is a matter to which the court should give weight in an application of this kind, and I give weight to Mr White's assessment, supported, as it is, by the detailed reasoning in his affidavit: compare Re ABC Learning Centres (admins apptd) (recs and mgrs apptd) (No 8) [2009] FCA 994; (2009) 73 ACSR 478 at [12]; Owen, Re River City Motorway Pty Limited (admin apptd) (recs and mgrs apptd) v Madden [2011] FCA 295 at [28].
I am satisfied, for the reasons which I have set out above, that the interests of unsecured creditors and employees are likely to be promoted by an extension of the convening period, both so far as it would maximise any prospect of sale of the business as a going concern and allow the administrator to make a more fully informed recommendation to creditors. It seems to me that secured creditors, lessors and employees are either not disadvantaged by the making of the order sought by the administrators, or not disadvantaged to an extent which would outweigh the benefit which would be obtained by an extension. The orders that I propose to make will allow the administrators to proceed to a second meeting of creditors, in circumstances that they will be better able to inform those whose interests are affected of the steps that may be taken at such a meeting, so as to maximise any return for such creditors.
For these reasons, I am satisfied that I should make orders in accordance with the short minutes of order which have been provided by the administrators. I will also, as the administrators propose, relist the matter late in the term, so that any issue which has arisen as to the adequacy of the time by which the convening period has been extended may be addressed. I make an order that the costs of the application be paid out of the administration of the companies where the application is properly brought in order to promote the interests of the administration.
[3]
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Decision last updated: 12 February 2016
Parties
Applicant/Plaintiff:
Owen, Re River City Motorway Pty Limited (admin apptd) (recs and mgrs apptd)