Owen, re RiverCity Motorway Pty Ltd (Admins Apptd) (receivers & managers appointed) v Madden

GLEESON J: 1 On 12 December 2018, I heard an ex parte application, made by the voluntary administrators ("administrators") of Halifax Investment Services Pty Ltd (administrators appointed) ("company") under ss 439A and 447A of the Corporations Act 2001 (Cth) ("the Act"), to extend the convening period for the second meeting of the companies' creditors to 29 March 2018 (a period of about 3.5 months), and for consequential orders. 2 The administrators were appointed to the company on 23 November 2018, pursuant to a resolution of the board in accordance with s 436A of the Act. The convening period was due to expire on 21 December 2018. 3 I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by the administrators. My reasons for making those orders are as follows. 4 The application, made by interlocutory process dated 11 December 2018, was supported by two affidavits of Philip Alexander Quinlan, one of the administrators, affirmed on 26 November 2018 and 11 December 2018 respectively, and by written and oral submissions made by Mr Rose, counsel for the administrators. 5 The application was brought primarily to afford the administrators time to investigate further the complex affairs of the company, so that the administrators may form the opinion required under r 75-225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth) ("IPRC"). It was also submitted that an extension would allow time for any deed of company arrangement proposal to be made, and would enable the second meeting of the company's creditors to be held at a time likely more convenient to a larger number of creditors. 6 Mr Quinlan's opinion was that the extension of time sought was both necessary and in the best interests of creditors to allow the administrators adequate time to provide a full and comprehensive report to creditors and a recommendation concerning the future of the company, including placing the administrators in a better position to determine whether it is possible for the business of the company to continue or whether it is in the best interests of the creditors that the company be wound up. 7 Mr Quinlan's evidence was that the administrators are not aware of any prejudice that may be suffered by a creditor if the convening period was extended to 29 March 2019.

Background facts 8 The company was incorporated in 2001, and is a financial services provider which deals in financial products on behalf of its clients, including listed stocks and bonds, and over-the- counter derivatives and other financial products. 9 The company principally conducts that business through electronic trading platforms, known as "Halifax Plus", "Halifax Pro" and "Trader Workstation" ("trading platforms"). 10 The administrators were appointed because of an apparent deficiency of equity over client funds.

Administration to date 11 Since their appointment, the administrators have frozen all of the company's bank accounts, secured the assets of the company and suspended all trading (other than closing out positions) to minimise exposure to the company's clients. 12 Mr Rose's submissions noted that the administrators had carried out substantial investigations into the business, property and financial affairs of the company and that the administrators had taken the steps including the following: (1) interviewed the director and employees of the company; (2) met with the Australian Securities and Investments Commission and Financial Markets Authority (New Zealand) in relation both to the ongoing operations of the company, and the Australian Financial Services Licence held by the company; (3) met with the company's accountants, Moore Stephens, to understand the company's financial position; (4) commenced investigations into the affairs of the company, including an analysis of the data from each trading platform to understand the quantity and quantum of investor claims and any deficiency in funds; and (5) written to the company's insurer seeking copies of all relevant insurance policies, and have begun considering their terms and preparing notifications of their appointment. 13 The first creditors' meeting was held on 5 December 2018. At the meeting: (1) A committee of inspection was formed. (2) The chair informed the meeting of the administrators' intention to apply for an extension of the convening period pursuant to s 439A(6) of the Act. Mr Rose told the Court that he was instructed that the chair informed the meeting that the proposed extension was until the end of March 2019. (3) Some creditors indicated that they were amenable to a "solution" which would involve investors receiving a payout on a shorter time frame with a pooling of all investor funds. The chair stated that such an arrangement may be able to be facilitated through a deed of company arrangement ("DOCA"). 14 Mr Rose submitted that the administrators' investigations were affected by the following factors: (1) The large volume of the company's books and records, and the need to further review and interrogate them for the purposes of tracing the company's funds and determining what recoveries may be made by the administrators. (2) The complexity of the company's creditor position. The company is said to have 12,559 individual active client accounts held across the trading platforms, which are used by the company as an interface with its clients, and are the platforms by which clients of the company may conduct trades. There appear likely to be significant issues which will arise in relation to the funds held by the company across the various trading platforms, including questions as to whether, and to what extent, those assets are held by the company in its own right or, alternatively, as a trustee for the client creditors. (3) Since their appointment, the administrators have received a refund of moneys from a counterparty to certain of its trades, Gain Capital, in the sum of $401,267.59. At present, while the administrators suspect that client funds are comingled with the amount received from Gain Capital, the position is not clear. To preserve the status quo, the administrators intend to allocate the money to a separate trust account until such time as they can determine, whether by direction from the Court or otherwise, the ownership of those funds. (4) The company has a number of related entities, located in Vanuatu, New Zealand (being Halifax New Zealand Limited (In Administration) ("Halifax NZ"), to which the administrators are also appointed), the United States of America, the People's Republic of China (including in both Hong Kong and the Mainland) and elsewhere. The administrators have not yet determined the extent of the company's dealings with those related entities, although there does appear to be some cross-over between the dealings of the company and Halifax NZ, of which the company is a 70% shareholder. As Mr Quinlan explains, it appears that despite certain legislative requirements in New Zealand prohibiting such conduct, investor clients located in New Zealand traded on the trading platforms through the company (and it appears similarly that investor clients located in Australia traded on the trading platforms through Halifax NZ). There also appears to be a commonality of clients between the company and Halifax NZ, together with a related entity loan by the company to Halifax NZ in the amount of $964,521.52 for the purposes of satisfying its financial services licensing requirements in New Zealand. (5) Mr Quinlan has identified the following matters which, in his opinion, required further investigation: (a) the administrators' present inability to ascertain an accurate, thorough and considered understanding of the company's business without interrogating each and every transaction, investor client, bank account, and related entity and third party transaction. According to Mr Quinlan, the process of doing so is time- consuming and complex given the relative expertise required to understand the transactions; (b) the number of bank accounts (38) held by the company, of which 18 may be held on trust by the company for the benefit of clients as required by s 981B of the Act (as Client Segregated Accounts ("CSAs")). There may also be other accounts in addition to CSAs which are held on trust for the benefit of clients, but the administrators have not presently been able to determine who the relevant beneficiaries and creditors in respect of any trust funds and company funds are; (c) certain of the accounts appear to hold comingled funds in respect of investor clients who have traded on different trading platforms and/or in different commodities. The funds that appear to be comingled include funds held on trust for the benefit of investor clients; (d) the existence of transactions which may be antecedent transactions (that is, transactions liable to avoidance). The administrators have not yet been able to interrogate those transactions in order to provide a recommendation to creditors. Mr Quinlan also noted that there may be other transactions that the administrators identify as antecedent transactions following their review of the company's books and records; (e) whether a DOCA proposal may be received; and (f) whether assets of the company may be able to be sold. The administrators had been approached by six parties who have expressed an interest in acquiring certain assets of the company, although those approaches have been of a general nature, and at the hearing date, no formal offers had been made. 15 The company has no secured creditors. The lease of the premises from which the company operates its headquarters is continuing and the administrators have paid and continue to pay the rent. 16 Employee creditors total an estimated $186,462.79. At the time of the administrators' appointment, the company employed 13 people. The administrators had terminated six employees who were not required in order to continue to trade the business. Those employees employed during the administration have been paid their entitlements and the administrators continue to pay employee entitlements for the current employees of the company. 17 In his December 2018 affidavit, Mr Quinlan expressed the view that the administrators would not be in a position to provide a report to creditors containing their recommendations as to the future of the company if the second meeting was required to be convened by 21 December 2018 (that is, without an extension of the convening period).

Interests of stakeholders 18 Mr Quinlan expressed the following views concerning the impact of an extension of the convening period on the various stakeholder groups: (a) Ordinary unsecured creditors, trade creditors and broker creditors: an extension of the convening period would be in the best interests of these creditors, as it would allow the administrators to report more accurately and completely than they would be able to were the convening period not extended. Further, an extended convening period may also provide a further opportunity for a DOCA to be proposed, which may increase the prospects of there being an enhanced return to creditors. (b) Employee creditors: an extension of the convening period would be in the best interests of these creditors, as it would allow the administrators to report more accurately and completely than they would were the convening period not extended. Further, an extended convening period would also provide a further opportunity for a DOCA to be proposed, which may increase the prospects of there being an enhanced return to creditors. Further, for those employees who remain employed by the company, any extended convening period would offer the prospect of continued employment, and those employees may potentially be able to secure employment with a purchaser of any part of the company's business that is sold. (c) Landlord: The lease of the premises has been continued and the administrators have paid and are paying the rent as and when it falls due. If the company is wound up, the landlord may terminate the lease and the company will no longer be able to operate its business from its headquarters…

Statutory framework 19 Section 439A of the Act provides relevantly: (1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6). (2) The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period. (5) The convening period is: (a) if the day after the administration begins is in December, or is less than 25 business days before Good Friday - the period of 25 business days beginning on: (i) that day; or (ii) if that day is not a business day - the next business day; or (b) otherwise - the period of 20 business days beginning on: (i) the day after the administration begins; or (ii) if that day is not a business day - the next business day. (6) The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires. 20 Requirements for giving notice of a meeting pursuant to s 439A are set out in rr 75-15 and 75-255 of the IPRC. 21 By s 447A(1), the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company.

Relevant principles 22 In Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635, Markovic J summarised the relevant law as follows, at [18]-[20]: [18] In exercising the jurisdiction to extend time under s 439A(6) the Court must have regard to the objects of Pt 5.3A of the Act as set out in s 435A. Those objects are to maximise the chances of the 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 companies' creditors and members than would result from an immediate winding-up of the company. 19. The approach taken by the Court in applications of this type is well settled. The power to extend the time for convening the second meeting is one that should not be exercised as of course. Rather, the Court must strike an appropriate balance between the expectation that administration will be a relatively speedy matter and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders (see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (Harrisons Pharmacy) (per Farrell J) at [11] and the authorities referred to therein). 20. Other relevant factors, particularly in the circumstances of this case, are: (1) whether the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: see Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363 (Fincorp) at [18]; (2) the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others, a factor which may militate against the too ready grant of an extension: see Fincorp at [4]; and (3) whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and to arrive at the opinion required by s 439A(4), in order to inform creditors adequately so that they, in turn, will be in a position to decide whether to terminate the administration, execute a DOCA or place the company in liquidation: see Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (McGrath and Honey as joint liquidators) (2003) 46 ACSR 77; [2003] FCA 598 at [41]). 23 In Re BCD Resources NL (receivers & managers appointed) (administrators appointed) [2015] NSWSC 777 at [12], Black J noted that a court can, and should, also give weight to the considered judgment of the administrator in matters of this kind: cf. Owen, re RiverCity Motorway Pty Ltd (Admins Apptd) (receivers & managers appointed) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26].

Consideration and conclusion 24 I was satisfied that the Court had power to make the orders sought and that those orders were appropriate. In particular, I was satisfied that the proposed extension was reasonable having regard to the following matters: (1) The complexity of the company's business, affairs and financial circumstances and the need for the administrators to carry out further investigations in order to make a properly informed recommendation to the company's creditors at the second creditors' meeting. An extension of time will increase the likelihood that the administrators can convey useful information to the creditors and a properly informed opinion as to the options available to the creditors at the second meeting. (2) Mr Quinlan's opinions that the proposed extension is in the best interests of creditors and that creditors (including employees) will not be materially prejudiced by the extension. (3) The potential for a DOCA to be proposed. (4) The lack of any objection from any creditor of the company. (5) The provision made by the proposed orders for any person who can demonstrate sufficient interest to apply to the Court for modification of those orders. (6) The absence of any indication that the administrators have delayed in the exercise of their functions. 25 Accordingly, I made the orders sought. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.