Owen v Madden

GLEESON J: 1 By interlocutory process filed on 8 July 2020, the plaintiffs (administrators) applied under s 447A of the Corporations Act 2001 (Cth) (Act) to extend the convening period for the second meetings of creditors of BK Chemists Pty Ltd (Administrators Appointed) and BK Chemicals No. 2 Pty Ltd (Administrators Appointed) (together companies) to 9 September 2020 and to permit the meetings to be held on any business day during or within 5 business days after the end of the convening period as extended. 2 The matter was determined by me on the papers as a matter of urgency because the convening period was due to expire on 9 July 2020, having previously been extended by orders made on 5 March 2020: Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) [2020] FCA 418. 3 After considering two affidavits of Michael Billingsley sworn 8 July 2020, I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by the administrators. 4 These are my reasons for making those orders.

Background to application 5 The administrators were appointed on 10 February 2020. 6 The first meetings of creditors of the companies were held concurrently on 20 February 2020. 7 On 5 March 2020, the administrators applied to this Court for the first extension of the convening period. The extension was sought to allow time for the administrators to endeavour to sell the companies' businesses as going concerns; and to make reliable estimates of liabilities and potential realisations. The extension was granted on the basis of the desirability of those aims. 8 On 30 June 2020, business sale agreements were exchanged for the sale of the companies' three pharmacy businesses. However, Mr Billingsley formed the view that completion of the sales may not occur prior to, relevantly, 9 July 2020. Although Mr Billingsley's view was that completion may not occur by the "End Date" as defined in the business sale agreements, his belief was that completion was likely to occur within two months of 8 July 2020, based on matters that included the purchasers' expectation of finance approval in the week of 8 July 2020; that a necessary application to the Department of Health had not yet been submitted and that the lessor of the three relevant premises had agreed to a lease arrangement for the premises post completion of the sale. 9 Concerning the administration since 5 March 2020: (1) Mr Billingsley stated that there had been some changes to the identity and number of creditors, and that debts owed to creditors now total at least an estimated $27.56 million. (2) The administrators have done the following work: (a) continued to trade the businesses to conserve their value, ensuring the continuation of their operations and continued employment of staff; (b) formulated and implemented COVID-19 policies and procedures for trading; (c) negotiated, finalised and exchanged the BSAs; and (d) conducted investigations into the historical financial affairs of the companies; (3) It is still the case that all trade creditors whose services are continuing during the administration have and are being paid, or have entered into consignment arrangements. (4) Neither NAB nor API expressed any objection to the further extension of the convening period; (5) Mr Billingsley is now in a position to complete the report to creditors in accordance with s 75-225 of the Insolvency Practice Rules (Corporations) 2016.

Grounds for a further extension of the convening period 10 Mr Billingsley expressed the opinion that a further extension of the convening period was necessary and in the interests of creditors to: (1) enable the businesses to continue to trade in order to complete the sales of the businesses as going concerns; and (2) attend to matters ancillary to the completion of those sales such as assigning or novating contracts or leases. 11 If the extension were not granted, Mr Billingsley proposed to recommend that the companies enter into liquidation. Mr Billingsley noted that this may result in the termination of all current employees.

Legal framework 12 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. There is no doubt that s 447A supports an order extending a convening period, following an earlier extension under s 439A: Mentha, Re The Griffin Coal Mining Company Pty Ltd (Admin Apptd) (ACN 008 667 285) (No 2) [2010] FCA 499 at [36]; Chamberlain, Re South Wagga Sports and Bowling Club Ltd (Admin Apptd) [2009] FCA 25; Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115 at [32]. 13 Multiple extensions of time were granted in Re ABC Learning Centres (No 8) [2009] FCA 994; (2009) 73 ACSR 478, see especially at [52] and [53]; Re Harrisons Pharmacy Pty Ltd (Admin Apptd) (Recs and Mngrs Apptd) [2013] FCA 1102; Owen v Madden (No 5) [2013] FCA 1443; and Re Acquire Learning & Careers Pty Ltd (administrators appointed) [2017] VSC 572. 14 The same principle apply as for an extension under s 439A, and were identified in my earlier judgment.

Conclusion 15 I was satisfied that the convening period should be extended for each company for the further period sought because: (1) the administrators had successfully negotiated sales of the companies' businesses as going concerns, and exchanged contracts, but require additional time to complete those sales, thereby maximising the value that may be obtained for those businesses; (2) the administrators believed that they will be able to achieve successful completion of the sales within two months; (3) the two secured creditors did not object to the proposed extension; (4) all trade creditors who are continuing to provide services to the businesses have and are being paid, or have entered into consignment arrangements; (5) Mr Billingsley's opinion was that the further extension of the convening period would be in the interests of the companies' creditors; (6) there is no suggestion of any delay on the part of the administrators in the exercise of their functions; (7) if the extension was not granted, the companies would probably be placed into liquidation with a consequent loss of value of the companies' businesses; and (8) the proposed orders provided for prompt notification of the companies' creditors, enabling them to apply to vary or amend the orders made on short notice; (9) taking into account these matters, I was satisfied that it would be in the best interests of the companies' creditors if the convening periods were extended in accordance with the application. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.