PCG Capital Management Limited, in the matter of PCG Capital Management Limited and Glen Brook Pty Limited [2008] FCA 508

REASONS FOR JUDGMENT 1 I have before me an application under s 439A(6) of the Corporations Act 2001 (Cth) (the Act) for an order extending the period for convening the second meetings of creditors of PCG Capital Management Limited (PCG) and Glen Brook Pty Limited (Glen Brook). 2 Section 436A(1) of the Act provides that a company may appoint an administrator if its board has resolved to the effect that, in the opinion of the directors, the company is insolvent, or is likely to become insolvent, and an administrator should be appointed. The present Applicants, Jannamaria Robertson and Martin Madden (the Administrators), were appointed as administrators of PCG and Glen Brook on 12 March 2008, pursuant to a resolution passed by the respective boards of those companies, in accordance with s 436A. 3 Under s 436E(1), the administrator of a company under administration must convene a meeting of the company's creditors in order to determine whether to appoint a committee of creditors, and if so, who are to be the committee's members. The meeting must be held within eight business days after the administration begins. At the meeting, the company's creditors may also, by resolution, remove the administrator from office and appoint someone else as administrator of the company. At the meetings of the creditors of PCG and Glen Brook, held on 25 March 2007, pursuant to s 436E, there was no resolution to remove the Administrators and no committee of creditors was appointed in respect of either company. 4 Section 439A(1) provides that the administrator of a company under administration must convene a second meeting of the company's creditors within the convening period as fixed by s 439A(5) or extended under s 539A(6). Relevantly, s 439A(5) provides the convening period in the present case would be the period of twenty-five business days, beginning on 12 March 2008. However, s 439A(6) provides that the Court may extend the convening period on an application made within the period contemplated by s 439A(5). Accordingly, the convening period ends on 17 April 2008 and, therefore, this application has been brought within time, as contemplated by s 439A(6). 5 At the second meeting of the creditors, the creditors may resolve, under s 439C, one of three things: that the company execute a deed of company arrangement, that the administration end or that the company be wound up. At the second meeting the administrator is required to provide to the creditors a report, which includes, among other things, a statement setting out the administrator's opinion about each of those three matters and the reasons for those opinions. 6 The Administrators consider that it is in the best interests of the creditors of PCG and Glen Brook to extend the convening period, on the basis that an extension will maximise the chances of PCG and Glen Brook's continuing in existence or, if that is not possible, will result in a better return for creditors than in a winding up. 7 Glen Brook is the registered proprietor of property located at Tomaree Street, Nelson Bay, New South Wales (the Land). On 14 August 2003, Glen Brook and Project Control Group Pty Limited entered in to a Development Management Agreement that provided for the development of residential apartments, known as the Aqua Apartments, on the Land. Project Control Group Pty Limited was responsible for sales and marketing, and arranging finance for the development project. 8 Shortly after 26 March 2004, Project Control Group Pty Limited assigned all of its rights, title and interest in the Development Management Agreement to PCG and to JP Morgan Trust Australia Limited (JP Morgan). Thereafter there were various security interests created in favour of St George Bank Ltd and in favour of JP Morgan. The Aqua Apartments are a combination of hospitality, investment and residential apartments. The development comprises 110 apartments, with eighty-four remaining unsold as at the date of the appointment of the Administrators. Of those eighty-four apartments, fifty-nine are currently vacant and unfurnished. The other twenty-five are subject to a management agreement with Greater Properties Management Right Division Pty Limited, who have a marketing agreement with Stella Hotels. 9 The Administrators have considered the various sales and marketing options available for the divestment of the remaining units, to achieve market value within a reasonable time frame. On considering the options, the Administrators have formed the view that further time is required to undertake a comprehensive marketing campaign and to complete an expression of interest process, prior to reporting back to creditors at the second meeting of creditors. 10 Since the appointment of the Administrators on 12 March 2008, the letting arrangements concerning the apartments in the letting pool have continued. However, the Administrators consider that it is not possible to estimate, with precision, the potential income that is likely to be received over the next few months, particularly when taking into account that the next four months are seasonally low occupancy months. On the other hand, the onsite managers expect an increase in bookings, having regard to school holidays later in April 2008, and the Anzac Day long weekend, provided weather conditions remained favourable. 11 Since their appointment, the Administrators have undertaken a wide range of tasks and have gathered information to assist with undertaking those tasks. This has included making contact with the onsite managers, to ensure that letting arrangements are maintained and preserved in the short term, assessing the assets and liabilities of PCG and Glen Brook, conducting a review of the assets to determine their value and develop marketing and realisation plans, meeting with various creditors to discuss the nature and implications of the appointment of the Administrators, and obtaining information from valuers, who have previously provided a valuation of the Land. 12 The Administrators have identified creditors who have claims in excess of $100,000 and each of those creditors has been notified of this application. Those creditors have indicated that they do not object to extension of the convening period. Neither PCG nor Glen Brook has any substantial employee creditors, nor do they have substantial trading creditors. Most of the other creditors, and there are less than twenty of them, have claims below $10,000. 13 The Administrators are preparing a "multi-level" sales and marketing program to ensure that the development is sold at market value, within an appropriate time frame. Retail sales campaigns would involve offering the remaining units for sale by way of various different strategies, comprising direct marketing to various interstate real estate agents and investment companies, as well as small packages of units being provided to a range of recognised local real estate agents. 14 The Administrators consider that a period of at least three months is necessary to undertake the work that they think is necessary in relation to the wholesale campaign, which would include preparation of an investment memorandum, marketing of the units, lodgement of expressions of interest, reporting to secured creditors, due diligence exercises in relation to prospective purchasers and review of offers and reporting to creditors in general terms. 15 There is a further matter of defect issues concerning the Aqua Apartments. The builder remains committed to finalising those issues and the Administrators are concerned to ensure that those issues are adequately completed. That process will occupy some time. The Administrators consider that it will take approximately three months for those issues to be properly addressed and resolved, and for effective sales processes to be implemented for the benefit of all creditors. 16 The Court's task, on an application such as this, is to balance the need for the administration of a company to be carried out as efficiently and expeditiously as practicable, so as to minimise the effect on those persons who are subjected to the moratorium imposed by Part 5.3A, on the one hand, against, on the other hand, the need to give administrators time to present meaningful choices to the creditors at the second meeting, in particular to provide a meaningful report concerning the opinion of the administrators as to the course that is best suited to advance the interest of creditors. 17 The Administrators have formed the view that they will not be in a position, prior to 18 April 2008, to prepare a report that contains a meaningful opinion as to whether a deed of company arrangement should be executed, whether the voluntary administration should end or whether the companies should be wound up. In all of the circumstances, I consider that this is an appropriate case for the exercise of the discretion, conferred by s 439A(6), in the manner to which I have already referred. 18 Section 439A(2) of the Act provides that the second meeting must be held within five business days after the end of the convening period. In my view that means simply that the meeting must be held no later than the day that is five business days after the end of the convening period. It does not require that the meeting be held after the end of the convening period. However, I am conscious of the fact that some doubt has been expressed, concerning the meaning of s 439A(2). For that reason, the Administrators have asked the Court to order, pursuant to s 447A of the Act, that the second meetings of the creditors of PCG and Glen Brook may be held at any time during, or within five business days after, the end of the convening periods, as extended. For more abundant caution, I consider it appropriate to make the orders sought. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.