Purchas, in the matter of Atlantis Corporation Pty Limited (Administrator Appointed) [2015] FCA 1032

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1082 of 2015

IAN JAMES PURCHAS IN HIS CAPACITY AS VOLUNTARY ADMINISTRATOR OF ATLANTIS CORPORATION PTY LIMITED (ADMINISTRATOR APPOINTED) (ACN 003 233 681)

JUDGE: YATES J DATE: 10 SEPTEMBER 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The plaintiff is the voluntary administrator of Atlantis Corporation Pty Limited (Administrator Appointed) (the company). He applies under s 439A(6) of the Corporations Act 2001 (Cth) for an extension of the convening period of the second meeting of creditors of the company. Unless extended, the convening period will expire on 14 September 2015. The extension sought is to 26 October 2015, a period of approximately six weeks. The first meeting of creditors of the company was held on 27 August 2015. 2 The plaintiff has made two affidavits in support of the application. An order has been sought and will be made under s 37AF of the Federal Court of Australia Act 1976 (Cth) restricting publication and disclosure of one of those affidavits and its exhibits until further order. The plaintiff's affidavits deal with the course of the administration so far, the work he has undertaken, the financial circumstances of the company and the reasons why an extension of the convening period is sought. 3 There are some particular matters I should mention. 4 The first matter to mention is that, shortly after his appointment, the plaintiff became aware that the company had ceased operating its business, which has been described as providing water management solutions. It appears that the business had been transferred on about 30 June 2015 to three related business entities, namely Atlantis Corporation Australia Pty Ltd (Atlantis Australia), Atlantis Aurora Pty Ltd (Atlantis Aurora) and Atlantis Corporation International Pty Limited (Atlantis International). The plaintiff formed the view that this transfer was inappropriate and undertook steps to secure the return of the business to the company. This has been achieved, in effect, by the shareholder of each of Atlantis Australia, Atlantis Aurora and Atlantis International - Urriola Pty Limited - entering into declarations of trust in respect of the shares it holds in each of those companies and, subsequently, transferring those shares to the company (the share transfers). The share transfers were only executed on 8 September 2015. 5 The second matter to mention is that the plaintiff has engaged a business broker, Network Infinity Pty Ltd, to attempt to sell the business. This will be done by undertaking a four week marketing campaign, leaving one week for negotiations and, thereafter, finalisation of any transaction with a prospective purchaser. The plaintiff has formed the view that the sale of the business as a going concern will provide the best opportunity to ensure the continued operation of the business and the continued employment of the 10 employees currently engaged in it. The sale would also, hopefully, maximise the return to the company's creditors. Evidence has been placed before me of an estimated value of the business. However, its true value is only likely to be ascertained by putting it to market as the plaintiff proposes. 6 The third matter to mention is that the company is currently in litigation as a defendant in proceedings commenced by Downer EDI Rail Pty Ltd (Downer EDI) and EDI Rail PPP Maintenance Pty Ltd in the Supreme Court of New South Wales. Mr Hedge has appeared on behalf of those companies on the hearing of this application. The proceedings concern alleged defects in the stormwater detention facilities installed at a facility owned by RailCorp NSW and known as the Auburn Maintenance Centre. John Holland Pty Ltd (John Holland) and Kellogg Brown & Root Pty Ltd are also defendants in the proceeding. Downer EDI has lodged a proof of debt in the administration of the company in the sum of $110 million. The proceeding is currently stayed by reason of the administration. 7 John Holland has itself made a claim against the company arising out of substantially the same events giving rise to the litigation to which I have referred. It has lodged a proof of debt of $100 million. Evidence has been placed before me concerning the course of that claim. 8 The fourth matter to mention is that, following the plaintiff's appointment, the director of the company, Humberto Urriola, indicated his intention to put forward a deed of company arrangement (DOCA) proposal. The plaintiff has expressed the view that, in order to consider any such proposal, it will be necessary for him to determine the likely value of the company's assets on liquidation in order to give an appropriate recommendation to creditors. The current proposal to put the business to market will assist in providing information as to the value of the business. 9 Apart from the business, the company holds units in a unit trust which is known as Atlantis Property Trust No 2. Atlantis Commercial Property Pty Limited is the trustee of the trust and is the registered proprietor of a property at Chatswood which has a holding value in the company's accounts of approximately $1.5 million. The plaintiff is not aware of any secured creditor with a security interest over all the assets of the company. A search of the Personal Properties Securities Register indicates that certain photocopying equipment is subject to a registration. The plaintiff's evidence is that all liabilities in respect of the equipment are paid to date and will continue to be paid during the administration. There are additional security interests registered against the company but the plaintiff's evidence is that the holders of these registrations are owed no monies by the company. 10 A report as to affairs is yet to be provided but, from the current records of the company, the plaintiff has determined that there are approximately 50 trade creditors with claims of approximately $380,000. Of this total, a firm of solicitors is owed in excess of $180,000. As I have indicated, there are currently 10 employees of the company. Their claims have now been quantified on a non-redundancy/termination basis at approximately $27,500. There are also the contingent liabilities to which I have referred arising out of the defects in the stormwater retention facilities at the Auburn Maintenance Centre. 11 The plaintiff seeks an extension of the convening period for the following reasons. 12 First, he says that the administration is complex with a number of difficult issues arising due to the litigation and disputes to which I have referred. He says that an extension of the convening period will allow him further time to obtain legal advice on the litigation and disputes. 13 Secondly, the plaintiff says that an extension of the convening period will allow him to facilitate any due diligence with a prospective purchaser of the business and, thereafter, attempt to complete a sale to maximise the return to creditors. He says, as the share transfers indicate, that the right to sell the business only occurred earlier this week. The plaintiff has expressed the understandable view that, when selling a business, a better price will usually be obtained when it is sold as a going concern rather than by closing the business and then attempting to sell it. Obviously, the sale of the business as a going concern is likely to maximise any returns for creditors compared to a liquidation, where the sale will occur under distressed circumstances. 14 Thirdly and relatedly, the sale of the business as a going concern is likely to give a greater chance to the employees of the company remaining employed and will prevent any crystallisation of redundancy or termination entitlements. 15 Fourthly, the plaintiff says that, if an extension is granted and the business is kept operating, a greater chance of collecting book debts is likely. 16 Fifthly, an extension of the convening period will allow Mr Urriola more time to formulate a DOCA proposal. However, as I have already indicated, a DOCA proposal, if made, can only sensibly be considered if the true value of the business is known. This is only likely to be known by putting the business to market. 17 Sixthly, the plaintiff says that granting an extension of the convening period is not likely to result in any prejudice to creditors. 18 Mr Hedge has submitted that although the parties for whom he appears will not suffer significant prejudice by extending the convening period as sought, the matter should nevertheless be put before creditors as soon as possible who can consider their position and, if thought fit, adjourn a meeting for an appropriate period of time in which to consider any DOCA proposal that might be forthcoming or to consider whether the proposal to market the business should proceed. 19 Mr Stack, who appears for the plaintiff, has helpfully provided me with a written outline of submissions which I have read and considered. It is not necessary for me to set out those submissions in these reasons. I was referred to a number of the authorities dealing with how the discretion to extend the convening period should be exercised: Re Diamond Press Australia Pty Limited [2001] NSWSC 313; Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636; and, Re Riviera Group Pty Ltd (2009) 72 ACSR 352. 20 The function of the Court on such an application is to strike an appropriate balance between the legislature's expectation that the administration will be relatively swift, 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 later return for shareholders. 21 The substantial basis on which the present application has been made is to permit the marketing of the business with a view not only to determining its value but, indeed, to achieving a sale for the benefit of creditors. It is true that the creditors are able to consider whether the business should be put to market now, but I am satisfied that it is appropriate that the convening period be extended as sought. It is a relatively modest period of time and, in light of the present circumstances in which the company finds itself, it seems to me to be the most efficient way to proceed in order to achieve the object of Pt 5.3A of the Act. I am satisfied, therefore, that the orders that are sought should be made. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.