MATTER : Section 439A(6) of the Corporations Law of Western Australia

ALLBUILD CONSTRUCTION CO PTY LTD (ACN 069 091 836) (ADMINISTRATORS APPOINTED)

Corporations - Voluntary administration - Application for extension of convening period - Principle to be applied - Need for detailed information in support

1 OWEN J: This is an application under s 439A(6) of the Corporations Law for an order extending the convening period in relation to the second meeting of the creditors of Allbuild Construction Co Pty Ltd (Administrators Appointed) ("the Company").

2 On 31 July 2000, the applicants were appointed by the directors as joint and several administrators of the Company. Under s 436E the administrator is required to convene an initial meeting of creditors to determine whether to appoint a committee of creditors and, if so, who are to be its members. That was done.

3 Section 439A(1) requires the administrator to convene a further meeting of the company's creditors within the "convening period" as fixed by s 439A(5). The meeting is to be held within five business days after the end of the convening period.

4 Under s 439A(3) the process of convening the meeting is achieved by giving a written notice of the meeting to the creditors and by advertising it in a newspaper. Section 439(5), so far as it is relevant for the purposes of this application, stipulates that the convening period is a period of 21 days beginning on the day when the administration commenced. Bearing in mind that, in calculating the convening period, the day upon which the administration commenced is counted, the convening period will conclude on Sunday, 20 August 2000. However, s 439A(6) gives the court power to extend the convening period, provided that an application is made within the period provided in s 439A(5). In other words, the application must be made before the convening period concludes. That has been done in this case.

5 The principles which the court are to apply in considering an application for an extension of the convening period were discussed in Mann v Abruzzi Sports Club Ltd (1994) 12 ACLC 137. In that case Young J commented that s 439A had been introduced into the Corporations Law by the Corporate Law Reform Bill No 1 of 1992. His Honour had regard to the explanatory memorandum that had accompanied the Bill in its passage through Parliament. He referred to par 449 which indicates that it is of the essence of this part of the Corporations Law that there be speed of administration and "minimisation of expensive and time-consuming court involvement and formal meeting procedures".

6 Paragraph 507 of the explanatory statement says of s 439A:

"The court will be given a power to extend these periods ... though it is not expected that this power would be exercised frequently since it is an important objective of the new provisions for creditors to be fully informed about the company's position as early as possible and to have an opportunity to vote on its future as soon as possible."

7 Young J went on to comment that there was much in Part 5.3A of the Corporations Law and in particular Division 6 of that Part to underline the necessity of an administration proceeding very speedily. However, at 138, his Honour said this:

"The spirit and object of the Division is set out in section 435A; that is to maximise the chances of the company continuing in existence or alternatively terminating its existence in the most appropriate way. Accordingly the powers given to the court under the Division should be exercised with that object firmly in view."

8 I turn now to the facts of this case. The application is supported by an affidavit of Mark David Reilly, one of the administrators of the company, sworn 16 August 2000. Reilly deposes to the fact that on 31 July 2000 he and Glenn Featherby were appointed jointly and severally as administrators by the directors of the Company but that the directors have not as yet provided the administrators with the Company's report as to affairs. The affidavit contains the following passages:

"9. We seek a 30-day extension of the convening period for the second meeting of the company's creditors. The reason for this is that at present I am unable to ascertain the final financial position of the company and I have not received a proposal for a deed of company arrangement from the directors which I have been advised will be received once the company's final financial position is determined. The extension will allow time for me to determine the final financial position of the company and for the directors to propose a deed of company arrangement.

10. The directors have spoken to me about proposing a deed of company arrangement. Based on those discussions I believe that the directors intend to propose a deed of company arrangement. I consider that this will be in the best interests of the company's creditors.

11. The company has three incomplete building contracts. I have arranged for the contracts to be completed and surplus funds from them will be received by the company. I believe there will be surplus moneys received by the company from all three contracts and the aggregate is likely to be in excess of $100,000. However, unless and until the three building contracts are completed and finalised, the exact amount of surplus moneys which will be received by the company will not be known. I consider that the three building contracts should be finalised in the next 14 to 21 days.

13. Until such time as the building contracts are completed and I am able to determine a final financial position of the company, I am not able to recommend to creditors a course of action for them.

14. Further, a return to the company's creditors will be dependent upon the amount of the surplus moneys from the three building contracts and this exact amount is not yet known.

15. Accordingly, I am not in a position to supply the company's creditors with sufficient and accurate information for them to determine the likely return to them under any proposal received from the directors. We consider a 30-day extension of the convening period for the second meeting of the company's creditors to be in the best interests of the company and the company's creditors."

9 Orders are not made under s 439A(6) as a matter of course. They should be the exception rather than the rule. The power to extend the convening period is a power that is not to be exercised frequently because of the need for these types of administrations to proceed speedily. Accordingly, an application for an extension of time should be supported by detailed information about the affairs of the company, so far as they are known, and the reasons for the delay in finalising the necessary information.

10 Were it not for the fact that the end of the convening period is looming, I would have adjourned this application and required the administrators to provide further affidavit material. I am aware that if the convening period is not extended the administrators will be required to give the requisite notices tomorrow. There is a responsibility on the directors of the company to provide a report as to affairs. Without this report, the administrators have little chance to comply with their statutory obligations to inform creditors.

11 There is paucity of detailed information in the affidavit as to the steps that the directors have taken to collate the necessary financial information. There is simply the bland statement that the directors propose to put forward a proposal for an arrangement. The proposal is contingent upon the surplus moneys being available from the finalisation of the three building contracts. Until such time as the amount of that surplus is known, the final financial position of the Company cannot be ascertained. That I can readily understand. Nonetheless, I would have expected some more detail to be given as to the steps that the directors had taken to fulfil their statutory obligations, they being the people who had instigated this deed of company arrangement.

12 Similarly, it is clear that the finalisation of the three outstanding building contracts is quite critical to whatever is to happen to the Company. The administrator again makes the rather bland statement that he considers that the three building contracts should be finalised in the next 14 to 21 days. I would have expected a little more detail as to the basis upon which that opinion is held.

13 Nonetheless, because of the shortness of time, I will make the order. This is not a complex administration. However, I do bear in mind the spirit of Division 6 at Part 5.3A of the Corporations Law which is to maximise the chances of a company continuing in existence.

14 If the meeting is not convened within the convening period and if the court refused to extend the period, the administration will come to an end. It is not clear what would happen to the three building contracts were the Company, for example, to go into liquidation. But it is, I think, a reasonable inference to draw that if the interests of creditors would best be served by the Company continuing in existence, then avoiding a peremptory end to the administration is desirable.

15 It is to be noted, in accordance with authorities such as Watson v Uniframes Ltd [1994] FCA 880; (1995) 13 ACLC 609 and Re Bernsteen Pty Ltd v Newmore Pty Ltd [1995] FCA 1577; (1995) 13 ACLC 1608, that once the court has extended the convening period once under s 439A(6), further extensions are not possible.

16 For that reason, and given that Mr Reilly has said in his affidavit that it will take 14 to 21 days to complete the contracts, it would not be desirable to abridge the extension below the 30-day period sought by the applicants. For all those reasons there will be an order extending the convening period by a period of 30 days.