MATTER : Section 439A(6) of the Corporations Act 2001 (Cth)

Chemeq Ltd ACN 009 135 264 (Administrators Appointed) (Receivers and Managers Appointed)

Corporations Act 2001 (Cth) - Meetings of creditors - Application to extend convening period for meeting of creditors - Whether circumstances justify extension of time - Whether circumstances justify unusually lengthy extension - Turns on own facts

Corporations Act 2001 (Cth), s 435A, s 436A, s 439A, s 447A

1 LE MIERE J: In this matter the plaintiffs have applied under s 439A(6) of the Corporations Act 2001 (Cth) ("the Act") for an order extending the period in which to convene a meeting of creditors of Chemeq Ltd (Administrators appointed) (Receivers and managers appointed) ("the Company"). By s 439A(1) "[T]he 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 By virtue of subsection (5)(b) the relevant convening period is 21 days from 30 May 2007, that being the date that the plaintiffs were appointed joint and several administrators of the Company by resolution of directors of the Company pursuant to s 436A of the Act. By s 439A(6) the Court may extend the convening period on an application made with the 21 day period referred to in s (5)(b). This application has been duly made within that time.

3 Nothing in s 439A(6) sets out the criteria which should be met in exercising the discretionary power to extend the convening period. However, the object of Pt 5.3A of the Act in which s 439A appears is relevant. Section 435A provides that:

"The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company."

4 The Explanatory Memorandum to the Corporate Law Reform Bill 1992 noted that while the Court is empowered under s 439A(6) to extend the convening period:

"[I]t is not expected that this power will 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."

5 There is tension between ensuring that creditors are fully informed and ensuring that the voluntary administration is completed in a short time. There may be circumstances where the administrators are unable to properly investigate the affairs of the company and form an opinion on the options available to creditors, including an opinion as to which option is in the best interests of the creditors, within the period specified in s 439A(5) of the Act. That might be the case where the affairs of the company are particularly complex or for some other reason.

6 The circumstances said to justify an extension of time are set out in an affidavit sworn by one of the administrator plaintiffs, Mr McMaster, on 14 June 2005. I refer in particular to par 11 to par 25 of that affidavit. Those matters have been further elaborated upon by Mr McMaster in an affidavit sworn on 18 June 2007. I refer in particular to par 8 to par 12 of that affidavit. Mr McMaster says in that affidavit, amongst other things, the following:

"9. I understand that the directors of the Company are yet to produce a Report as to Affairs ... pursuant to section 438B of the Act. To the best of my knowledge, the directors are awaiting information from the receivers before the [Report as to Affairs] can be produced.

1. The position of the Receivers is made more difficult as the principal assets of the Company comprise of intellectual property rights which, in some instances, are yet to be commercialised. Accordingly the value of these intangible property rights cannot be determined in a short period of time and any valuation of such rights could not be completed without the assistance of external experts.
2. At this early stage the Receivers are unable to inform me of the likely duration of the receivership. My own view, based upon the nature of the assets and my previous experience in matters of this kind is that it would be reasonable to allow the Receivers 4 - 5 months to discharge their obligations.
3. In my professional judgment it is necessary that the Receivers be allowed to complete their investigations undisturbed by any undue pressure from the Administrators. In this way the parties can discharge their respective obligations most efficiently, in addition to limiting the possibility of any disputes arising between those parties."

7 I am satisfied that it is proper to grant an extension of time. The real question in this case is the period of extension. The plaintiffs seek an extension for a period of almost six months. An extension of the convening period of that order is unusually long. (See for example the discussion at [9] of Re AFG Insurances Ltd [2002] NSWSC 803, where the longest example of an extension cited is an extension of five months.) Such an extension should only be granted in unusual circumstances. I am satisfied that an extension of that order should be granted in the unusual circumstances of this case.

8 The receivers are in possession of the company's books and records, although the plaintiffs have a statutory right of inspection and copying. The assets of the company are principally intellectual property and contractual rights. In a letter of 11 June 2007 which is annexure BKM2 to his affidavit of 18 June 2007 Mr McMaster wrote to the representatives of the secured creditors. In that letter Mr McMaster said, amongst other things:

"As discussed, by using the Voluntary Administration ('VA") provisions of the Corporations Act 2001 ('the Act'), Chemeq Limited can be recapitalised (subject to certain conditions being met) for the benefit of creditors and shareholders. We attach a Recapitalisation Discussion Paper setting out the broad terms of the Recapitalisation process for your information.

The option to pursue a recapitalisation only exists whilst the Company remains in VA. The Act provides that the 'standard' period of a VA is 28 days unless this period is extended by either the consent of the creditors or an order of the Court. Creditors can only extend the period for a further 60 days whilst the Court has discretion to extend for a longer period. Recently, we have been involved in several examples of the VA period being extended for up to six (6) months.

We recommend that an extension of the VA period be sought via a Court application. We further recommend that an extension for a period of six (6) months be sought with the ability to call a meeting of creditors within that period if all matters are resolved.

The salient reasons for our recommendation include:

• A recapitalisation can preserve/realise significant value;
• Any potential purchaser of the assets may require access to the listed entity;
• The Receivers and Managers realisation program will require considerable time;
• Due to the complexity of aspects of our investigations and that the receivers and Managers have control of the books and records, our investigations will not be completed within the 'standard' 28 day period; and
• The 60 day extension that can be approved by creditors is insufficient and there is no mechanism to ask creditors for a further extension."

9 Importantly, the persons principally affected by the extension of the convening period are the bond-holders. Mr McMaster has opined that there will be sufficient funds to pay other significant creditors, that is, employees, in full. This application is supported by the bond-holders. Indeed, they are funding the application. The application is supported or at least not opposed by the receivers. That is almost a matter of course because the receivers were appointed by the bond-holders.

10 There are other creditors who are referred to in the affidavit of Mr McMaster sworn on 18 June. In particular in par 13 to par 18 of that affidavit Mr McMaster refers to those creditors who are three in number and who have not yet lodged proofs of debt, but it appears that they are potential creditors for what are comparatively small amounts compared with the amounts owing to the bond-holders.

11 That is not to overlook or diminish the interests of the other creditors which must be taken into account. However, in the unusual circumstances of this case it is proper and appropriate to grant an extension to the convening period of the duration sought, which is an extension through to 7 December, notwithstanding that that extension is almost six months.

12 The meeting must be convened within five days of the expiry of the extended period. In par 26 of his affidavit sworn on 14 June Mr McMaster swore:

"It is also possible that I may be able to call the meeting before the proposed extended date, if I am satisfied that we have completed all of the required tasks."

13 That proposal has led to the applicants seeking before me a further order in these terms:

"The second meeting of the creditors as referred to in paragraph 1 [seeking an extension to 7 December 2007] may be held at any time after 20 June 2007 during the extended convening period and the period of 5 business days thereafter, in spite of s 439A(2) of the Corporations Act."

14 I am satisfied that the Court has power to make such an order. The power derives from s 447A(1) of the Act: see the judgments of the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 and also BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 46 ACSR 677. I am satisfied that it is proper to make such an order. If the receivers are able to complete their tasks within sufficient time that the administrators can complete their investigation and form an opinion as to recommendations that they should properly make to the creditors before 7 December, then it is proper that the creditors' meeting should be held at an earlier time. Accordingly, I will make orders in terms of the plaintiffs' minute of proposed orders dated 18 June 2007.