Re Dimidium Group Pty Ltd [2010] NSWSC 1086

1 I have before me an application under s 439A(6) of the Corporations Act 2001 (Cth) by Mr Crowe-Maxwell and Mr Lord in their capacity as administrators in the Part 5.3A administration of each of nineteen companies. 2 Those companies were described in submissions as constituting a "quasi-group". This is because there is a certain degree of commonality of ownership, directors and administration, even though there is no traditional group structure in which one company acts as a holding company and the other are subsidiaries of it. 3 The interrelationships I have mentioned are accompanied by financial connections in the form of numerous intercompany loans, the effect of which is, by and large, that an appreciation of the separate financial position of any one company depends on an appreciation of the financial position of one or more of the others of them, with the result that the separate financial circumstances of one company will be able to be appreciated and understood in full only when the overall financial position is clear. 4 That said, the circumstances of the group, looked at as a whole, are not of particularly great complexity. The companies carried on a business or businesses of conducting caravan parks in Queensland. There were fourteen sites, each of which was owned by a separate company. The other five companies in the group conducted complementary activities, including, in one case, as a "banker" to the group as a whole. 5 In the second half of August 2010, secured creditors of fourteen of the companies moved to appoint receivers and managers of the assets of the companies following default under securities. As a result, thirteen of the caravan parks are in the hands of receivers. The fourteenth receivership relates to one of the companies that does not own a caravan park. 6 On 27 August 2010, the directors of each company caused the company to enter Part 5.3A administration. One of the caravan sites is not in the hands of receivers but is owned by a company now in administration, as all the companies are. 7 The administrators' desire to see the convening period for the second meeting of creditors extended comes from the view they take about the most advantageous realisation of assets for the benefit of creditors. Under the timetable prescribed by Part 5.3A without extension, it would be necessary for notice of the second meeting of creditors to be given by 24 September 2010 and for the meeting to assemble not later than 1 October 2010. 8 The administrators seek an extension of six months. They do so in circumstances which are unusual and where I am satisfied there are likely to be significant advantages to creditors in a period of administration longer than would otherwise be the case. 9 The material that has been put before the court shows that the secured creditors account for debts of $37,218,000. Total debts inclusive of the figure just mentioned are said to be $49,788,000. Valuations put into evidence, however, suggest that the property portfolio has a value of some $53,460,000. Thus, even allowing for expenses of realisation, receivership and administration, there must be prospects of creditors being satisfied in full in due course and a surplus remaining. This may indicate, although it is obviously too early to come to any firm view, that this is one of the unusual cases in which the ultimate outcome of voluntary administration will be simply that the administration ends. 10 Whether that does turn out to be the situation will, however, have to be assessed in due course on a company by company basis. The pattern of intercompany indebtedness to which I have referred leaves the possibility that one or more companies will be able to pay debts in full, but others will have a shortfall. It is in order to ascertain and advise creditors about the likely eventual outcome that the administrators wish to have additional time for the preparation of the s 439A report and therefore the convening of the second meeting of creditors. 11 The administrators have been in contact with the receivers appointed by the secured creditors. They were informed that the receivers are at the moment operating the caravan parks but will soon begin a marketing campaign. The receivers are investigating the possibility of selling the caravan parks as a group on a going concern basis. 12 It is against this background that the administrators seek an extension of the convening period by six months. 13 Approached in isolation, six months is a long period, but it must of course be put into context. The administrators have provided that context by explaining that they have allowed a period of six weeks for the marketing campaign already foreshadowed by the receivers (in which one imagines the administrators would participate as to the one site under their control) followed by eight weeks for interested parties to conduct due diligence leading up to contracts for sale. A further four weeks for settlement and receipt of proceeds is then allowed which, all being well, would see the receivers retire; and then a further period of four weeks or so for the administrators to assess the assets position following completion of the sales. During that last period, of course, the administrators would also expect to come to firm conclusions about the financial position of each individual company and formulate a recommendation for each company's creditors for the purposes of the second meeting. 14 The principles to be applied in this kind of case have been noted on a number of occasions. As Mr Lyne has pointed out in his submissions, a useful summary of the position is provided in the judgment of Lindgren J in Re Austcorp Group Limited [2009] FCA 636 at paragraph 18: "The overlapping considerations affecting the exercise of the discretion whether to extend the convening period may be summarised as follows: (a) the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that creditors be fully informed about the company's position as early as possible and have an opportunity to vote on its future as soon as possible: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J) at 612; Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 (Owen J) at [5]; (b) the function of the Court is to strike an appropriate balance between the legislature's expectation that the administration will be a relatively swift and summary procedure, 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 return for shareholders: Re Diamond Press Australia Pty Limited [2001] NSWSC 313 (Barrett J) at [10]; Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77 (Lindgren J) ( Pan Pharmaceuticals ) at [42]; Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 (Austin J) at [5]; (c) the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration : Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 (Barrett J) ( Fincorp ) at [18]; (d) a particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others: Fincorp 62 ACSR 192 at [4]; Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 (Jacobson J) at [9]; (e) the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation : Pan Pharmaceuticals [2003] FCA 598; (2003) 46 ACSR 77 at [41]; ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No.7) [2009] FCA 454 (Emmett J) ( ABC Learning Centres) at [28]; (f) it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended: see the order made in Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446 ( Daisytek ) at [10]-[18]." 15 It is, in the final analysis, for the court to engage in a balancing exercise. It must have regard to the statutory expectation that administration will proceed in a relatively summary way against the objective of Part 5.3A as stated in s 435A, which is to achieve a better return for creditors and members than would be produced by immediate winding up. 16 The circumstances in which the receivers are in control of most of the real property assets and have indicated an intention of proceeding towards sale in the short-term suggests that it will be beneficial to the several administrations for the administrators to have the time they seek to perform the tasks I have outlined. 17 Upon an application of this kind, the court must pay attention to the fact that the eventual outcome will be delayed and that this may rebound to the disadvantage of some people, bearing in mind in particular the moratoriums that Part 5.3A imposes. These considerations are covered in the evidence. It has been made clear that every creditor who attended the first meeting of creditors on 7 September 2010 was informed of the administrators' intention to make an application of this kind and that none expressed any objection. Likewise, the receivers appointed by the two secured creditors have been informed and have said that they understand why the application will be made. There are two other secured creditors not so far mentioned. They have been informed. Neither has expressed any objection. There is reference in the evidence to one property which is held under lease. The lessor is, of course, bound by the Part 5.3A restrictions on resort to remedies, however, the property concerned is the site of one of the caravan parks being operated by the receivers with the result that the lessor is receiving rent and the position of that lessor does not give cause for concern. 18 In the whole of the circumstances of the case and recognising that they are unusual circumstances where, as I have said, delay may work ultimately to the significant benefit of creditors, I will make the orders sought. 19 I make orders three to nine in the short minutes of order which I initial and date. The exhibit ACM 1 may be returned. **********

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