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

GOLDEN REFINING CORPORATION LTD (Administrators Appointed ACN 002 771 066)

Corporations Law - Appointment of administrator - Convening period for meeting of creditors - Whether convening period should be extended - Turns on own facts

1 HASLUCK J: This is an application for an extension of the convening period pursuant to s 439A(6) of the Corporations Law.

2 The application is expressed in these terms: that the convening period within which the applicants must, pursuant to s 439A of the Corporations Law, convene the second meeting of creditors of Golden West Refining Corporation Ltd (Administrators Appointed) (ACN 002 771 066) be extended by 60 days pursuant to s 439A(6) of the Corporations Law.

3 I note that by par 2 of the application provision is made for an order that the applicants have liberty to convene the meeting of creditors referred to in par 1 before the end of the extended convening period.

4 The Corporations Law makes provision for the appointment of an administrator. Section 436A(1) provides that a company may by writing appoint an administrator of the company if the Board has resolved to the effect that in the opinion of the directors voting for the resolution that the company is insolvent or is likely to become insolvent at some future time and an administrator of the company shall be appointed.

5 Provision is made also for the convening of a meeting of creditors and the constitution of a committee of creditors.

6 Then, more immediately for present purposes, s 439A(1) provides that:

"The 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)."

7 Subsection (5) provides that the convening period is a period of 21 days beginning on the day when the administration begins. Subsection (6) provides for an extension of the convening period. The relevant provision reads as follows:

"The Court may extend the convening period on an application made within the period referred to in paragraph 5(a) or (b) as the case requires."

8 In this case the company in question, Golden West Refining Corporation Ltd, by an instrument of appointment of joint and several administrators dated 17 August 2001, appointed Garry John Trevor and Martin Bruce Jones of Ferrier Hodgson to be the company's joint and several administrators.

9 It follows from what I have just said about the convening period, as described in the provisions of the Corporations Law, that in this case the period of 21 days would expire on 6 September 2001. I note that this application is made within the convening period prescribed by the statute.

10 The grounds upon which the application is made are set out in the affidavit of Garry John Trevor, sworn 3 September 2001. There is no need for me to traverse all the details in that affidavit. It confirms that a first meeting of creditors was held on Friday, 24 August 2001 and that on that occasion a committee of creditors was appointed. It notes that the convening period for the second meeting of creditors with respect to GWRC expires on Thursday, 6 September 2001.

11 In his affidavit Mr Trevor then proceeds to describe the nature of the business operation of Golden West Refining and the circumstances leading up to the appointment of administrators.

12 The description is drawn together in pars 20 and 21 of the affidavit. Mr Trevor notes in par 20 that N M Rothschild & Son (Australia) Ltd is GWRC's only secured creditor. GWRC owes NMRS approximately $10,964,374.95, which is secured by a fixed and floating charge dated 30 August 1995. NMRS has not enforced the charge or appointed a receiver on the basis of having reached an agreed repayment schedule with GWRC which requires GWA to sell its interest in the joint venture to Normandy Ltd.

13 Mr Trevor then says, importantly for present purposes, at par 21:

"In summary the failure of GWRC's American subsidiary, HHRG, has forced GWA to sell its interest in the joint venture to Normandy Ltd in order to satisfy GWRC's secured NMRS."

14 Mr Trevor goes on to describe the steps taken since the appointment. It emerges from his review of the position that the question of a possible claim against auditors is being investigated which may permit the company to obtain some improvement in its financial position.

"Prior to my appointment as administrator of GWRC the directors of GWRC in conjunction with the American bankruptcy trustee of HHRG sought preliminary advice of American lawyers Tyler Cooper & Alcorn, counsellors at law in Connecticut, in relation to a potential claim against the auditors of GWRC and HHRG."

16 On 23 August 2001 Mr Jones and Mr Trevor received a preliminary report from Tyler Cooper & Alcorn in relation to the claim and related issues.

17 It emerges from the affidavit, and especially from exhibit GJT6, that the committee of creditors has been kept informed about this aspect of the matter and of the intention of the administrators to obtain an extension of the convening period.

18 The relevant circular by fax dated 31 August 2001 refers to the meeting of creditors on 24 August 2001 and to the appointment of the committee of creditors, being those to whom the fax is directed.

19 The fax goes on to say that on 23 August 2001 Messrs Tyler Cooper & Alcorn, counsellors at law in Connecticut USA, provided a preliminary opinion as to the prospects of Handy & Harman Refining Group Inc and GWRC succeeding in an action against the group's auditors Messrs Price Waterhouse Coopers and the predecessor firm Coopers and Lybrand. The opinion, supported by some annexures, runs to some 40 pages and whilst it was overall positive it raised various questions which require further advice and research before one could conclude as to prospects, costs and timing in the litigation.

20 Mr Trevor says also that before he will be in a position to frame a deed of company arrangement proposal or to speak meaningfully to creditors he will need to take further advice both here in Australia and in the United States in relation to that matter.

21 It is against this background that he comes to the summary of the position founding this application for relief. The summary is to be found at par 36 of his affidavit where he says:

"I believe that granting an extension of time for convening the creditors' meeting is in the best interest of the creditors of GWRC. Without an extension of the convening period Mr Jones and I will not have before us sufficient information to properly determine what is the best course of action for the creditors with respect to the claim. Particularly, without our own legal advice and proper investigation of the claim any recommendation we might make at the second creditors' meeting will not be fully informed nor based on the best possible information."

22 Mr Trevor goes on to say that for the reasons described in his affidavit and in that summary he believes an extension convening period would ensure a better return for creditors than would result on an immediate winding up of GWRC.

23 The principles upon which applications of this kind are to be dealt with are usefully reflected in some recent decisions of Owen J in this Court. I refer particularly to the case of Re Allbuild Construction Co Pty Ltd; Ex parte Featherby & Anor [2000] WASC 227 and to the subsequently decided case of Re Port Kennedy Resorts Pty Ltd (Administrators Appointed) [2000] WASC 302.

24 Those cases suggest that orders for an extension pursuant to s 439A(6) of the Corporations Law are not granted as a matter of course. They should be regarded as the exception rather than the rule. How to extend the convening period is a power that is not exercised frequently because of the need for these types of administrations to proceed speedily.

25 It follows that an application for an extension of time needs to be supported by detailed information about the affairs of the company so far as that is known and the reasons for the delay in finalising the necessary information. The affidavit material should also explain why a particular period of extension has been sought.

26 The decided cases I have just mentioned also indicate, however, that the discretion whether or not to extend the time is to be exercised bearing in mind the spirit and object of Div 6 of Pt 5.3A of the Corporations Law; namely, to maximise the chances of the company continuing in existence or, alternatively terminating its existence in the most appropriate way.

27 It is against that background that I come to decide the present application as to whether an extension should be granted.

28 In addition to the factual foundation for the application I have been told by counsel that the response to the fax circular to the committee of creditors was not to raise any opposition to the proposed extension. The matter was discussed with a Mr David Martino as the representative for Credit Suisse, being one of the creditors. It seems that he raised a query as to whether the proposed period of 60 days was necessary. I am told and I accept that when it was drawn to his attention that par 2 of the proposed orders allowed for the earlier convening of a meeting, if the advice required to clarify the legal position could be obtained earlier, his doubt was satisfied.

29 Thus, on the materials before me, I am not conscious of any strong or vigorously argued objection to what is proposed. It seems to me, having regard to the principles I have reviewed, that one must be careful to balance the need for a sense of expedition in the administration against the requirement that the prospects of the company improving its position, or perhaps even continuing in business, be kept in mind as a countervailing factor.

30 The affidavit of Mr Trevor contains a full explanation as to how it comes about that this application is made. It does seem from what is presented to me that there is the potentiality of a claim in law of the kind I referred to a moment ago being advanced. If that claim is pressed then there is a prospect that that will represent an improved position as far as the company and its creditors are concerned.

31 The nature of the claim involving a prospective claim against auditors strongly suggests that there will have to be a careful evaluation of the documents and materials bearing upon such a claim. It seems to me in that context that a period of 60 days as a proposed period of extension is an appropriate period of time so that a review of the legal situation can be made.

32 For those reasons I do consider that the ground for granting an extension has been made out and I will proceed to make orders in the terms sought in the application for extension dated 3 September 2001.