MATTER : OLD PAPA'S HOLDINGS LTD (under administration) (ACN 079 764 319)

OLD PAPA'S CAFES PTY LTD (under administration) (ACN 092 571 125)

Corporations - Voluntary administration - Application to extend time to reconvene adjourned second meeting of creditors - Whether court has power to extend time - Principles for exercise of discretion

1 OWEN J: This is an application under s 447A of the Corporations Law, alternatively s 1322 of the Corporations Law, for an order to extend time for the plaintiff to convene the adjourned second meeting of creditors of Old Papa's Holdings Ltd and Old Papa's Cafes Ltd. Both companies are in voluntary administration and the plaintiff is the voluntary administrator of both.

2 The second meeting of creditors of each of Old Papa's Holdings Ltd and Old Papa's Cafes Ltd was held on 16 May 2001. The creditors passed a resolution adjourning the meetings to a date to the fixed. In the balance of these reasons I will refer to Old Papa's Holdings Ltd as "Holdings" and to Old Papa's Cafes Ltd as "Cafes".

3 The purpose of the adjournment of the second creditors' meeting was to allow litigation currently in this Court in the Expedited List to be pursued. The short title of the litigation is Gabstone Pty Ltd v Camisa Nominees Pty Ltd. Another company, Old Papa's Franchise Systems (which I will call "Franchise Systems"), is also a plaintiff in the action. The litigation concerns the validity of a lease where the company Franchise Systems is a lessee. Gabstone is the former lessee and assignor of the lease to Franchise Systems over a property at 17 South Terrace, Fremantle, from which Franchise Systems trades as Old Papa's Cafe. The company Franchise Systems holds the lease as bare trustee for Holdings. Holdings is also the holding company of both Franchise Systems and of Cafes.

4 The opinion of the plaintiff, who is the voluntary administrator, is that the future of all three companies is dependent on the outcome of the litigation. That opinion is expressed in pars 13 to 16 of his affidavit sworn in support of this application on 28 June 2001. Other factual material upon which this decision is based also comes from that affidavit.

5 The plaintiff proffers the opinion that, if the litigation is unsuccessful, the likely result is liquidation and there will be a shortfall to creditors. If the litigation is successful, that is, if the issue concerning the validity of the lease is determined in favour of the companies, there is likely to be a further investment of capital funds by the present shareholders. The companies would then be in a position to continue to trade under a deed of company arrangement or by reversion to control by the directors.

6 The effect of s 439B of the Law is that unless this order is made, the second meeting of creditors must be held by 15 July 2001. The first question is whether this Court has jurisdiction and power to extend the time for the adjourned second meeting of creditors beyond 15 July 2001. There is authority supporting the view that s 447A of the Law confers jurisdiction. I refer, among other cases, to Re Western National Earthmoving Corporation Pty Ltd (1997) 15 ACLR 1665 and to Re Ricon Constructions Pty Ltd (In Liquidation); ex parte MacDonald, unreported; SCt of NSW (Santow J); 16 December 1997.

7 There is authority to the contrary. I refer, among others, to Watson v Uniframes Ltd [1994] FCA 880; (1994) 55 FCR 556 and Re Bernsteen Pty Ltd v Newmore Pty Ltd [1995] FCA 1577; (1995) 13 ACLC 1608. I referred to those cases in an obiter statement in Re Allbuild Constructions Pty Ltd (Administrator appointed); ex parte Featherby (2000) WASC 227 at 15. However, as I indicated in a later case, Re Strickland [2000] WASC 302; (2001) 19 ACLC 328 at 12, the effect of Watson v Uniframes and Re Bernsteen would need to be reconsidered in the light of what the High Court said about the operation of s 447A in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. At [24], the Court made this comment in relation to the operation of s 447A:

"Section 447A is an integral part of the legislative scheme provided by Pt 5.3A. In its terms, it enables the making of orders which alter the way in which 'this Part is to operate in relation to a particular company'. That is, it permits the making of orders which would alter how s 439A is to apply. It is not right to seek to characterise s 447A as some general source of power to which resort cannot be had because to do so would 'circumvent' the statutory limitations upon the exercise of the power that is given by s 439A(6) to extend the convening period. So to characterise s 447A is to give to all of the other provisions of Pt 5.3A a fixed and unchanging operation in relation to all companies. Yet the evident legislative intention of s 447A is to permit alterations to the way in which Pt 5.3A is to operate."

8 In my view, there is no relevant difference between s 439B and s 439A which would make that dicta inapplicable to the way in which s 439B is to apply to a particular company. To that extent, it seems to me that the approach of Parker J in Re Western National and of Santow J in Re Ricon ought to be applied. Anything that I have said to the contrary in previous decisions ought now to be regarded as not correctly stating the Law.

9 In his written outline of submissions, the solicitor for the plaintiff has contended that there is a limitation on the operation of s 447A. It is in relation to accrued or vested rights arising from events which have occurred by reason of, or an event in, the voluntary administration, or after the voluntary administration has ended. That limitation is expressed in Australasian Memory at pars 30 to 32. I accept the submission.

10 This may, for example, indicate a legislative intent not to permit applications of this nature that are made outside the relevant period, among other things. That is not the case here. The application was lodged on 29 June 2001 and is to be dealt with prior to the expiry of the relevant period, namely before 15 July 2001. Thus there are no accrued rights which could be said to be affected.

11 There being power therefore, the question is whether the discretion should be exercised in favour of the extension of the period. In that respect I refer to what I said in Re Allbuild Construction about the proper approach to applications of this kind, noting of course that Re Allbuild dealt with an application under s 439A rather than s 439B. However, as I have already said, that seems to me not to make a material difference. In pars 5 to 7 of Re Allbuild, I set out, by reference in particular to the comments of Young J in Mann v Abruzzi Sports Club Ltd (1994) 12 ACLC 137, the proper approach to these applications. I refer also to what I said in par 9 of that judgment:

"Orders are not made under section 439A subsection (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."

12 Of course, the discretion falls to be exercised in the light of the obvious statutory intent. It seems to me that there is a compelling case for the exercise of the discretion in this case in favour of the extension. The plaintiff has set out in detail in the affidavit the position in which the companies find themselves and the steps that have been taken to bring the administration of the company to a position of certainty and finality as quickly as possible.

13 It seems to me that the fate of the companies is dependent to a large extent on what occurs in the civil litigation which is in the Expedited List. It would not be in the interests of the company, its creditors or its shareholders effectively to require those who control the destiny of the companies to have to make a decision which would have a lasting effect without being able to assess the future of the company in the light of the finalisation of the civil litigation. For those reasons it seems to me that there ought to be an extension of the period for holding the meeting.

14 As I have said in previous decisions, extensions ought to be for as short a period as the circumstances of the case will permit. That, too, is in accord with the obvious statutory intent. An extension through to 1 October 2001, which is what the plaintiff seeks, is a very long time indeed. An extension of that length is one that ought not to be granted without very serious consideration. However, the reality is that the trial of the civil proceedings has not yet been allocated a date and it could not be heard before August. The trial will have to follow its natural course and the trial Judge will need time to give reasons for decision. The parties concerned will then need a reasonable opportunity to consider the fate of the companies in the light of whatever decision is made. Bearing all of this in mind, it seems to me that in the peculiar circumstances of this case an extension to a date before 1 October 2001 is not in the interests of those concerned with the company or in the interests of justice generally.

15 For those reasons, I am prepared to make orders in the terms sought in the application dated 28 June 2001 and filed on 29 June 2001 extending to 1 October 2001 the time by which the plaintiff must reconvene the adjourned second meeting of creditors of Holdings and of Cafes.