RE REID GROUP PTY LTD (ADMINISTRATORS APPOINTED); EX PARTE KIRMAN & BRAUER [2017] WASC 219 (2 August 2017)

2 The application is supported by Mr Kirman's affidavit of 1 August 2017. Mr Kirman has been a specialist insolvency practitioner for some 18 years. He is a registered liquidator and an official liquidator. The company owned the business of the Matisse Beach Club in Scarborough. It is the lessee of the premises and the holder of a liquor licence. A restaurant, bar, and nightclub were conducted on the premises, which include an indoor pool. The business is no longer operating and it currently has no employees.

3 The plaintiffs seek the extension order on the basis that:

(1) it is needed to effect an orderly process for the disposal of the company's business (particularly its leasehold interest and liquor licence) in a manner directed at maximising the return to creditors; and

(2) as that process is underway but not completed, although it would be possible for the plaintiffs to prepare the requisite report to creditors, the value of such report would be limited. A properly prepared and informed recommendation should be possible once the position as to the sale of the business is clarified. The extension will permit such course to be undertaken.

4 The objects and scheme of pt 5.3A of the Act were outlined in Flynn v Theobald[1] and in Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd.[2] In relation to s 439A(6), the following principles are established, as collected by Beech J in Home Art Building Group:[3]

(1) The short time frames are an element of the scheme of the Act, the purpose being that creditors should be fully informed about the company's position and have the opportunity to vote as soon as possible.

(2) However, the prospects of a better return to creditors may outweigh the expectation and desirability of prompt resolution. The exercise of power under s 439A(6) involves a balancing of these considerations.

(3) In considering an application for an extension, the court must take into account the detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors, and others.

(4) An important question on such an application is whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by s 439A(4) to inform creditors as to the appropriate choice between the options of a deed of company arrangement for the administration to end or for the company to be woundup.

(5) Any extension should be for no longer than is necessary for an informed decision to be made as to whether to enter into a deed of company arrangement, windup the company, or end the administration.

5 The categories of situations in which extensions of time have been granted have been the subject of various decisions: in particular, see Re Riviera Group Pty Ltd[4] and Parbery, Re NewSat Ltd.[5] It is clear that the reasons the extension is sought in this case fall within recognised categories for such relief.

6 Mr Kirman's affidavit provides evidence as to the steps undertaken to sell the assets of the company. Importantly, the sale process is advanced and the plaintiffs are at the point of preparing a draft sale agreement with one of the bidding parties. Bearing in mind the nature of the business, it is not surprising that there is significant value in the lease and the liquor licence.

7 Whether or not the sale completes will make a significant impact on the creditors. One reason is it may prevent the company from a make-good obligation under the lease which would be potentially expensive, particularly in light of the indoor pool. It is clear, in my view, that the sale process should continue as smoothly as possible, and that the plaintiffs are actively engaged in that process.

8 I add that the plaintiffs have successfully negotiated for a rentfree period with the lessor while the negotiations with the bidder continue. The lessor supports the application, an important step on its part, in light of the limits on the restrictions imposed by s 440B of the Corporations Act.

9 Mr Kirman's evidence discloses that considerable work has been undertaken since his appointment. The need for an extension is not the result of any lack of activity on his part.

10 The secured creditor supports the application. The plaintiffs disclose that there are two employees whose interests are potentially prejudiced in that any access to the Entitlements Guarantee Scheme may be delayed, if the company were to end up in liquidation. However, the plaintiffs say that if the company enters liquidation there will only be a short delay in the entitlement of these two employees to submit those claims. I do not consider this to be undue prejudice in the circumstances.

11 Of some concern is the lack of information about the position of other unsecured creditors on this application. The plaintiffs have not ascertained their position, although I am told some attempt was made to contact one of the largest of the unsecured creditors, being the Australian Taxation Office. Whilst I understand that this application has been brought on an urgent basis, it is usual in such applications to see some evidence of telephone or other contact with at least larger unsecured creditors to inform them of the application and ascertain their position.

12 The importance of the position of unsecured creditors was highlighted by Beech J in Home Art Building Group.[6] In that case, the application was adjourned so that the applicants could adduce further evidence on that point.

13 The plaintiffs say the unsecured creditors are 'compensated' if the court orders that the plaintiffs send notice of the orders and a circular to all creditors and grants any interested person liberty to apply.

14 There is no doubt that such an order should be made. However, I do not see it as 'compensation' in that an interested creditor is in effect compelled to approach the court rather than simply expressing their view in advance to the plaintiffs. However, in the circumstances of this case, I am content to proceed despite the fact there is uncertainty as to the attitude of the unsecured creditors to the application. I do not consider there is material prejudice to the unsecured creditors.

15 In this context, I take into account that the risk to creditors is reduced in that the company is not trading, it has no current employees, its assets have been secured by the plaintiffs, the rent-free period has been secured, and the sale process clearly appears to be in the interests of the secured creditor, and, should there be funds available, the unsecured creditors.

16 I also see value in a report being prepared for creditors that deals with the sale process and contains opinions and recommendations based on more concrete information than is currently available to the plaintiffs.

17 Taking into account the value in the sale process continuing, the value in there being time for a proper report to be prepared, and that the length of the extension sought is not unreasonable, I am satisfied that orders should be made in the terms which have been sought.

[1] Flynn v Theobald [2008] WASC 263 [36] [53] (Beech J).

[2] Re Windimurra Vanadium Ltd & Midwest Vanadium Pty Ltd [2009] WASC 71 [2] [9] (Beech J).

[3] Cameron Shaw and Richard Albarran in their Capacity as Joint and Several Administrators of Home Art Building Group Pty Ltd (Administrators Appointed) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18] (Beech J) (Home Art Building Group).

[4] Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 [13].

[5] Parbery, Re NewSat Ltd [2015] FCA 435 [63].