BETWEEN : REWARDS PROJECTS LTD (ADMINISTRATORS APPOINTED)

REWARDS GROUP LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED)

REWARDS LAND PTY LTD (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED)

REWARDS MANAGEMENT PTY LTD (ADMINISTRATORS APPOINTED)

LANCINO CANDACE NOMINEES PTY LTD as trustee for THE S L DOBSON FAMILY TRUST, THE CRAIG DOBSON FAMILY TRUST and THE LACHLAN DOBSON FAMILY TRUST

NOONGAR PROPERTY HOLDINGS PTY LTD as trustee for THE NOONGAR PROPERTY TRUST

Corporations Law - Application by administrator for an extension of time to give notice to lessors - Turns on own facts

First Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Second Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Third Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Fourth Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Sixth Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Seventh Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Eighth Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Ninth Plaintiff : Mr P D Crutchfields SC & Ms E C Hensler

Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270

Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing Pty Ltd [2003] NSWSC 642

1 MASTER SANDERSON: On 16 May 2010 the seventh to ninth plaintiffs were appointed administrators of the first to sixth plaintiffs and other companies. Together these companies are referred to in the affidavit material as 'the Rewards Companies'. Since then the administrators have been investigating the Rewards Companies' business, property and affairs. Those investigations are not yet complete. It is clear that the administration of the Rewards Companies will be complex. This emerges from an affidavit of Mr Martin Bruce Jones sworn 20 May 2010.

2 Mr Jones is the seventh plaintiff and one of the joint administrators. In his affidavit he refers to the following matters:

(a) the Rewards Companies manage 45 managed investment schemes which are registered managed investment schemes under ch 5C of the Corporations Act 2001 (Cth) (the Act);

(b) the schemes have approximately 8,600 members who are referred to as growers;

(c) there are scheme properties in three states namely, Western Australia, Victoria and New South Wales;

(c) there are at least 13 landlords for the scheme properties; and

(d) there are at least 14 lessors of scheme vehicles, plant and equipment.

3 Section 443B(2) of the Act is in the following terms:

Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period:

(a) that begins more than 5 business days after the administration began; and

(b) throughout which:

(i) the company continues to use or occupy, or to be in possession of, the property; and

(ii) the administration continues.

4 Under s 443B(8) it is open to the court to excuse an administrator from liability where the company continues to occupy leased premises beyond the five day period. By this application the administrators sought a 10 day extension of the period from the date of their appointment. After hearing submissions on the matter I made an order effectively extending the period but on terms. I will detail these terms below.

5 This matter was brought on at short notice. The first defendant was represented as were the thirteenth and fourteenth defendants. Counsel for the first and fourteenth defendants did not object to the orders being made. The thirteenth defendant is the lessor of a property at 50 Colin Street, West Perth leased to the Rewards Companies. They also lease to the Rewards Companies 12 car bays associated with the Colin Street premises. The thirteenth defendant did object to the orders sought by the plaintiffs.

6 It is clear that s 443B(2) of the Act does not apply if a court makes an order excusing the administrators from liability under s 443B(8): see Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing Pty Ltd [2003] NSWSC 642 (this case concerned similar provisions in relation to controllers set out in s 419A of the Act).

7 Section 443B(8) is in its terms unconfined. Section 447A of the Act confers on the court a power to make orders, as it thinks appropriate, about how pt 5.3A of the Act should operate in relation to a particular company. The power conferred by s 447A includes the power to alter times fixed by a provision of pt 5.3A: see Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270.

8 Section 435A of the Act sets out the objects of pt 5.3A. Essentially this part of the Act provides for the business, property and affairs of an insolvent company to be administered in a way that:

1. maximises the chance of the company, or as much as possible of its business, continuing in existence; or
2. 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.

9 As the administrators are administrators of a responsible entity of managed investment schemes they submitted, and I accept, they must consider the interests of all creditors not just members of the schemes. The administrators maintain that if they were to give notice under s 443B(3) of the Act a lessor may seek to treat that notice as notice of repudiation of the lease. If this step were taken it would prejudice the administrators' ability to achieve the objects of pt 5.3A of the Act.

10 The administrators also maintained, and again I accept, that deciding to give notice under s 443B(3) of the Act or not to give notice before completing their assessment of the Rewards Companies' business property and affairs may prejudice their ability to obtain funding and to achieve the objects of pt 5.3A of the Act.

11 It was the administrators position that a short extension would not significantly prejudice the interests of the landlords and the lessors. The thirteenth defendant did not accept that was so. They maintained they would be significantly prejudiced.

12 The thirteenth defendant's position was set out in a letter sent by accountants Deloitte Touche Tohmatsu to the administrators on 20 May 2010. This letter appears as annexure KG3 to an affidavit of Kieran Chu Foo Kuok sworn 21 May 2010 and filed in support of the application. The accountants note that both the lease for the Colin Street premises and the licence for the car park are in standard terms. They point out the thirteenth defendant holds a bank guarantee in an amount of $112,840.03. As at 15 May 2010 the liability of the Rewards Companies to the thirteenth defendant stood at $79,187.67. If the extension were granted the liability of the Rewards Companies to the thirteenth defendant would increase by $34,000 to $113,000. The concern of the thirteenth defendant was that the security would eroded so that at the end of any extended period the liability of the Rewards Companies to the thirteenth defendant would cover the full amount of the bank guarantee without taking into account any costs and expenses.

13 It has to be acknowledged the thirteenth defendant had grounds for opposing this application. Their concerns are valid. It is necessary to balance the interests of all parties to make the best of what is undoubtedly a bad lot.

14 On that basis I was satisfied it was appropriate to make the orders. The administrators of companies which are responsible entities of managed investment schemes face a daunting task. Senior counsel described that task as being akin to unwinding the contents of a can of spaghetti. It is difficult to imagine a more accurate description of what confronts an administrator in a case such as this. In my view it is not a task which could be completed within a five day time frame. To force the administrators to comply with that time frame would mean there was a real possibility the administrators would not be in a position to determine what steps were in the bests interests of all parties including the creditors.

15 Mindful of the thirteenth defendant's concerns, the plaintiffs proposed a form of orders which offered some protection to the lessees in the event notices under s 443B(3) of the Act were not given.

1. The time for service of this application be abridged so that the application can be heard as a matter of urgency.
2. Service of this application and the affidavits filed herewith may be effected by electronic or facsimile transmission.
3. Pursuant to s 447A of the Act, pt 5.3A of the Act is to operate in relation to each of the first to sixth plaintiffs as if, subject to order 5 of these orders, s 443B(2)(a) of the Act provided in relation to each of the said companies a period 'that begins after Tuesday, 8 June 2010'.
4. Pursuant to s 447A of the Act, pt 5.3A of the Act is to operate in relation to each of the first to sixth plaintiffs as if s 443B(3) of the Act provided in relation to each of those plaintiffs:

By Tuesday, 8 June 2010, the administrator may give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise its rights in relation to the property.

1. Unless the seventh to ninth plaintiffs give notice under s 443B(3) of the Act by Tuesday, 8 June 2010, they shall be liable to the relevant owner or lessor for so much of the rent or other amounts as would have been payable to that owner or lessor if these orders had not been made.
2. The parties have liberty to apply.
3. The costs of this application be costs in the administrations of the first to sixth plaintiffs.