Robertson, in the matter of Miss Chu Pty Limited (Administrators Appointed) [2015] FCA 31

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 63 of 2015

BETWEEN: JANNAMARIA ROBERTSON AND RAHUL GOYAL IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF MISS CHU PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 137 818 510) AND MISS CHU MANLY PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 152 188 353)

MISS CHU PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 137 818 510)

MISS CHU MANLY PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 152 188 353)

JUDGE: FARRELL J DATE: 29 JANUARY 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application by the first plaintiff (Administrators) for orders pursuant to ss 439A(6) and 447A of the Corporations Act 2001 (Cth) (Act) to extend the period within which they must convene a meeting of the creditors of Miss Chu Pty Limited (administrators appointed) (Miss Chu) and Miss Chu Manly Pty Limited (administrators appointed) (Miss Chu Manly) (together the Companies). The Administrators were appointed as administrators of the Companies on 23 December 2014 by resolution of the sole director, Ms Nga Chu. Ms Nga Chu is also the sole shareholder of each of the Companies. 2 One of the Administrators, Mr Rahul Goyal (Mr Goyal), affirmed affidavits in support of the application on 28 January and 29 January 2015. 3 Mr Goyal says that the convening periods in respect of the Companies will expire on 30 January 2015 unless an extension is obtained pursuant to s 439A(6) of the Act. The Administrators seek an extension of the convening period until midnight on 30 April 2015. 4 Following a hearing on 29 January 2015, I made the orders set out at the commencement of these reasons. These are my reasons for making those orders.

Nature of the business and assets 5 Miss Chu is a food retailer which owns the "MissChu" trademark and operates outlets in Sydney, including: (1) a Miss Chu outlet in Bourke Street in Darlinghurst; (2) a Miss Chu outlet at Bondi; (3) a Miss Chu "pop-up" at David Jones in Market Street; (4) a Miss Chu outlet at George Street; (5) a Betty Chu outlet at the Marina at Elizabeth Bay; (6) a full commercial kitchen in Riley Street in Darlinghurst; and (7) a head office in Potts Point. 6 There is a Miss Chu outlet at Manly operated by Miss Chu Manly. 7 All outlets (the Sites) are leased or licenced to the Companies. 8 Miss Chu also provides catering, takeaway and delivery of food via www.misschu.com.au and a Miss Chu iPhone and Android App (the App), operating from the commercial kitchen at Darlinghurst. 9 The activities of the Companies are collectively referred to in these reasons as the Business. 10 At the time of the Administrators' appointment, there was a proposal to open outlets at Balmain and Double Bay. The Administrators have not proceeded with those outlets and have not exercised any rights in relation to them. 11 Miss Chu also owns 80% of the shares in Miss Chu Domain Pty Ltd (Miss Chu Domain), which holds various intellectual property used by Miss Chu including the domain name www.misschu.com.au, the App and an exclusive trade mark licence for all on-line activity. The residual 20% of the shares are owned by Miss Chu Victoria Pty Ltd (Miss Chu Victoria) which operates the Miss Chu outlets in Victoria. 12 Miss Chu also owns 35% of the shares in Miss Chu Victoria, with the residual 65% of the shares being owned by Machado Enterprises Pty Ltd (Machado). Counsel for the Administrators advises that Machado is not owned by Ms Nga Chu. 13 Neither Miss Chu Domain nor Miss Chu Victoria is in administration. 14 By reason of the appointment of the Administrators, Machado has purported to exercise or cause to be exercised pre-emption rights pursuant to the Shareholders Agreements in place in respect of each of Miss Chu Domain and Miss Chu Victoria. Mr Goyal is in discussion with Machado in relation to the validity of the exercise of these rights. 15 Ms Nga Chu also has interests in other entities including entities that operated a retail outlet in London. Those entities are not in administration and are not owned by Miss Chu. 16 The first meeting of creditors was convened on 7 January 2015. It was advised that the Companies also owned plant and equipment that is required to run the Business, a loan to the UK operations of $900,000 and a 2013 Chris Craft Launch Boat. 17 The Administrators have not advised creditors, and they have not advised the Court, of the likely value of the Companies' assets on the basis that it is commercially sensitive having regard to the proposed sale campaign for the Business.

The Companies' employees 18 At the time the Administrators were appointed, Miss Chu had approximately 206 employees. As at 28 January 2015, Mr Goyal says that there are 44 permanent employees, 97 permanent employees have become casual employees, and 65 employees have been made redundant. The Administrators are meeting (and will continue to meet) post appointment employee entitlements.

The Companies' creditors 19 According to Mr Goyal, as at the appointment of the Administrators, the total liabilities of the Companies were $4.3 m (not including contingent liabilities). The Companies' creditors were identified as being divisible into four categories: (1) Secured creditors: These are identified in Personal Property Securities Register searches and include the Commonwealth Bank of Australia with a claim of approximately $250,000, ACN 161 130 696 which asserts a claim of $74,000, and various equipment lessors asserting claims of approximately $65,000; (2) Current and former employees: Employee entitlements total approximately $1.08 m according to the books and records of the Companies. (3) Landlords of the Sites and the proposed Balmain and Double Bay sites: The landlords generally have the benefit of bank guarantees. The landlord of the proposed Balmain site has lodged a claim of $742,500. The landlord of the proposed Double Bay site has not lodged a claim at this point; and (4) Unsecured creditors: There are trade and other creditors not included at (1) to (3) above totalling approximately $3.25 m according to the books and records of the Companies, which include debt owing to tax authorities totalling approximately $1.39 m. Sale of the Business 20 The Administrators have continued to operate the Business, including the payment of suppliers in respect of post-appointment supply in the ordinary course. The Companies in administration are continuing in possession of the Sites, and the Administrators are causing (and will continue to cause) rent to be paid to the landlords/licensors of the Sites. 21 The Administrators have commenced a sale process in relation to the Business (Sale Process). To date, the Administrators have placed an advertisement in the Australian Financial Review on Tuesday, 10 January 2015; set up a data room; prepared a Confidentiality Agreement which has been despatched to 52 parties; provided access to the data room to 14 parties; sought that bids be submitted by 27 January 2015; and commenced preparation of documents to effect the sale. 22 Mr Goyal deposed that he had received a number of bids on 27 January 2015, and expected further bids on 28 January 2015. 23 Mr Goyal states that he anticipates that a sale agreement will be executed by around 15 February 2015, and that completion of the sale may conclude around 30 March 2015, subject to any delays in relation to the final negotiation and documentation, in obtaining any necessary regulatory approval, or in dealing with completion requirements.

First meeting of creditors 24 The first meeting of the creditors of the Companies were held concurrently on 7 January 2015. Mr Goyal acted as chairman of the meetings. 25 Approximately 37 creditors attended the meeting of Miss Chu either in person or by proxy. 26 The creditors of Miss Chu resolved to appoint a committee of creditors of Miss Chu (Committee). The Committee comprises representatives of 5 unsecured creditors. The Committee includes Mr David Wallace representing SPV Operating Pty Limited (SPV Operating), an unsecured creditor with whom Miss Chu is in dispute concerning a former lease at the Opera House. The creditors' meeting was advised that the amount of this dispute is approximately $486,000. Another member represents the landlord of the proposed Balmain site. The other 3 members represent suppliers. 27 Approximately 3 creditors attended the meeting of Miss Chu Manly either in person or by proxy. The creditors of Miss Chu Manly did not resolve to appoint a committee of creditors. 28 During the meetings, Mr Goyal advised the creditors that the Administrators' report to creditors, containing the Administrators' recommendations, would be released on 30 January 2015 with the second meeting of creditors to be held on 9 February 2015. He also advised that the Administrators may ask creditors to adjourn the next meeting of creditors if an offer worth pursuing were received by the time of the next meeting of creditors. No concerns were expressed about this proposal. The possibility of an application to the Court to extend the convening period was not raised at the meeting.

The Committee's views 29 A meeting of the Committee was held at 10 am on 28 January 2015. The purpose of the meeting was to discuss the status of the Sale Process and the Committee's attitude to a proposed application to extend the convening period in respect of Miss Chu. Three members of the Committee attended the meeting including the representative for SPV Operating and two suppliers. 30 At the meeting, Mr Goyal expressed his view that, in light of the offers received and due to be received, it was appropriate to extend the administration of the Companies. He also said that the administrations ought to be extended until around 30 April 2015 in order to assess properly the bids received in the Sale Process and conclude a sale. 31 Mr Goyal states that he previously thought that it would be sufficient if the second meetings of creditors were convened, held and then adjourned for up to 45 business days (the maximum period permitted by the Act for which the second meeting of creditors could be adjourned). He explained to the Committee that he believed that the extension of the convening periods should be formally extended by Court order. He gave three reasons: it would provide more certainty for the Administrators, for creditors and for potential purchasers of the Business; 45 business days may not be sufficient to conclude a sale; and the cost and inconvenience of holding a meeting of creditors whose adjournment would be proposed would be avoided. 32 The Committee members present expressed their support for the proposed application.

Notice of application 33 Baker & McKenzie, acting for the Administrators, has provided notice of this application by letter to the Australian Securities and Investments Commission. 34 On 27 January 2015, Mr Goyal's staff provided notice of the Sale Process and the application to extend the convening periods by email to all known creditors, employees and landlords of the Companies, as well as to Machado. A copy of the notice was also placed on the KordaMentha website.

Principles 35 In Re Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 (Austcorp) at [18], Lindgren J noted that the function of the Court in applications of this kind is to strike an appropriate balance between the legislature's expectation that an 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. 36 In Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (2009) 72 ACSR 352 (Re Riviera) at [13], Austin J identified a number of justifications for allowing an extension of time under ss 439A(6) and 447A. Prominent among them was that time is required to allow for the sale of the company's business as a going concern which is likely to enhance the return for unsecured creditors.

Reasons for making orders 37 I am satisfied that it is appropriate to grant the extension of time for which the Administrators have applied for the following reasons. 38 The Administrators have formed the view that the objectives of s 435A of the Act and the interests of the creditors of the Companies will be best served by the sale of the Business as a going concern, including to maximise the likely returns for creditors and (as far as possible) retain employment for the remaining employees. Given the nature of the Companies' assets that view appears to be well founded and reasonable. 39 An extension of the convening periods will allow the Companies to retain the benefit of the moratoriums applicable to the leases and licences of the Sites until the completion of the Sale Process, thereby allowing the Companies to remain in possession of the Sites and to continue to trade in order to maximise value on the sale and so that potential purchasers may undertake negotiation with landlords. 40 Mr Goyal says that the Administrators are currently comfortable that post-appointment creditors (including landlords and employees) will continue to be paid in respect of post-appointment liabilities from ordinary cash flow and that no creditor or other party will be materially prejudiced by the extension of the convening periods sought. 41 Although Mr Goyal hopes to complete a sale of the Business by 30 March 2015, it is possible that the process might be protracted for the reasons identified by Mr Goyal at [23]. It is for this reason that the Administrators seek to extend the convening period to 30 April 2015. Mr Goyal says that if the second meeting of creditors can be held earlier, the Administrators intend to do so, and I rely on that assurance. 42 The Administrators' investigations to date have not revealed any potential claims held by any of the Companies that should be urgently commenced by a liquidator appointed to the Companies in order to preserve any benefit the Companies might realise through litigation. The appointment of the Administrators has not resulted in the staying or postponement of any litigation involving the Companies which ought otherwise have proceeded in the interests of protecting either the Companies' assets or the rights of the other party to that litigation. Mr Goyal states that he does not anticipate that prejudice will be caused to SPV Operating in respect of its dispute with Miss Chu, and he notes that SPV Operating was represented on the Committee when it considered the making of this application and no objection was expressed. 43 There are no winding up applications on foot in respect of the Companies. 44 An extension of the convening periods will maximise the flexibility for any potential purchaser to propose a deed of company arrangement and enable the Administrators to provide a considered opinion to creditors pursuant to s 439A(4) of the Act as to what is in their interests in light of the outcome of the Sale Process. 45 I am satisfied that the Administrators have conducted the administration diligently to date. 46 As at the time that Mr Goyal affirmed his affidavit on 28 January 2015, no notification of objection to the proposed extensions had been received. Counsel for the Administrators advised the Court that no notice of objection had been received at the time of the hearing. I note that the proposed Orders include provision for a creditor to approach the Court. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.