Robinson, in the matter of Darrell Lea Chocolate Shops Pty Ltd... [2012] FCA 833 | Case summary

REASONS FOR JUDGMENT 1 This is an application seeking two orders under the Corporations Act 2001 (Cth) (the Act): first, an order under s 439A for an extension of the convening period for the second meeting of creditors of the companies, and second, an application under s 447A for an order in effect limiting the liabilities of the applicants as the administrators of the companies in accordance with the terms and conditions of a loan agreement between them and a creditor, being a company known as DLN Pty Limited. 2 The application is supported by an affidavit of Mr Mark Robinson, chartered accountant and official liquidator. Mr Robinson's affidavit sets out that administrators were appointed to the companies in question, namely Darrell Lea Chocolate Shops Pty Ltd and Ricci Remond Chocolate Co Pty Ltd (the companies), on 10 July 2012 by a resolution of the board of directors of each of those companies. In addition to setting out the history and activities of the companies, Mr Robinson deposes to the fact that the administrators have carried out a wide range of tasks to date, including taking numerous steps towards the sale of the business as a going concern. On 20 July 2012, the minutes of the first meeting of creditors record that Mr Robinson, as chairman of the meeting, advised that the administrators proposed to make this application to the Court to seek an extension of time in which to hold the second creditors' meeting, the reasons being that the administrators had concentrated on stabilising business operations and were currently engaged with a number of different parties to sell the business and that maximising sales proceeds relied on the business being sold as a going concern. According to the minutes, Mr Robinson reported that more time would be required to try to achieve the sale beyond the statutory time limit prescribed by s 439A(5) of the Act. Creditors present at the meeting, which included the primary secured creditor Westpac and other unsecured creditors, were asked whether they had any objections to the proposed extension of the convening period, and no objections were raised. 3 Thereafter, by notice to creditors dated 30 July 2012, the administrators again notified creditors of their intention to approach the Court for an extension of the convening period and gave creditors a further opportunity to advise whether there were any objections. In this regard, it was said that the application for the extension of time was made so that the administrators had sufficient time to: - (i) finalise any potential sale of the business and assets of the companies, and (ii) complete preliminary investigations into the affairs of the companies and provide creditors with sufficient information to make a decision on the future of the companies at the second meeting of creditors. The secured creditor, Westpac, advised in writing that it had no objections to the proposed application for the extension of time. According to Mr Robinson's affidavit the convening period, unless extended by the court, will expire on 7 August 2012 and that by this day, the administrators will be unable to properly report to creditors and to give them recommendations as to the options available to them. In Mr Robinson's view, it is preferable that the second meeting of creditors be conducted after what he describes as the "sale of business program" has been completed. 4 On 2 August 2012, the administrators notified the Australian Securities & Investments Commission (ASIC) of the proposed application. A letter dated 3 August 2012 from ASIC has been tendered and is to the effect that there was no requirement for ASIC to be served with the application but, in any event, ASIC had not been given adequate notice of it and could not otherwise comment on the application. Accordingly, the position is that insofar as the creditors notified are concerned there is no objection to the proposed extension of time. 5 In addition, the proposed extension of time is for a relatively limited period - that is, up to and including 5 September 2012. In the circumstances set out in Mr Robinson's affidavit, and in particular, having regard to the nature of the companies in question, the fact that the companies operated 69 company owned and operated stores, 16 licensed full-format stores and a diverse range of other channels for the distribution of its products, and that the best interests of creditors would be fulfilled by the sale of the business as a going concern in accordance with the matters identified by Mr Robinson to the first meeting of creditors on 20 July 2012, I can see no reason why the extension of time should not be regarded as in the best interests of creditors and not otherwise prejudicing the general objective of a speedy resolution of the administration of the companies in question. For these reasons I am satisfied that orders should be made as sought in relation to the proposed extension of time. 6 The second matter is the application for an order under s 447A of the Act, which provides that the Court may make such order as it thinks appropriate about the operation of Part 5.3A of the Act in relation to a particular company. The applicants seek an order which modifies the operation of s 443A(1) of the Act. Section 443A(1) relevantly provides that an administrator of a company under administration is liable for debts he or she incurs in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator for, amongst other things, interest in respect of money borrowed or borrowing costs. 7 In this regard the evidence establishes that after the administrators were appointed on 10 July 2012 the directors made the administrators aware that the employees of the companies were due to be paid in July on 10, 11 and 14 July 2012 (the July pay run). The administrators concluded that the companies had insufficient funds to meet the July pay run and if the July pay run was not fulfilled then the administrators would likely have to close all of the companies' stores on or shortly after 10 July 2012. As a result, the directors of the companies (who are also the directors of DLN Pty Limited, a shareholder of the companies and also now a creditor of the companies) advised that DLN would loan the money to Darrell Lea required to meet the July pay run. 8 The terms of the loan offer were set out in a letter dated 11 July 2012 from the solicitors for DLN to the administrators. Amongst other things, the loan provided for an amount of up to $1.85 million to be made available conditional upon there being no objections from Westpac, the main secured creditor, but also on the basis that DLN agreed to certain limitations on the liability of the administrators, in particular that: - (i) the voluntary administrators' liability in respect of the advance be limited to and enforced against the voluntary administrators only to the extent to which it can be satisfied out of the indemnity held by the administrators pursuant to s 443D of the Act and in accordance with the priority as set out in ss 443E and 556(1)(c) of the Act, and (ii) DLN's rights in respect of the advance rank behind other debts and claims arising out of the conduct of the voluntary administration and the administrators' approved remuneration for acting as voluntary administrators. Westpac confirmed in writing that it had no objection to the proposed loan arrangements. An order is sought pursuant to s 447A(1) of the Act that, in effect, makes the position of the administrators the same as their position under the terms of the loan agreement. This is necessary by reason of s 443A(2) of the Act which provides that s 443A(1) has effect despite any agreement to the contrary, but without prejudice to the administrators' rights against the company or anyone else. The administrators' rights contemplated by that section include the administrators' rights to indemnity and priority as set out in the correspondence from DLN's solicitors about the conditions upon which it was agreed that the loan would be taken by the administrators in order to pay the debts of the companies in terms of the July pay run. 9 In Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493 Gordon J considered a very similar application and in so doing noted at [23] that "[o]rders in similar terms have frequently been made in circumstances where the Court is satisfied that an administrator has entered into a loan agreement or other arrangement to enable the company's business to continue to trade for the benefit of the company's creditors". At [24] Gordon J referred to the decision of Gilmour J in Re Mentha (2010) 82 ACSR 142; [2010] FCA 1469 at [30] where his Honour identified four principles relevant to the exercise of the discretion to make orders under s 447A to vary the administrators' liability under s 443A as follows: (a) the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act; (b) typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors; (c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangements; (d) notice has been given to those who may be affected by the order. 10 It should be apparent that it is my view that each of these principles is engaged by the facts of the present case. The proposed arrangements are in the interests of the companies' creditors because the loan and the conditions of the loan which DLN proposed and to which the administrators agreed were essential in order to enable the employees to be paid. As such, it was also essential to enable the companies' business to continue to trade which was for the benefit of the companies' creditors. Given that the administrators are, in any event, protected by their indemnity to the extent recognised by the provisions of the Act, I can see no prejudice or disadvantage to the type of orders that are sought other than perhaps to DLN, but DLN itself proposed the arrangement and stood to benefit from it as a creditor. Westpac itself has consented to the arrangements proposed. Notice has been given to those who may be affected by the order, particularly Westpac, and DLN has appeared before me today confirming that there are no objections to either of the orders sought. In these circumstances, I am also satisfied that the orders sought in relation to s 447A(1) of the Act should be made. 11 Orders will be made accordingly. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Robinson, in the matter of Darrell Lea Chocolate Shops Pty Ltd (Administrators Appointed) [2012] FCA 833

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Legislation Cited (1)

Cases Cited (2)