Sallway (Administrator), in the matter of Jamie Oliver Restaurant Group (Australia) Pty Ltd (Administrators Appt) [2018] FCA 789 - FCA 2018 case summary — Zoe

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Sallway (Administrator), in the matter of Jamie Oliver Restaurant Group (Australia) Pty Ltd (Administrators Appt) [2018] FCA 789

[2018] FCA 789

Federal Court of Australia|2018-05-10|Before: Gleeson J

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Source facts

Court

Federal Court of Australia

Decision date

2018-05-10

Before

Gleeson J

Source

Original judgment source is linked above.

Judgment (19 paragraphs)

[1]

The originating process be returnable instanter.
Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), and on the ground set out in s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), exhibit ATS-2 to the affidavit of Andrew Thomas Sallway sworn 9 May 2018 be marked "Confidential", be filed electronically and not be published, disclosed or accessed except pursuant to an order of the Court until further order.
Pursuant to s 439A(6) of the Act, the period within which the first plaintiffs must convene the second meeting of creditors of the second plaintiff under s 439A of the Act (Second Meeting) be extended up to, and including, 15 September 2018.
Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate such the Second Meeting may be held at any time during the convening period, or within 5 business days after the end of, the convening period as extended by order 3 above, notwithstanding the provisions of 439A(2) of the Act.
The plaintiffs, within 3 business days of making these orders, are to take all reasonable steps to give notice of these orders to the creditors of the second plaintiff (including the persons claiming to be creditors), by means of a circular or letter: (a) to be sent electronically by email to the creditors for whom the plaintiffs have an email address; or (b) to be sent by ordinary post to the creditors for whom the plaintiffs have only a postal address.
Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the requirement on the plaintiffs to issue notices under rr 75-225(1) and 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be modified such that the notice of the Second Meeting will be validly given to the creditors of the second plaintiff by, not less than 5 business days prior to the date of the proposed meeting: (a) sending such notice electronically to the email address of the creditors (including the persons claiming to be creditors) for whom the plaintiffs have an email address; (b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to any creditors not being a creditor referred to in sub-para (a); and (c) causing such notice to be published in The Insolvency Notices website located at: .

[2]

GLEESON J: 1 On 10 May 2018, I heard an ex parte application made by the joint and several voluntary administrators ("administrators") of Jamie Oliver Restaurant Group (Australia) Pty Ltd ("company") under ss 439A and 447A of the Corporations Act 2001 (Cth) ("Act") to extend the convening period for the second meeting of the company's creditors to 15 September 2018 (that is, an extension of about four months), and for ancillary orders. 2 The convening period was due to expire on 15 May 2018. I was satisfied that the convening period should be extended and, accordingly, made orders in accordance with the orders sought by the administrators, with minor modifications. My reasons for making those orders are as follows. 3 The application was supported by an affidavit of Andrew Sallway, one of the administrators, sworn 9 May 2018 and by oral submissions made by Mr Rose, counsel for the administrators. One of the exhibits to the affidavits ("exhibit ATS-2") contained commercially sensitive confidential material comprising "asset sale and purchase agreements" ("sale agreements") for the sale of five of the six restaurants operated by the company ("sale restaurants") to Hallmark Restaurants (Australia) Pty Ltd ("Hallmark") and services deeds pursuant to which the sale restaurants are to be operated pending completion or termination of the sale agreements. 4 In summary, the administrators sought the extension of the convening period to allow time for completion of a sale of the company's business and to afford the administrators time to investigate properly the affairs of the company, so that the administrators may form the opinions required under rule 75-225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth). 5 Mr Sallway expressed the opinion that it would be consistent with the objectives of Pt 5.3A of the Act, and in the interests of creditors of the company as a whole, for the proposed extension to be granted because: (1) Extending the convening period in turn extends the moratorium imposed by Pt 5.3A of the Act. This would give the company and Hallmark an opportunity to negotiate for the assignments of the property leases and the equipment leases required to satisfy the conditions precedent to completion of the sale agreements without the threat that the landlord creditors and other equipment lessors will take possession of the restaurant premises and other leased equipment. (2) Time will be required for the transfer of the company's liquor and food licences to Hallmark or, if necessary, application and approval of new liquor and food licences by the relevant government agencies. (3) Much of the stock in trade, particularly alcoholic beverages, is supplied on a retention of title basis and further that much of the food is perishable. Permitting the sale of that stock in trade to Hallmark while the moratorium is continuing enables the administrators to realise the value of that stock without the threat that the goods in question will be repossessed by the suppliers or will be rendered unsaleable (in the case of perishable goods). (4) In light of the difficulties the administrators have experienced to date in securing the books and records of the company, Mr Sallway requires further time to investigate the financial position and previous affairs of the company in order to satisfy his statutory responsibilities (including, in particular, reporting responsibilities) to the creditors of the company. (5) At this point, no deed of company arrangement ("DOCA") has been proposed or foreshadowed, and it is therefore Mr Sallway's present expectation that at the second meeting of creditors a resolution will be passed placing the company into liquidation. A delay in the commencement of the liquidation of the company resulting from the extension of the convening period does mean that the 84 employees of the company whose employment has been terminated by the administrators are not yet able to lodge claims for unpaid employee entitlements under the Fair Entitlements Guarantee. However, the continued trading of the sale restaurants as a result of the sale agreements and the services deeds has resulted in the avoidance of 196 redundancies. The majority of the employees of the company will therefore benefit from the convening period being extended.

[5]

Trading the sale restaurants 16 The administrators continue to trade the sale restaurants with the assistance of, and at the financial risk of, Hallmark pursuant to the terms of the services deeds, entered into with five special purpose vehicles, each wholly owned by Hallmark. Mr Sallway is in regular communication with Hallmark, several times a day, as to the management of the sale restaurants and their general trading performance. In the event that the conditions precedent under any of the sale agreements are satisfied with respect to any particular restaurant, that asset will transfer to Hallmark and the administrators will receive the consideration payable under the sale agreement, which will be distributed according to the applicable legal priorities. 17 Immediately following their appointment, the administrators closed the ACT restaurant as they lacked funding to continue trading while investigating the possibility of selling the ACT restaurant as a going concern. 18 On 16 April 2018, the administrators and Hallmark Restaurant Holdings (Australia) Pty Ltd ("Hallmark Holdco"), entered into a deed of indemnity which indemnifies the administrators from trading losses during the administration of the company and for the duration of the arrangements and transactions contemplated by the services deeds (among other things). The indemnities in the deed of indemnity are in addition to the indemnities given under the services deeds by the Hallmark special purpose vehicles. 19 Mr Sallway's evidence was that, by entering into the services deeds and the deed of indemnity, the risk of operating losses for the ongoing trading of the sale restaurants during the administration sits with Hallmark, the respective Hallmark special purpose vehicles and Hallmark Holdco. Given that (as Mr Shaughnessy told Mr Sallway) JIL would consent only to Hallmark being authorised to use the "Jamie's Italian" trading brand, and given also that no funding was available to the administrators to meet the ongoing operating costs and expenses of the business, the administrators saw entry into the services deeds as the only means open to them to ensure the continued trading of the business of the company following their appointment. 20 Mr Sallway's evidence was that, if the sale agreements had not been entered into by the company prior to the appointment of the administrators, and if the administrators had not entered into the services deeds following their appointment, the only alternative course of action available to the administrators would have been to immediately close all of the company's restaurants and to terminate the employment of all of the company's 250 employees. In Mr Sallway's opinion, and based on his investigations to date and the information provided to him by KordaMentha and Mr Shaughnessy, immediate cessation of all trading operations on appointment of the administrators would have resulted in a worse outcome for the significant majority of the company's creditors. 21 Mr Sallway also said that, based on information provided by Mr Shaughnessy and KordaMentha and the administrators' initial limited review of the company's finances, the administrators are satisfied that the continued trading of the sale restaurants and the completion of the sale agreements is in the overall best interests of the creditors of the company. If the administrators were to take steps to terminate the sale agreements, no funding would be available to enable continued trading of the restaurants and the administrators would have no option but to immediately close all of the sale restaurants and make all staff at those sale restaurants redundant.

[19]

Consideration and conclusion 43 At the hearing of the application, Mr Rose acknowledged that unsecured creditors were not assured of a dividend, noting that no DOCA has been proposed despite this being orthodox route to a dividend. However, Mr Rose observed that the securities held by secured creditors would be a fetter on the effectuation of any sale, their discharge being required in order for any sale to proceed. Mr Rose also pointed to the evidence that Hallmark is presently negotiating to acquire assets subject to retention of title claims. 44 I was satisfied that the Court had power to make the orders sought and that those orders were appropriate. In particular, I was satisfied that the proposed extension was reasonable because: (1) It facilitates the completion of the sale agreements by which as much as possible of the business of the companies will continue in existence, consistent with the object of Pt 5.3A as stated in s 435A of the Act. (2) The alternative to an extension was an immediate liquidation and termination of all employees. That would reduce the value of the business of the company because it would no longer be a going concern. (3) The extension was not expected to prejudice creditors, except a minority of employees whose positions have already been terminated. Conversely, the extension of time is beneficial to the majority of employees by reason of their continued employment and the enhanced prospect of their future employment after the conclusion of the administration. (4) The main secured creditor, HSBC, did not object to the extension of time and nor have other creditors who attended the first creditors meeting and were informed of the proposed extension of time application. (5) The extension appeared to be likely to be beneficial to secured creditors who may be able to be repaid some or all the amounts owing to them from Hallmark. (6) The administrators required further time to convey useful information to the creditors, including a properly informed opinion as to the options available to the creditors at the second meeting, particularly because of the lien that has been exercised over financial records of the business. (7) The orders proposed made provision for prompt notification of creditors of the extension of the time for convening the second meeting of creditors and granting liberty to apply to interested persons including creditors of the company for the purpose of modifying or discharging the relevant orders. (8) On the evidence before me, there was no reason to think that the administrators have delayed in the exercise of their functions. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.