Smith Brothers Realty Pty Ltd [2010] NSWSC 1100

1 I am dealing with an application under s 439A(6) of the Corporations Act 2001 (Cth) for an extension of the convening period for the second meeting of creditors in the Part 5.3A administration of Smith Brothers Realty Pty Limited. 2 As its name implies, the company carried on an estate agency business. Of particular relevance, for present purposes, is its activity as managing agent of leased properties. The administrators have set in train steps directed towards sale of the rent roll. An offer to purchase has been received and approved and an exchange of contracts is expected by 24 September 2010. The form of contract contemplates completion by 31 October 2010. 3 By the present application, the administrators seek to have the convening period for the second meeting of creditors extended to approximately 15 November 2010, that is to say, some two weeks after the expected completion of the sale of the rent roll. In the absence of extension, the convening period will end on 23 September 2010. The extension sought is thus of the order of seven weeks. 4 The sale of the rent roll, as indicated by the approved offer, is on terms that take account of the extent to which landlords on the rent roll agree to transfer their business to the successful purchaser. The ultimate financial outcome of the sale will, therefore, not be known until the completion date. It is this element of uncertainty that causes the application to come before the court. 5 The expectation is that, if the sale is completed by 31 October 2010, there will then be a period of two weeks in which the administrators may assess the financial position of the company and formulate their recommendations to creditors with respect to its future for the purposes of the second meeting. 6 The sole director of the company has indicated that he may propose a deed of company arrangement. Formulation of any such proposal will depend upon the final result of the proposed sale transaction. The period of fourteen days after the projected completion date will, therefore, be devoted also to the question whether any deed of company arrangement can feasibly be proposed. 7 The principles to be applied in this kind of case have been noted on a number of occasions. A useful summary of the position is provided in the judgment of Lindgren J in Re Austcorp Group Limited [2009] FCA 636 at paragraph 18: "The overlapping considerations affecting the exercise of the discretion whether to extend the convening period may be summarised as follows: (a) the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that creditors be fully informed about the company's position as early as possible and have an opportunity to vote on its future as soon as possible: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J) at 612; Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 (Owen J) at [5]; (b) the function of the Court is to strike an appropriate balance between the legislature's expectation that the 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: Re Diamond Press Australia Pty Limited [2001] NSWSC 313 (Barrett J) at [10]; Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77 (Lindgren J) ( Pan Pharmaceuticals ) at [42]; Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 (Austin J) at [5]; (c) the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration : Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 (Barrett J) ( Fincorp ) at [18]; (d) a particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others: Fincorp 62 ACSR 192 at [4]; Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 (Jacobson J) at [9]; (e) the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation : Pan Pharmaceuticals [2003] FCA 598; (2003) 46 ACSR 77 at [41]; ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No.7) [2009] FCA 454 (Emmett J) ( ABC Learning Centres) at [28]; (f) it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended: see the order made in Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446 ( Daisytek ) at [10]-[18]." 8 It is, in the final analysis, for the court to engage in a balancing exercise. It must have regard to the statutory expectation that administration will proceed in a relatively summary way against the objective of Part 5.3A as stated in s 435A, which is to achieve a better return for creditors and members than would be produced by immediate winding up. 9 An important matter to be weighed in the balance is the interests of persons affected by the statutory restrictions that arise by operation of Part 5.3A so far as enforcement and like actions are concerned affecting the company. The affidavit evidence gave information about this. 10 One matter arises for consideration in that respect. The lessor of the company's business premises is owed some $18,213 for overdue rent referable to the period before the appointment of the administrators. Since that appointment, the company has continued, under the auspices of the administrators, to occupy the premises. The administrators are, as they acknowledge, personally liable for the rent since commencement of the administration. They have paid the rent from the date of their appointment up to 16 September 2010 and, as I say, they acknowledge personal liability to continue to pay rent while they remain in occupation. 11 The lessor's concern is with respect to delay in action to obtain possession and re-let the premises. That concern relates to the need to market the premises in the later part of the year but ideally to obtain a result before Christmas when it may be expected that letting activity will slacken off. 12 The administrators have indicated that they have no objection to the lessor or lessor's agent showing prospective lessees through the premises while the administration continues. That is noted by the court and gives a measure of comfort and assurance to the lessor, which is highly relevant to the present application. On the face of things, there is no reason why the lessor could not commence and continue reletting efforts pending the company vacating the premises when no longer required for the continuation of the business that the administrators are now carrying on in the short term. 13 The court notes the concern of the lessor of the business premises, but considers on balance that it is desirable to extend the convening period as sought in the knowledge that the administrators have indicated their willingness for the lessor to show prospective lessees through the premises, thus not unduly inhibiting their ability to seek a new tenant who may be installed when the administrators vacate. As to the arrears of $18,213, the lessor is in the same position as other creditors. 14 I make the orders in the short minutes of order which I initial and date. **********

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