Stewart, in the matter of Kleins Franchising Pty Ltd (administrators appointed) (ACN 007 348 236) [2008] FCA 721

REASONS FOR JUDGMENT 1 This is an application under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) ("the Act") by James Henry Stewart ("Mr Stewart") and George Georges ("Mr Georges"), the administrators of Kleins Franchising Pty Ltd (administrators appointed) ("Kleins"), J.D.A Imports Pty Ltd (administrators appointed) ("JDA") and The Jewellery Chain Pty Ltd (administrators appointed) ("TJC") (collectively "the Companies"), for an order to extend the convening period for the second meeting of creditors of the Companies to 25 September 2008. 2 On 30 April 2008, John Adams and Laurence Fitzgerald were appointed joint and several administrators of the Companies by resolution of a director of each of the Companies, Mr Campbell. Mr Adams and Mr Fitzgerald resigned on 2 May 2008. On the same day, Mr Stewart and Mr Georges ("the Administrators") were appointed as replacement administrators jointly and severally by resolution of the same director, Mr Campbell. 3 The Companies operate as importer, wholesaler, retailer and franchisor. The Administrators formed the view that in order to maximise the possible return to creditors, it would be desirable for the Companies to continue to trade so that the businesses could be marketed for sale as a going concern. 4 On 12 May 2008, the first meeting of creditors of each of the Companies was held. The meetings were held concurrently. No issue arises in relation those meetings. Pursuant to s 439A of the Act, the second meeting of creditors must be convened by no later than 28 May 2008. It is this issue which gives rise to the present application. 5 At the present time, no Deed of Company Arrangement ("DOCA") has been proposed and the Administrators do not know whether a DOCA will be proposed. That is not surprising because immediately after their appointment, the Administrators commenced a sale of business campaign, advertising on 6, 7 and 9 May 2008. That campaign resulted in a number of expressions of interest, the execution of confidentiality deeds, the distribution of information memoranda, due diligence enquiries being undertaken by a number of prospective purchasers and the receipt of non-binding indicative offers. Final offers are required to be submitted by 23 May 2008. The Administrators believe that there is a reasonable prospect that they will be able to secure the sale of the businesses as a going concern. 6 Accordingly, the Administrators seek an extension to the convening period for the second meeting of creditors until 25 September 2008 on the basis that the extension would greatly assist the sale process. In support of the application, Mr Stewart informed the Court that: 1. He expects the sale to be completed by the end of August 2008; 2. The audited financial records of the Companies list the assets of the Companies as primarily comprised of stock at cost ($6 million), plant and equipment ($7.4 million, including the director's revaluation of the company stores' fit out of $6.9 million) and 150 franchise agreements across Australia, New Zealand and South Africa; 3. The stock is located in 2 warehouses in Victoria and 37 retail stores in Australia owned and operated by TJC. The warehouses are leased by TJC from third parties. Under each of the leases, the landlords are permitted to terminate and re-enter the properties in an event of insolvency, such as administration of the lessee. Some of the lessors have issued notices to remedy the breach; 4. In Australia there are 132 franchised stores and 37 company operated stores. Each store is leased by TJC from third parties. Each franchisee holds a licence from TJC in respect of their franchised store. Under each of the leases, the landlords are permitted to terminate and re-enter the properties on an event of insolvency, such as administration of the lessee. Some of the lessors have issued notices to remedy the breach; 5. Pursuant to s 443B of the Act, the Administrators are continuing to make payments for the occupation of the warehouses, the 132 franchised stores and the 37 company operated stores. The Administrators are concerned that if the administration period were to end the entitlement to occupy those premises would cease or be altered to the detriment of the Companies; 6. The Administrators have received two retention of title claims which are yet to be resolved; 7. To maximise the return to creditors of the Companies, the Administrators believe that the 132 franchised stores and the 37 company operated stores must be held together and, if possible, sold as going concern to a single purchaser; 8. An orderly sale of the business as a going concern is likely to take between 90 and 120 days to complete; 9. The administration is large and complex; 10. No party (including employees, franchisees, lessors and retention of title claimants) will be detrimentally affected by granting an extension of the convening period for the second meeting of creditors; 11. The largest secured creditor, the National Australia Bank, supports the application; 12. Finally, but no less significantly, such an application is in the best interests of creditors. 7 The application is formally opposed by the Trust Company Limited. The Trust Company Limited is a landlord of some of the premises to which I have referred. I say formally opposed because as Counsel for the Trust Company Limited submitted: Technically we oppose the application insofar as we don't support the length of time, but the opposition is put in this sense. We are a landlord of 15-odd premises within the franchise group. We are moving towards ascertaining whether we have tenants to fill the gap in the event administration can't do that. We wish to reserve out rights insofar as approaching the administrator and/or the court in due course to retake possession through the administration period, if we deem that in our interests to do so. 8 In my view, the orders provide sufficient protection for the Trust Company Limited. Any party with sufficient interest may seek either a variation or discharge of the orders. 9 There is no doubt that the Court may extend the convening period: see s 439A(6) of the Act; and Morgan, in the matter of Can Can Lingerie Group Pty Limited (Administrators Appointed) ACN 001 263 994 [2005] FCA 633. In the present circumstances, it is appropriate for the Court to extend the convening period for the second meeting of creditors to 25 September 2008 and to make ancillary orders in relation to the time limit to hold that meeting: ss 439A(2) and 447A of the Act. 10 Accordingly, the orders will be: 1. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth), the convening period within which the administrators of Kleins Franchising Pty Ltd (administrators appointed), J.D.A Imports Pty Ltd (administrators appointed) and The Jewellery Chain Pty Ltd (administrators appointed) ("the Companies") must convene the second meeting of creditors is extended up to and including 25 September 2008. 2. Pursuant to s 447A of the Corporations Act 2001 (Cth), the second meeting of creditors of each of the Companies required by s 439A of that Act may be held at any time within 5 business days before, or within 5 business days after, the end of the convening period as extended by Order 1 notwithstanding the provisions of s 439A(2) of the Corporations Act 2001 (Cth). 3. Liberty is granted to the Plaintiffs to apply for any further extension of the convening period referred to in Order 1 at any time prior to 25 September 2008. 4. The costs and expenses of the application be costs and expenses in the administration of the Companies. 5. Liberty to apply be granted to any person who can demonstrate sufficient interest to modify or discharge the orders on appropriate notice to the Plaintiffs. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.