Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd... [2020] FCA 296 | Case summary

Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period, as defined by s 439A(5) of the Act, with respect to each of CBCH Group Pty Ltd (administrators appointed), CBCH Australia Pty Ltd (administrators appointed), CBCH Buying Co Pty Ltd (administrators appointed) and Collette International Pty Ltd (administrators appointed) be extended up to and including 27 May 2020.
Pursuant to s 447A(l) of the Act, Pt 5.3A of the Act is to operate in relation to each company such that each meeting of creditors required by s 439A(l) of the Act be held during the period as extended by Order 1, and the period of five (5) business days thereafter, notwithstanding the provisions of s 439A(2) of the Act.
Liberty to apply be granted to any person, including any creditor of any company who can demonstrate sufficient interest, and the Australian Securities and Investments Commission (ASIC), to vary these orders on the giving of three (3) business days' notice to the plaintiffs, and to the Court.
Pursuant to s 447A(l) of the Act, Pt 5.3A of the Act is to operate in relation to each company such that notice of the second meeting of the creditors of the company will be validly given to creditors by: (a) causing the notice to be published on the ASIC published notices website at ; (b) sending a hyperlink to the notices published on the ASIC published notices website by email to the email address of each creditor at such email address as is recorded in the books and records of the company; and (c) where an email address is not recorded in the books and records of the company but a postal address is recorded, or where it comes to the attention of the plaintiffs that a notice sent by email has not been delivered, sending by post the notices to the postal address of each creditor at such postal address as is recorded in the books and records of the company.

YATES J: 1 The plaintiffs are the joint and several administrators of the following companies in the Colette Group: CBCH Group Pty Ltd (administrators appointed); CBCH Australia Pty Ltd (administrators appointed); CBCH Buying Co Pty Ltd (administrators appointed); and Colette International Pty Ltd (administrators appointed) (the administrators). They were appointed on 31 January 2020 pursuant to resolutions made in reliance on s 436A(1) of the Corporations Act 2001 (Cth) (the Act). 2 In relation to each company, they apply, pursuant to s 439A(6) of the Act, to extend the convening period for the second meeting of creditors of that company required to be held under s 439A(1). The period they seek is to 27 May 2020, a period of three months. Unless extended, the convening period in respect of each company will expire on 28 February 2020. 3 For completeness, I note that on 31 January 2020, the administrators were also appointed as joint and several administrators of a New Zealand company, CBCH New Zealand Limited (administrators appointed), pursuant to s 239I of the Companies Act 1993 (NZ). CBCH New Zealand is also part of the Colette Group. The administrators intend to make an application in New Zealand to extend the convening period for the second meeting of creditors of that company. 4 Since their appointments, the administrators have traded the companies to conserve their value for sale and/or for recapitalisation, while undertaking investigations. 5 The Colette Group is a mid-market bag, jewellery and accessories retailer. It operates 138 stores (124 in Australia and 14 in New Zealand) and an online store. CBCH Group is the ultimate holding company of CBCH Australia, CBCH Buying and Colette International, as well as CBCH New Zealand. It holds 100% of the issued capital of each company. CBCH Australia is the operating and employing entity for the Australian activities. It employs 309 full-time or part-time employees and approximately 755 casual employees. CBCH Buying orders stock from its suppliers which it then sells to CBCH Australia, Colette International and CBCH New Zealand, at cost price. Colette International has entered into a franchise agreement with Foschini Retail Group Pty Ltd in South Africa. The franchise agreement covers eight Colette-branded franchise stores, a further 31 concession stands, and an online presence. Foschini purchases its stock from CBCH Buying. 6 As at the date of the administrators' appointments, the Colette Group's annualised net sales were approximately $100 million. The administrators' initial enquiries indicate that secured creditors of the Colette Group are owed in the vicinity of $10 million, and the unsecured creditors (excluding inter-company creditors) are owed in the vicinity of $22 million. The unsecured creditors include 309 employees who are owed in the vicinity of $1.3 million; 158 trade and statutory creditors who are owed in the vicinity of $12 million (excluding intercompany loans); and shareholder loans in the vicinity of $10 million. 7 The first meetings of creditors of the companies identified at [1] above, were held on 12 February 2020. The four meetings were held concurrently. The notice convening each meeting advised creditors that it was likely that the administrators would seek an order from the Court extending the convening period for each second meeting to allow more time to explore options, including a recapitalisation or sale of business. The question of an extension for up to 90 days was canvassed at the meetings. The evidence before me is that no creditor present at the meetings expressed opposition to that course. 8 The application to extend the convening periods is supported by an affidavit of Sam Andrew Marsden, made 21 February 2020. Mr Marsden is one of the administrators. Mr Marsden has given an account of the work performed by the administrators to date. Notwithstanding the work that the administrators have undertaken to date, he says that further work is required to properly investigate each company's business, property, affairs and financial circumstances. He advances this as one of the reasons why the extensions are sought. 9 In this connection, he has drawn attention to the fact that there are a number of high-value intercompany loans within the Colette Group, amounting to (as I have said) approximately $10 million. Preliminary investigations indicate that CBCH Australia, CBCH New Zealand and Colette International each purchase stock from CBCH Buying by such loans. It also appears that CBCH Group has lent money to other entities within the Colette Group to help fund acquisitions, and for working capital purposes. Mr Marsden says that it might be that some or all of these loans are voidable transactions or inappropriate related-party transactions. He says, further, that unwinding or changing the nature of these intercompany loans could significantly change the position of each company within the Colette Group. 10 Mr Marsden has also drawn attention to the fact that the administrators need to consider whether it is appropriate to pool the assets and creditors of the Colette Group companies, given their interconnectedness and the potential to net-off loans. Mr Marsden says that a net-off of the loans may reduce the overall liability between related entities, which would increase any return to creditors. 11 Further, at the present time, the administrators have not received a report on company activities and property from one director of the companies. Another director has provided an incomplete report. Mr Marsden says that the administrators anticipate receiving completed reports from both directors in the coming week. In addition, the companies' accountant and auditor is still collating financial records that are required by the administrators to undertake their investigations. 12 Further, the administrators are still finalising calculations with respect to employee entitlements. 13 Mr Marsden says that, given the size and complexity of the Colette Group's affairs, an extension of up to three months is necessary in order to undertake this further work. 14 Another reason advanced for the extensions is the fact that the administrators are currently undertaking sale of business campaigns which will not conclude until the end of April 2020. Mr Marsden says that additional time is needed to allow the administrators to negotiate with interested parties and relevant stakeholders to generate potential going-concern sales. I have been informed that, to date, the administrators have received expressions of interest from 20 interested parties. 15 Relatedly, the administrators need to consider whether or not to close stores or restructure operations in a way that would maximise the likelihood of a recapitalisation or the sale of all or part of the Colette Group's operations. At the present time, the administrators have decided to close 33 underperforming stores to prevent further losses. Mr Marsden says that all efforts are being made to redeploy staff, to the extent possible. He says that, based on his experience in conducting similar scale processes, the collection and review of information to finalise these types of decisions may take a period of 30 to 90 days, and may be guided, in part, by offers received as part of the sales process. 16 Mr Marsden also says that there is a prospect of a deed of company arrangement being proposed. If such a proposal is made, further time will be required for the proposal to be developed, negotiated, considered and then presented to creditors for approval. 17 Mr Marsden says that the administrators continue to meet employees' entitlements during the period in which the companies have continued to trade, and that it is his expectation that the administrators will continue to meet these entitlements during the extensions that are sought. He says that the administrators continue to meet all approved supplier expenses and that the extensions, if granted, will likely increase the possibility of a return to all unsecured trade creditors. He has expressed his belief that, if the extensions are granted, no interested person will be unfairly prejudiced. 18 Based on Mr Marsden's evidence, and the submissions that have been made, I am satisfied that the convening period should be extended, as sought. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates .

Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) [2020] FCA 296

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