Strawbridge, in the matter of Retail Adventures Pty Limited (Administrators Appointed) v Retail Adventures Pty Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1681 of 2012

IN THE MATTER OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE AND JOHN LETHBRIDGE GREIG AND DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

AND: RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845

JUDGE: JAGOT J DATE: 30 NOVEMBER 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application seeking orders in reliance on s 447A(1) of the Corporations Act 2001 (Cth) (the Act). Section 447A(1) provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. The application seeks an order pursuant to that section modifying what would otherwise be the operation of s 443A(1) of the Act. Section 443A(1) provides that an administrator of a company under administration is liable for the debts he or she incurs in the performance or exercise of any of the administrator's functions and powers as administrator including, relevantly in this case, such matters as goods bought and services rendered. 2 The order which is sought in this case by the administrators of Retail Adventures Pty Limited (the company) is an order reflecting the terms of a deed limiting the liability of the administrators under a licence agreement to the amounts in respect of which the administrators are entitled to be indemnified out of the assets of the licensor and actually indemnified out of the assets of the licensor in accordance with relevant provisions of the Act. 3 The application is supported by an affidavit of Mr Vaughan Strawbridge, one of three joint and several administrators of the company. Mr Strawbridge's affidavit explains that on 26 October 2012 the administrators entered into a licence agreement pursuant to which they authorised a related entity, DSG Holdings Australia Pty Limited (DSG), to continue trading. The rationale for entering into this licence agreement was set out in earlier affidavits of Mr Strawbridge referred to in related decisions in respect of the administration of the companies in the Retail Adventures group (see Strawbridge, in the matter of Retail Adventures Pty Limited (Administrators Appointed) v Retail Adventures Pty Limited (Administrators Appointed) [2012] FCA 1286 and Strawbridge, in the matter of Retail Adventures Holdings Pty Limited v Retail Adventures Holdings Pty Limited [2012] FCA 1343). In short, the rationale was to enable the business to continue trading as a going concern, particularly over the Christmas trading period, with a view ultimately to consideration of the sale of the business or entry into a deed of company arrangement. DSG, the administrators and the company entered into what is referred to as a second amending deed in order to limit the personal liability of the administrators to DSG. Clause 2.1(a) of that second amending deed provides for the insertion of a new clause 1.3A into the licence agreement. The new clause is a limitation of liability provision which is sought to be reflected in the proposed orders. 4 According to Mr Strawbridge the licence agreement had the benefit to creditors, both secured and unsecured, of allowing the business to continue to trade and it also made DSG responsible for all trading liabilities incurred in the course of conducting the business. However, the administrators were concerned that on termination of the licence agreement they should have access to sufficient stock to ensure that there are sufficient assets to meet employee and other priority claims. As a consequence of this concern the licence agreement requires that DSG sell all new stock to the company and ensure that the value of all stock held at the licensed premises and owned by the company exceeds a certain amount at all times. It was the intention of the parties that the administrators would not incur personal liability to any party under the licence agreement. It is as a consequence of this that the second amending deed has been entered into. 5 Mr Strawbridge deposes to certain matters including that in his view the proposed orders do not increase or otherwise affect the liability of the company under the terms of the licence agreement and, as he has previously said, the continuation of the business under the licence agreement has, relevantly: - (i) allowed most employees to be retained, (ii) provided ongoing rental income to landlords and increased the opportunities for the sale of the business as a going concern and/or entry into a successful deed of company arrangement, (iii) maintained important supplier relationships, and (iv) preserved the current value of the business with a view to the foreshadowed sale of the business and/or entry into a deed of company arrangement. As Mr Strawbridge says, the only relevant person who may be adversely affected by the terms of the second amending deed is DSG itself. However, DSG obtains the benefit of the licence agreement and the ability to preserve and enhance the value of the business. 6 Mr Strawbridge explains in his affidavit that creditors were informed of the arrangements relating to the trading of the business under the licence agreement, including being presented with certain key terms of the licence agreement, and none have opposed either entry into or continuation of the licence agreement. As such notice of the present application has not been provided to creditors, other than DSG itself which would know of the matter given that it is the other party to the deed, in circumstances where as Mr Strawbridge puts it the company has a large number of creditors and the administrators have taken the view that the second amending deed and proposed orders do not affect the liability of the company under the terms of the licence agreement or have a detrimental effect on the unsecured creditors. 7 The application is supported by comprehensive written submissions. Those submissions, amongst other things, explain the relevant principles including in particular the following: - (i) an order as sought can be made under s 447A (Re Mentha (2010) 82 ACSR 142; [2010] FCA 1469 at [29]), and (ii) when considering whether such an order should be made regard is had to the interests of the company's creditors, the objectives of Pt 5.3A of the Act, whether the creditors of the company may be prejudiced or disadvantaged by the type of orders sought, whether the arrangements proposed are to enable the company's business to trade for the benefit of the company's creditors, and the giving of notice consistent with the position in Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (Administrators Appointed) [2011] FCA 1493 at [31]. 8 This is a case where I am satisfied that there is no issue of concern in relation to the fact that notice of this application has not been given to unsecured creditors. I accept the submission that with the exception of DSG the creditors of the company have no interest in the order seeking to limit the administrators' personal liability as they will not be disadvantaged by it and, on the other hand, the majority of creditors stand to benefit from the continuation of the business which the order will enable to occur. 9 In these circumstances I am satisfied that it is in the best interests of the company and its creditors that the orders sought in the interlocutory application be granted. It is in the best interests of creditors for the reasons given by Mr Strawbridge that the licence arrangement continue for the period of time until the second scheme meetings of these related companies under administration, the time for which has been extended pursuant to orders earlier made by the Court. In these circumstances I make orders 1 through to 4 in the interlocutory application. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.