1 I am dealing with an application brought before the court urgently yesterday afternoon by the Commonwealth of Australia.
2 The Commonwealth has approached the court in its capacity as a creditor of ABC Learning Centres Limited, which I shall call "ABC". It does so with a view to obtaining certain relief directed towards establishing a scheme for the possible resuscitation and eventual disposal of certain assets of ABC, which, at this stage, is subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). In addition, a syndicate of bank lenders has appointed receivers and managers in exercise of the powers conferred by their securities.
3 At present, therefore, the property and assets of ABC are under the day-to-day control of the receivers appointed by the banks, while creditors generally and other persons interested in the assets and business of ABC are subject to the constraints and controls that Part 5.3A imposes while voluntary administration continues.
4 The Part 5.3A administration has not yet progressed to the stage of the second meeting of creditors called for by s 439A. Normally, that meeting would be held within about five weeks after commencement of the administration, in this case 6 November 2008. But the convening period can be extended and in the case of ABC it has been extended by an order made by Emmett J in the Federal Court on 27 November 2008. The effect of that order is that the convening period will expire on 31 March 2009.
5 ABC has carried on a business of operating child care centres throughout Australia. It operated some 1,045 centres. Upon its passing into both voluntary administration and receivership, the future of those centres became problematic.
6 The Commonwealth, in pursuance of policy objectives in relation to high-quality, sustainable child care and early learning opportunities for Australian children, has a particular interest in the circumstances of ABC and other child care operators. To that end, the Commonwealth has been party to discussions aimed at keeping open and operational as many of ABC's centres as possible.
7 Of the total of about 1,045 centres operated by ABC, 249 are said to be unprofitable, according to assessments made by the bank-appointed receivers. The intention of those receivers is to close down those centres by 31 December 2008. They consider that that course is in the interests of not only the bank syndicate by which they were appointed, but also ABC's creditors generally.
8 In the light of that intention, a particular proposal has been developed by the bank-appointed receivers in consultation with the Commonwealth. It relates to 228 of the unprofitable centres. ABC has established a new wholly-owned subsidiary called ABC2 Group Pty Limited. To avoid confusion, I will refer to this company as "Newco". The proposal involves the sale of the 228 unprofitable child care centres by ABC to Newco for a purely nominal consideration of $1.
9 The subject matter of the sale in each case will be the goodwill of the centre. There will also be a licence to use equipment and the like and a licence in respect of the leased premises. Arrangements will also be made to continue the employment of staff, subject, of course, to their concurrence.
10 This transfer of control and operation of the 228 unprofitable centres from ABC to Newco will, of course, do nothing to improve the situation of any of those centres. A separate aspect of the proposal involves the provision of financial assistance by the Commonwealth to fund a programme of assessment and rationalisation under which unprofitable centres may be improved and sold off to other operators, or perhaps combined with other centres to produce economies, but in such a way as to minimise the impact on users of the centres concerned.
11 It is envisaged that this process will be undertaken in the period to 31 March 2009 so that it is co-extensive with the voluntary administration of ABC.
12 All this, of course, could be done without the need for intervention by or assistance from the court. The Commonwealth and the bank-appointed receivers of ABC have entered into a conditional contract to implement the proposal I have outlined. It is dated 16 December 2008. It is because of a particular aspect of that contract - indeed, to obtain a component essential to the operation of the contract according to its terms - that the present application has been made to the court.
13 It is a term of the contract that its substantive provisions will not become binding unless and until the Commonwealth has obtained from the Supreme Court of New South Wales orders appointing Mr Parbery and Mr Bryant of PPB to be receivers of the assets and undertaking of Newco.
14 It is envisaged that those receivers - I shall call them the "court-appointed receivers" - will have control of the assets and business of Newco in the form of the 228 unprofitable centres acquired by Newco from ABC and that they will operate those centres in accordance with an operating agreement between the bank-appointed receivers, the court-appointed receivers and the Commonwealth. When I say "operate", I mean to include, rationalise and dispose of, since that is very likely to be the fate of some of the unprofitable centres.
15 The operating agreement terms make provision with respect to the application of proceeds of sale of any centres, including by way of a contractual priority to the Commonwealth for its entitlements under a funding agreement.
16 The practical effect of the proposal as a whole is to relieve such pressure as there is for the bank-appointed receivers simply to close down or realise the unprofitable centres in what might be a summary way (I do not say that in any pejorative sense) and to allow the court-appointed receivers to work with the Commonwealth in an attempt to find a more constructive solution for those centres from the point of view of both the users of child care centres and the financial interests of the Commonwealth and ABC's other creditors.
17 That brings me to the central question on the current application, that is, whether the court should appoint Mr Parbery and Mr Bryant as receivers in the way the Commonwealth wishes.
18 It can be said at once, of course, that the mere fact that parties to a contract wish to see a court-appointed receiver undertake certain tasks is quite irrelevant to the question whether the court will make an appointment. The court will act only upon some proper basis relevant to the jurisdiction invoked.
19 The Commonwealth has been precise about the jurisdiction it invokes in seeking the appointment of Mr Parbery and Mr Bryant as receivers of the assets and undertaking of Newco. Its application is advanced by reference to s 447B(2) of the Corporations Act:
"On the application of a creditor of a company, the Court may make such order as it thinks necessary to protect the creditor's interests while the company is under administration."
20 ABC is, in the words of s 447B(2), "under administration"; and, in the light of the Federal Court's orders, it is likely to remain in that state at least until 31 March 2009. Any order underwriting the proposal I have outlined would, in a temporal sense, be within s 447B(2), in that the proposal itself brings matters concerned with the administration of ABC to a head.
21 I have not been referred to any decided cases about section 447B(2). The only one I have found is J&B Records Ltd v Brashs Pty Ltd (1994) 13 ACSR 680, where it was held that the section would support an order that the administrator give information to a creditor about aspects of the post-administration transactions of the company and the administrator relevant to that creditor.
22 The clear intention of the section, however, is to enable the court to make orders of an auxiliary or adjunct kind in voluntary administrations, where to do so is protective of the interests of the applicant creditor.
23 The Commonwealth, as I have said, is a creditor of ABC. Its proof of debt for the purposes of voting at the first meeting of creditors was admitted. As a result, s 447B(2) will permit the court to make an order that protects its interests while the administration continues.
24 There is, in concept, no reason why an order appointing a receiver should not be made under s 447B(2) if it can be seen to be something that will protect the interests of the particular creditor. The interests concerned are, I think, those of the creditor as creditor.
25 But even if s 447B(2) were not available as a basis for the appointment of receivers as the Commonwealth seeks, there may be a more general basis. The court may appoint a receiver in a wide range of circumstances; indeed, whenever the interests of justice warrant it. Appointments are most often made to protect the subject matter of legal proceedings pending determination of those proceedings by the court. But the jurisdiction is wider than that. There are instances in cross-border insolvency cases where the local court has appointed a receiver to act in aid of a foreign liquidator or trustee in bankruptcy: see for example Dick v McIntosh [2001] FCA 1008. A receiver may be appointed to hold property affected by a lien pending a judicial sale. Receivers have been appointed in a number of cases to collect the assets of an unregistered managed investment scheme and to apply them in winding up the scheme. There is reference in the Western Australian case of McLean v McKinlay [2004] WASC 2 to the possibility of appointing a receiver of the assets of an incorporated association pending election of a governing body capable of acting and taking the affairs of the association in hand.
26 In the present case, the unprofitable centres are to be transferred to Newco, a company without any financial resources. Its directors could not responsibly accept the centres except in the context of some appropriate external administration. The bank-appointed receivers appear likely to close those centres if they remain with ABC. That, in one sense, will enhance the interests of ABC creditors, in that it will facilitate some constructive way forward in relation to the profitable centres. But the best course for ABC's creditors will be one that involves a constructive way forward also for the unprofitable centres. The proposal involves at least a real possibility of saving and deriving some financial benefit from the unprofitable centres, being benefit that could not be achieved in the absence of the proposal.
27 I am satisfied that it will be protective of the interests of ABC creditors generally and, therefore, of the interests of the Commonwealth as a creditor of ABC, that the proposal be implemented. Section 447B(2) is therefore available. Through implementation of the proposal the creditors will obtain something that would otherwise be unavailable to them, that is, the real possibility of the benefit to which I have referred. That will protect their interests and, to the extent that some form of external administration of Newco is needed because its operation independently of such administration is not practicable, the supply of the external administration will likewise protect creditors' interests.
28 There are, however, well-established principles governing the making of orders for the appointment of receivers. They are referred to in the joint judgment of Kaye J, Murphy J and Brooking J in Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 and the joint judgment of Mason CJ, Brennan J and Deane J in National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271. The first principle is that notice of the application should ordinarily be given to affected persons and that an appointment should not be made on an ex parte application. The second principle is that the price to be paid for the orders may be the usual undertaking as to damages.
29 The persons affected in this case are, in essence, the creditors of ABC and, I suppose, its members. It is an asset of ABC that is to be given away to Newco and placed under the supervision of the court appointed receivers with the expectation that a more favourable outcome might thereby be achieved. The interests of the bank creditors of ABC are represented by the bank-appointed receivers. They are active participants in the proposal and have stated in writing that they have no objection to the making of the orders now sought. The interests of the creditors of ABC generally and, in a residual sense, the members are represented by the administrators. They have made it clear that while they do not consent to the making of the orders, neither do they oppose, and the important point, of course, is that they have been put on notice of the intention to apply for the orders. There need be no concern in this case about lack of notice of the application to relevant persons.
30 The need for the court to turn its mind to the question of an undertaking as to damages was referred to by both the Full Court of the Supreme Court of Victoria and the High Court in the Bond Brewing litigation. The need was referred to in the context of other observations which emphasise the drastic, intrusive and invasive nature of the appointment of a receiver. There can be no doubt that such an appointment will usually be drastic, intrusive and invasive in the case of a company with an established business operating as a going concern. The effect of receivership is, as the High Court noted, that the company loses its title to control its assets and affairs. The potential for unforeseeable damage to all sorts of people is clear in those circumstances.
31 It is submitted that the present case is quite different. Such going concern as there is cannot continue to accommodate the unprofitable centres. ABC's title to control that aspect of its affairs is tenuous and the title of Newco will be, from the outset, a title to disadvantageous property that does not in its present form represent a viable enterprise. Those circumstances set this case apart. There is also the point that this is not an adversarial proceeding and, as I have said, all interested persons, or their representatives, can be taken to have been put on notice of the application and to be of a frame of mind such that they do not wish to be heard.
32 I accept these submissions in relation to the undertaking as to damages. I am satisfied that no undertaking should be required in the very special circumstances of this case.
33 The overall decision therefore is that orders generally as sought by the Commonwealth will be made. There are, however, some matters I wish to mention.
34 First, the receivership order as sought speaks of Mr Parbery and Mr Bryant being appointed as "joint and several receivers of" Newco. They should be appointed as receivers and managers, and the appointment should be in respect of the whole of the property, assets and undertaking of Newco from time to time.
35 Second, the appointment is expressed to be "as from 31 December 2008" but is not limited as to time. It should be an appointment until further order.
36 Third, there should be a requirement for the receiver to apply to the court for directions very promptly after the end of the administration of ABC. I say this because the s 447B(2) foundation will then presumably no longer be available and the receivership will then no longer represent any form of adjunct to the voluntary administration. It will be necessary to assess whether, with that support removed, there is any other basis for sustaining of the receivership appointment.
37 Fourth, there is the matter of directions to the receivers. It is contemplated in the orders sought that there be a direction that they "were justified" in executing the agreement of 16 December 2008, they being named as parties to it in addition to the Commonwealth and the bank-appointed receivers. I do not consider it appropriate to give a direction about something already done and completed. The jurisdiction is sufficiently akin to that under s 63 of the Trustee Act 1925 discussed recently by the High Court in Macedonian Orthodox Community Church of St Petka v His Eminence Petar The Dioscesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 82 ALJR 1425 to make me think that directions generally should be prospective. On that basis, I have no problem with a direction that the court appointed receivers are justified in giving effect to the 16 December 2008 conditional contract already executed by them.
38 Finally, I note that liberty to apply is reserved to any person affected by the orders. This is a highly desirable provision in a case of this kind.
39 Subject to the comments I have just made, I will make the orders sought, and this is so notwithstanding that the Commonwealth offers no undertaking as to damages.
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