REASONS FOR JUDGMENT
1 This is an application under section 439A(6) of the Corporations Act 2001 (Cth) ("the Act") to extend the convening period for the second meeting of creditors of 7 Steel Distribution Pty Limited ("7 Steel"). The application is made during the convening period set by section 439A(5) of the Act. The application is supported by an affidavit of Mr Paul Gerard Weston, who is one of the administrators of 7 Steel. He was appointed as one of two joint and several administrators on 1 March 2010. On the same date, that is to say 1 March 2010, Mr Peter William Marsden and Mr David John Kerr were appointed as receivers and managers of 7 Steel pursuant to a fixed and floating charge that was created in favour of HSBC Bank Australia Limited ("HSBC").
2 7 Steel carries on a substantial business as an importer and a distributor of steel building products, including structural steel, rectangular and square hollow sections, pipes, merchant bars and plates. Its head office is located in Mount Druitt, New South Wales. The company operates 10 steel warehousing distribution centres on leasehold premises, and it employs 120 staff across those sites.
3 The receivers assumed responsibility for the business operations on their appointment and have continued to operate the business since 1 March 2010. The receivers have placed advertisements inviting urgent expressions of interest for the purchase of the business operations of 7 Steel on a going concern basis. Mr Weston has been informed by the receivers that there are currently 17 potential purchasers for the business operations, and that all of them have expressed an interest in purchasing some or all of the business operations on a going concern basis.
4 The first meeting of creditors was held on 10 March 2010. A committee of creditors was established at that meeting. The value of claims represented by the committee members was approximately $23 million, representing about 41 per cent of the claims of creditors. A meeting of the committee of creditors was held on 30 March 2010. Mr Weston attended the meeting and informed the members of the committee who were present that the administrators proposed to seek from the Court an eight week extension of the convening period. The committee unanimously resolved to support the application by the administrators for an extension of the convening period for up to two months. Mr Weston has to date had only fairly limited access to the books and records of 7 Steel. He only received the accounts on 30 March 2010, and has had limited opportunity to review them.
5 There is only one director of 7 Steel, namely a Mr Edward Studdy, who has prepared a draft report as to affairs, which was exhibited on the present application. It shows that the total estimate of the value of assets is in the order of $46 million. It also shows that the amount owing to HSBC under the charge to which I have referred is in the order of $16 million. The draft report as to affairs shows the value of employee entitlements in an amount of just over $1 million, and the value of the claims of unsecured creditors in an amount of nearly $44 million. On the basis of those figures it is clear enough that if the business can be sold on a going concern basis, there would be funds which could be distributed to unsecured creditors after the amount owing under the charge to HSBC is satisfied.
6 However there is a complication which arises in relation to the claims of certain creditors, namely retention of title claims that have been made against 7 Steel. It appears that the total value of the retention of title claims is approximately $28 million; although that raises a question in that the value of stock on hand, at cost, appears to be only in the order of $23.4 million. Steps are being taken by the receivers to verify the stock position. But in the meantime, seven of the creditors who have asserted retention of title claims have filed proceedings in the Supreme Court of New South Wales seeking orders inter alia, that they be permitted to attend and inspect the stock held at the warehouses. I have been taken to a number of the orders which have been made in the Supreme Court in those proceedings to permit inspection of the stock.
7 Clearly enough the question of the retention of title claims is a matter to be resolved in the Supreme Court, the outcome of which will affect the ability of the administrators, or the ability of 7 Steel, to be able to address any surplus which might become available in the administration.
8 As Mr Weston observes in his affidavit, whether HSBC is paid its debt in full and whether and to what extent there is a surplus available for distribution to the unsecured creditors is dependent upon a number of factors yet to be resolved, including the retention of title claims and the question of whether the receivers are able to conclude a sale of the business on a going concern basis. Plainly the sale price that can be obtained on the sale of the business operations is the critical factor. There will be a question of whether some or all of the employees of the company are to be transferred to a purchaser of the business operations. Also the accounts and the draft report as to affairs are not yet in a state which enables Mr Weston to be able to express concluded views as to the financial position of the company and he will need some time to be able to determine whether the accounts in the draft report accurately reflect the financial position of the company.
9 Mr Studdy has indicated to Mr Weston that he wishes to discuss a potential Deed of Company Arrangement ("DOCA"). Mr Weston has also been informed that it is likely that the proposed DOCA will include a cash component that will allow a distribution to be made to unsecured creditors. Of course, the nature of the DOCA proposal will be dependent upon whether there are funds available after the payment to HSBC. And, as I have said, this will depend in large measure upon the sale price that can be negotiated with a purchaser of the business.
10 Mr Weston deposes as to the belief of the administrators that an extension of the convening period for the second meeting will allow a number of important matters to be able to be sorted out. These are set out in paragraph 43 of his affidavit. They include, in particular, the retention of title claims and the negotiations for the sale of the business operations. Mr Weston expresses his opinion that an extension of the convening period will be unlikely to unduly prejudice the creditors of 7 Steel or other stakeholders for a number of reasons. In particular, the receivers have informed Mr Weston that they are continuing to pay the rent on the 10 warehouses and the employees are continuing to be paid their wages and entitlements.
11 The principles which apply to an application for an extension of time to convene and hold a second meeting of creditors are well settled. I referred to them in my decision in Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 at [20]. It is unnecessary to repeat or refer in detail to the authorities which I there mentioned but, as I said, the principles were summed up by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 ("Diamond Press") at [10]. As his Honour said:
The function of the court…is to strike an appropriate balance between…the expectation that administration will be a relatively speedy and summary matter…and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions towards maximising the return for creditors and any return for shareholders.
12 I should also refer to paragraph 11 of Barrett J's observations in Diamond Press that experience indicates that transactions of the kind that are contemplated in the present case do take a period of time, that is to say, for completion of a tender and competitive sale process.
13 The principles were also referred to fairly recently by Emmett J in Re ABC Learning Centres (admins apptd)(recs and mgrs apptd); Application by Walker and Another (No 8) (2009) 73 ACSR 478 ("ABC Learning"). Emmett J referred to the statutory framework which governs these applications. His Honour observed that the object of Part 5.3A of the Act is to enable the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and members than would result from an immediate winding up.
14 His Honour also referred in paragraphs 16 and 17 to critical provisions in Part 5.3A. These include the moratorium which arises under Division 6. His Honour referred in particular to sections 440A and 440B. There is no difficulty in relation to those matters in the present application. Emmett J also referred at [26] and [28] to the relevance of continuing to save the jobs and entitlements of employees. In that case there were thousands of employees. The present business is not as large as that of ABC Learning, but there are a significant number of employees. As Emmett J observed at [28], Part 5.3A indicates acceptance by Parliament that it is not only the wellbeing of creditors that is at stake but the possibility of continuing the business of the company for the benefit of its employees and its customers.
15 That is a relevant consideration in the present matter. Bearing in mind the matters to which I have referred and the opinions expressed by Mr Weston as to the benefits of an extension of the convening period I am satisfied that the orders which are sought will maximise the chances of the company in being able to realise either the whole or as much as possible from the sale of the business, either as a whole or at least in part, and that this is likely to result in a better return to the company's creditors. The evidence before me is sufficient to establish that there is, at least on the information presently available to Mr Weston, the real possibility that if the business can be sold on a going concern basis there may be funds available to meet the claims of creditors.
16 Plainly enough the process of competitive sale which is proposed in the present case and which is underway is, as Barrett J said in Diamond Press, one that may take some time to be completed. It seems to me that the eight week period which is sought by way of an extension of time is within the period which has been permitted in many other cases of this type.
17 For those reasons I am satisfied that I should make the orders in terms of paragraphs 1 to 6 of the draft short minutes of order provided to me by Mr Stack, who appears for the plaintiffs. These orders follow the form of the orders made by Emmett J in the ABC Learning case.
I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.