FEDERAL COURT OF AUSTRALIA Askernish Pty Ltd [2004] FCA 400 CORPORATIONS – voluntary administration – application for an order extending time to reconvene adjourned second meeting of creditors – whether the court has power to extend time – factors in exercise of discretion – liberty to apply granted. Corporations Act 2001 (Cth), ss 421(2), 436E, 439A, 439B(2), 447A and 1322(4) Cawthorn v Keira Constructions Pty Ltd (1994) 13 ACSR 337 cited Mann v Abruzzi Sports Club Ltd (1994) 12 ACLC 137 cited Milankov Nominees Pty Ltd v Roycol Ltd (1994) 52 FCR 378 cited Re Double V Marketing Pty Ltd (in administration) (1995) 16 ACSR 498 cited Re Locm Pty Ltd (1997) 79 FCR 35 cited Re Old Papa's Holdings Ltd; Ex parte Wallman (2001) 24 WAR 229 cited Re Regency South Steyne Investments Pty Ltd [2003] FCA 1546 cited IN THE MATTER OF ASKERNISH PTY LTD (administrator appointed) (receiver and manager appointed) (ACN 008 806 773) W34 OF 2004 LEE J 13 FEBRUARY 2004 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W34 OF 2004 IN THE MATTER OF ASKERNISH PTY LTD (administrator appointed) (receiver and manager appointed) (ACN 008 806 773) ANTHONY MICHAEL TRAVERS PLAINTIFF JUDGE: LEE J DATE OF ORDER: 13 FEBRUARY 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The time within which the plaintiff may reconvene the adjourned meeting of creditors of Askernish Pty Ltd (administrator appointed) (receiver and manager appointed) (ACN 008 806 773) ("the company") be extended to 22 April 2004. 2. Leave be reserved to any person claiming to be interested (including the Australian Securities Investment Commission, any creditor, or the receiver and manager) to vary these orders on 48 hours notice to the plaintiff. 3. The plaintiff's costs of the application be costs in the administration of the company. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W34 OF 2004 IN THE MATTER OF ASKERNISH PTY LTD (administrator appointed) (receiver and manager appointed) (ACN 008 806 773) ANTHONY MICHAEL TRAVERS PLAINTIFF JUDGE: LEE J DATE: 13 FEBRUARY 2004 PLACE: PERTH REASONS FOR JUDGMENT LEE J: 1 By originating process filed on 12 February 2004 the plaintiff ("the administrator") applied for an order pursuant to s 447A and/or s 1322(4)(d) of the Corporations Act 2001 (Cth) ("the Act") extending the time within which the administrator may reconvene the adjourned second meeting of creditors of Askernish Pty Ltd (administrator appointed) (receiver and manager appointed) (ACN 008 806 773) ("Askernish"). 2 The relevant facts may be shortly stated as follows. 3 Askernish was incorporated in Western Australia on 2 June 1976. At material times it conducted an earthmoving equipment repair and maintenance business trading under the business name "Allplant and Mechanical Services". 4 On 27 October 1989 Askernish executed a debenture agreement creating a fixed and floating charge over its assets in favour of Palliser Holding Pty Ltd ("Palliser"). By deed of assignment, said to be effective from 1 December 1994, Palliser assigned its rights, title and interest under the debenture agreement to Citywide Nominees Pty Ltd ("Citywide"). 5 On 15 January 1999 Askernish executed another debenture agreement for a fixed and floating charge over available assets in favour of Cashflow Factors Pty Ltd, formerly known as Parview Enterprises Pty Ltd ("Parview"). 6 Both Citywide and Parview are described as "debt-factoring" companies. 7 On 6 October 2003 the Deputy Commissioner of Taxation as creditor issued an application to wind up Askernish in respect of unpaid goods and services tax and "PAYE" tax. On 26 November 2003, the day before the winding up application was to be heard, the plaintiff was appointed administrator of Askernish. 8 Pursuant to s 436E of the Act the administrator convened a meeting of creditors, held on 4 December 2003, to determine whether to appoint a committee of creditors. The meeting discussed the affairs of Askernish and closed without any resolution being proposed. 9 On 5 December 2003 Citywide and Parview appointed a receiver and manager pursuant to their respective debentures. The receiver and manager took possession of the books and records of Askernish and thereafter continued to operate the business. 10 Pursuant to ss 439A(1), (5) of the Act the administrator had to convene another meeting of creditors within the period of 21 days beginning on the day of his appointment, 26 November 2003. 11 On or about 16 December 2003 the administrator sent a report to creditors setting out some preliminary views on the state of the financial affairs of Askernish and notified creditors that a meeting of the creditors of Askernish would be held on 24 December 2003. On 17 December 2003 the administrator advertised notice of the meeting in a daily newspaper circulating in the State. The administrator's actions in providing a notice of meeting to creditors, and advertising the notice in a daily newspaper, sought to comply with the requirements of s 439A(3) of the Act as to the manner of, and time for, convening the meeting. 12 Whether the meeting was convened within the time prescribed in s 439A(3), or was held within the time provided in ss 439A(1), (2), (5) of the Act, was not the subject of any submission and the Court was not asked to make an order under s 1322(4) of the Act in that regard. 13 At that meeting the creditors resolved that the meeting be adjourned "for a period up to sixty days" (the maximum period of adjournment permitted under s 439B(2) of the Act) and that the administrator be authorized to obtain a legal opinion regarding validity of the debentures and of the appointment of the receiver and manager. 14 Between 27 January 2004 and 9 February 2004 solicitors instructed by the administrator engaged in correspondence with the receiver and manager, and his solicitor, requesting that, amongst other things, the receiver and manager provide an account of all monies received since his appointment and a statement of what, if any, monies remained owing under the debentures. By letter dated 11 February 2004 the solicitor for the receiver and manager indicated that the books and records of Askernish and an account would be provided to the administrator "in due course". 15 On the assumption that the time within which the adjourned meeting of creditors could be reconvened pursuant to s 439B(2) would expire on 22 February 2004 the originating process, supported by an affidavit sworn by the administrator, came on for hearing on an ex parte basis on 13 February 2004. The affidavit indicated that the administrator had held discussions with a person who was considering putting before the creditors a proposal for a deed of company arrangement. Those discussions were described in the following terms: 'The proposer of the deed of company arrangement, who I understand is not a relation of the directors of Askernish, although he knows one of Askernish's directors, has informed me that he is unwilling to propose a deed of company arrangement until he receives some form of estimate as to the company's current position, including amount of secured debts. I consider that a deed of company arrangement will require an amount to be paid to me which exceeds the amount payable to priority creditors and secured creditors so there is a real return to the unsecured creditors. A payment of not less than $300,000, together with assumption of certain lease liabilities, has been proposed to me. I have also discussed retaining, as deed administrator, the right to recover certain debts owed to Askernish to collect those debts for the benefit of unsecured creditors. The person considering proposing a deed of company arrangement proposes to continue operating Askernish's business. He proposes that a number of Askernish's employees will retain their jobs and Askernish will continue trading. … [C]urrently, I would have no option but to recommend at the adjourned second meeting of creditors that Askernish be placed into liquidation. I could not make any other recommendations as I have received no proposed deed of company arrangement and the company is insolvent. However, a deed may be proposed, depending on the debts still owed to Citywide and Parview. If a deed of company arrangement were currently proposed, I would have considerable difficulty adequately reporting to unsecured creditors unless aware of the outstanding secured debts and the likely return to unsecured creditors.' 16 The relevant provisions in Pt 5.3A of the Act relating to the appointment of an administrator and the execution of a deed of company arrangement include s 447A which is in the following terms: '(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration – the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement – the deed's administrator; or (e) ASIC; or (f) any other interested person.' 17 It should be concluded that the discretion granted to the Court in s 447A is unfettered. (See: Milankov Nominees Pty Ltd v Roycol Ltd (1994) 52 FCR 378). Although the grounds on which the power may be exercised are broad, an order extending the period of adjournment of a meeting will not be made as a matter of course. (See: Mann v Abruzzi Sports Club Ltd (1994) 12 ACLC 137). 18 It now appears to be settled law that notwithstanding the injunctive terms of s 439B(2) the Court has power under s 447A to authorize adjournment of a meeting convened under s 439A of the Act to a day more than 60 days after the first day on which the meeting was held. (See: Re Regency South Steyne Investments Pty Ltd [2003] FCA 1546; Re Locm Pty Ltd (1997) 79 FCR 35; Re Double V Marketing Pty Ltd (in administration) (1995) 16 ACSR 498); Re Old Papa's Holdings Ltd; Ex parte Wallman (2001) 24 WAR 229). 19 In Cawthorn v Keira Constructions Pty Ltd (1994) 13 ACSR 337 Young J examined the legislative history of Pt 5.3A of the Act and noted, at 341, that: 'Although the flavour from this material is that there is to be a short moratorium, and that the interim administration, before the creditors make the appropriate resolution, is not to be indefinite, there is also the flavour that whilst the court is to keep on the sideline as much as possible, it is to be involved in a supervisory capacity, it is to be involved to ensure that secured creditors are not prejudiced and, indeed, it is to be involved and to use its powers to tailor‑make a procedure for each company, so that the spirit and objects of the Part will be implemented. It seems to me that this reinforces the construction that I have placed on s 447A, that the court is to have plenary powers to do whatever it thinks is just in all the circumstances, but the court is to bear in mind when exercising those powers the rights of the various groups of people that are affected by voluntary administration, and that there is a very great public interest in not permitting such voluntary administration to go on for a long period of time. Provided that those principles are borne in mind, the court is to ensure that the object of the exercise, that is to consider whether in everybody's interest it is better to have some form of administration short of winding up, is fulfilled.' 20 In considering whether the discretion should be exercised in favour of the administrator I note that the administrator did not seek to be made an agent of a director, under s 421(2) of the Act, to examine the financial records kept by the receiver and manager. Such a step may have overcome the delay the administrator was experiencing in obtaining the information he had asked the receiver and manager to provide. Nevertheless, I am satisfied that the period within which the adjourned meeting may be reconvened should be extended. It is apparent that further time is needed to better enable the administrator to gather information, facilitate a proposal for deed of company arrangement and give a meaningful account of his administration to creditors. There is a real prospect that, if a deed is proposed and accepted, the deed may provide a better outcome for unsecured creditors, including trade creditors and employees of Askernish, than would be achieved by a winding-up. That objective would meet the purpose of Part 5.3A of the Act. Furthermore, there is no suggestion in the material before the Court that any person would be prejudiced by such an extension. 21 I consider it appropriate, however, that leave be reserved to any person claiming to be interested (including the Australian Securities Investment Commission, any creditor, or the receiver and manager) to vary these orders on 48 hours notice to the administrator. The costs of the application will be costs in the administration of Askernish. I certify that this and the preceding twenty-one (21) paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee Associate: Dated: 14 April 2004 Counsel for the Plaintiff: JC Giles Solicitor for the Plaintiff: Solomon Brothers Date of Hearing: 13 February 2004 Date of Judgment: 13 February 2004