FEDERAL COURT OF AUSTRALIA Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 1329 CORPORATIONS – second extension of convening period for second meeting of creditors of companies in administration – Parliamentary intention of maintaining tight time limits – purpose of company administration Corporations Act 2001 (Cth), Pt 5.3A, ss 435A, 435C(2), 439A, 447A Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935related Australian Capital Reserve Limited (Administrators Appointed) v High Tower Investments Pty Limited (Administrators Appointed); in the matter of High Tower Investments Pty Limited (Administrators Appointed) [2007] FCA 1028related Hall, in the matter of Australian Capital Reserve Limited (Administrators Appointed) [2007] FCA 1328 related Parliamentary Joint Committee on Corporations and Financial Services Report, Corporate Insolvency Laws: a Stocktake, Canberra,June 2004 The Corporations and Markets Advisory Committee Report, Rehabilitating large and complex enterprises in financial difficulties, Sydney, October 2004, Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 IN THE MATTER OF ESTATE PROPERTY GROUP LIMITED (ADMINISTRATORS APPOINTED) ACN 089 187 548 AND IN THE MATTER OF THE COMPANIES SET OUT IN THE SCHEDULE JOSEPH DAVID HAYES, MURRAY CAMPBELL SMITH, SCOTT BRADLEY KERSHAW AND COLIN MCINTOSH NICOL IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF ESTATE PROPERTY GROUP LIMITED (ADMINISTRATORS APPOINTED) AND THE COMPANIES SET OUT IN THE SCHEDULE NSD 1079 OF 2007 GYLES J 29 august 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1079 OF 2007 IN THE MATTER OF ESTATE PROPERTY GROUP LIMITED (ADMINISTRATORS APPOINTED) ACN 089 187 548 AND IN THE MATTER OF THE COMPANIES SET OUT IN THE SCHEDULE JOSEPH DAVID HAYES, MURRAY CAMPBELL SMITH, SCOTT BRADLEY KERSHAW AND COLIN MCINTOSH NICOL IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF ESTATE PROPERTY GROUP LIMITED (ADMINISTRATORS APPOINTED) AND THE COMPANIES SET OUT IN THE SCHEDULE Plaintiffs JUDGE: GYLES J DATE: 29 august 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 15 June 2007 I made orders extending the convening period for the meeting of creditors required to be held under s 439A of the Corporations Act 2001 (Cth) (the Act) to midnight 23 July 2007 in relation to a number of companies, being the members of what is known as the Estate Property Group (the Group), together with some ancillary orders on the application of the administrators of the companies in the Group (the Administrators) (Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935). In a related application concerning Australian Capital Reserve Limited (Administrators Appointed) (ACR), on 12 June 2007 orders were made extending the "decision period" provided for by s 441A(1)(b) of the Act to the last day of the convening period for a number of companies in the Group (Australian Capital Reserve Limited (Administrators Appointed) v High Tower Investments Pty Limited (Administrators Appointed); in the matter of High Tower Investments Pty Limited (Administrators Appointed) [2007] FCA 1028). On 13 July 2007 the convening period for the second meeting of creditors of those companies was further extended to midnight on 31 August 2007 utilising the provisions of s 447A(1) of the Act to achieve that result and certain ancillary orders were made. I indicated then that I would give reasons for those orders in due course. These are those reasons. These reasons should be read with those in Hall, in the matter of Australian Capital Reserve Limited (Administrators Appointed) [2007] FCA 1328 to be delivered contemporaneously. The background to these reasons is set out in the various judgments to which I have referred and need not be repeated. 2 The Administrator of the Group with principal responsibility gave evidence as to what had occurred following the orders made on the last occasion and summarised the then current situation of the companies in the Group. He also dealt with the probable form of advice to creditors. I am satisfied that the task of investigating the position of each company and project, undertaking operational restructuring and taking advice as to the future, both generally and as to particular properties, was a major exercise that was approached diligently. 3 The Administrators have taken advice from a property agent on a property by property basis as to the current status of each property and the options available for realisation of them. Development of a strategy has involved negotiations with each of the first mortgagee lenders and the Administrators of ACR, who have taken their own property advice. A strategy has now been agreed on a property by property basis. Interim funding has been arranged in relation to major project construction work. There had been a confidential initial approach to the Administrators by a substantial company prior to the hearing that had the potential to affect the recommendation to creditors. 4 The Administrators have concentrated upon preparation of proposals in relation to the various companies which have been divided into three groups: Estate Constructions of Australia Pty Limited ACN 083 789 137 (Administrators Appointed), GC Condo Pty Limited (Administrators Appointed) ACN 123 133 013 – which are the construction companies; secondly, Mayshine Pty Limited (Administrators Appointed) ACN 065 856 144, Sam Pogson Constructions Pty Limited (Administrators Appointed) ACN 050 288 394 and Seajazz Pty Limited (Administrators Appointed) ACN 069 288 204 – known as the Mayshine companies; and thirdly, the remaining 21 companies within the Group known as the EPG subsidiaries. 5 Within the EPG subsidiaries there are 15 entities which have developments which are either completed, in the process of being developed or own properties which have not yet been developed. There are six entities which do not carry on business, have no external creditors and are classified as dormant. It was proposed that there would be a eeed of company arrangement put forward to cover the EPG subsidiaries, including both the active and dormant companies and it was envisaged that there would be a pooling arrangement. 6 The objective in relation to the construction companies is to formulate a proposal for a deed of company arrangement that would enable the construction companies to come out of voluntary administration and be sold to a third party and, thus, maintain a builder's licences. 7 The Mayshine companies are the ultimate holding companies for the EPG subsidiaries and the construction companies and are not borrowers from ACR. These companies are owned by the directors of the Group. At the time of the hearing the Administrators had not had an opportunity to properly investigate those companies to determine a recommendation to creditors. 8 The amount owed to external trade creditors of the Group is quite small compared with the amounts outstanding to secured lenders, including ACR. 9 The evidence of the Administrators in favour of the extension is entitled to considerable weight. However, an extension of the convening period of what, in total, amounts to approximately three months after appointment of the Administrators is considerable. The Parliamentary intention of maintaining tight time limits for this stage of voluntary administration has recently been reaffirmed. 10 The Parliamentary Joint Committee on Corporations and Financial Services Report, Corporate Insolvency Laws: a Stocktake, Canberra, June 2004, devoted attention to voluntary administration. In Ch 5 it considered, amongst other things, a comparison between voluntary administration and the United States Ch 11 procedure. It preferred voluntary administration and did not consider that wholesale amendments to the voluntary administration procedure were required (Ch 5.75). Amongst the factors referred to by the Joint Committee were as follows: "• Whilst both regimes impose a moratorium on creditors' claims, the voluntary administration regime places tighter timeframes to minimise the inconvenience and prejudice to creditors through the abridgement of their propriety rights and rights accrued under freedom of contract. … • Quite lengthy timeframes apply to proposed plans for reorganisation that would see a company under Chapter 11 administration having no certainty of future direction for over 6 months and in practice much longer. Under voluntary administration decisions are undertaken more quickly and under the supervision of a qualified independent administrator." It noted that the Corporations and Markets Advisory Committee (CAMAC) was then enquiring into the rehabilitation of large and complex enterprises and would also be considering the suitability of Ch 11 in such cases. 11 In Ch 6 the Joint Committee gave attention to the rights of creditors including the provisions concerning creditors' meetings. The Joint Committee considered submissions that the timeframe for the second meeting limited the ability of the administrator to carry out a proper investigation of the company's affairs, having noted the Court's power to extend the convening period under s 439A(6) and pursuant to s 447A. The recommendation (6.37) was that: "the period for holding the second meeting of creditors be extended to 25 business days with a new convening period of 20 business days. The adjournment period is to remain at 60 days." 12 The CAMAC Report, Rehabilitating large and complex enterprises in financial difficulties, Sydney, October 2004, recommended that voluntary administration should be retained, there being no clear case for introducing a debtor in possession regime based on Ch 11 of the United States Bankruptcy Code, either as a substitute for, or as an additional procedure to, voluntary administration (Recommendation 1). CAMAC then considered whether a business turnaround model, as proposed by some insolvency practitioners, should be adopted and recommended against it. That had been one of the variations also considered by the Joint Committee and rejected (5.50). CAMAC then considered a number of detailed matters, including the timing of first and major meetings (2.6). The recommendation was: "• the periods for holding the first and major meetings of creditors should be incrementally increased (namely, for the first meeting within 8 business days, and for the major meeting within 25 business days, of the appointment of the administrator), and • the administrator should be permitted to hold the major meeting before the end of the convening period. In addition, the court should have a specific power, on application by the administrator, to override the statutory timetable and to substitute a specific and comprehensive timetable for a particular administration. Administrators should have the power to adjourn a creditors' meeting either to a specific date or a date to be notified within the specified statutory period." 13 The Explanatory Memorandum to the Corporations Amendment (Insolvency) Bill 2007 contained a section entitled "Finetuning voluntary administration" which considered the question of time limits involved with meetings. It was said (at 7.114–7.115): "The setting of tight time frames and milestones for completion of the various tasks in an administration is an important feature of the voluntary administration procedure. On the one hand it is beneficial for stakeholders that the process be conducted without delay. It avoids the delays, abuses and expense that may occur if a much longer or unrestricted time frame is allowed. On the other hand a limited extension of the period of time for holding the statutory meetings may increase creditors' opportunities to participate, and allow administrators more time to conduct an examination of the company's financial circumstances and consider the best options for its future." 14 The proposed reforms in relation to the second meeting are as follows: "Second meeting Current New Convening of meeting 21 of 28 days 20 or 25 business days Notice of meeting 5 business days No change Timing of meeting Within 5 business days after the end of the convening period Within 5 business days before or after the end of the convening period Adjournment period 60 days 45 business days" That bill has now passed and is awaiting assent. 15 It needs to be borne in mind that administration of a company pursuant to Pt 5.3A is correctly headed as "Administration of a company's affairs with a view to executing a deed of company arrangement". Section 435C(2) provides that: "(2) The normal outcome of the administration of a company is that: (a) a deed of company arrangement is executed by both the company and the deed's administrator; or (b) the company's creditors resolve under paragraph 439C(b) that the administration should end; or (c) the company's creditors resolve under paragraph 439C(c) that the company be wound up." A deed of company arrangement is the form of administration by which the chances of a company continuing in existence are maximised, not indefinite company administration (cf s 435A). A regime of the latter kind has clearly been rejected by the recent reviews of the topic as a form of external administration as such. 16 However, the flexibility provided by s 447A has been noted in those reviews. The factors that weighed in favour of the order for further extension that was made in the present case – in addition to the opinion of the Administrators that more time was needed – included the amount of work that had been done, the real possibility of deeds of company arrangement being proposed, the support of secured lenders including the administrators of ACR and the lack of opposition following wide dissemination of what was proposed. All in all, I was satisfied that this was a case for a further extension. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. Associate: Dated: 29 August 2007 Counsel for the Plaintiffs: Mr CRC Newlinds SC, Ms S Mirzabegian Solicitor for the Plaintiffs: Minter Ellison Dates of Hearing: 6, 11 and 13 July 2007 Date of Orders: 13 July 2007 Date of Reasons: 29 August 2007