FEDERAL COURT OF AUSTRALIA Carson, in the matter of Hastie Group Limited (No 2) [2012] FCA 717 Citation: Carson, in the matter of Hastie Group Limited (No 2) [2012] FCA 717 Parties: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040, HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS File number: NSD 749 of 2012 Judge: EMMETT J Date of judgment: 19 June 2012 Legislation: Corporations Act 2001 (Cth) ss 439A, 439B, 443B, 447A Cases cited: Carson, in the matter of Hastie Group Limited [2012] FCA 626 Date of hearing: 19 June 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 26 Counsel for the plaintiffs: BA Coles QC, J Hynes Solicitor for the plaintiffs: Henry Davis York IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 749 of 2012 BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 First to Third Plaintiffs HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS Fourth to Forty-Seventh Plaintiffs JUDGE: EMMETT J DATE OF ORDER: 19 JUNE 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The plaintiffs have leave to file an Interlocutory Process dated 19 June 2012 in the form initialled by Emmett J (Interlocutory Process). 2. The Interlocutory Process be returnable instanter before Emmett J. 3. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period within which the plaintiffs must convene a meeting of creditors pursuant to s 439A of the Act in respect of the companies listed in Schedule 1 to the Interlocutory Application (Companies) be 150 Business Days (as defined in the Act) from 25 June 2012. 4. Pursuant to s. 447A(1) of the Act, with respect to each of the Companies, Part 5.3A of the Act is to operate as though: 4.1 s 439A were modified such that the meeting of creditors required by s 439A may be held at any time during or within 5 business days after the end of the convening period, as extended by order 1 above, and notwithstanding the provisions of s 439A(2) of the Act; 4.2 s 439A(3) were modified such that notice of the meeting of creditors may be given by giving notice, not less than 5 business days prior to the date of the proposed meeting, by only: 4.2.1 giving notice electronically by email, where the email address of the creditor is known to the Administrators; 4.2.2 placing notice of the meeting on the website that is maintained by the Administrators; and 4.2.3 causing notice of meeting to be published in The Australian newspaper; 4.3 s 439A(4) were modified such that the information required under s 439A(4) to accompany notice to creditors may be validly given if it were: 4.3.1 available for download from the website that is maintained by the Administrators; and 4.3.2 referred to, in the notices issued and published in accordance with subparagraph 2(b) above, as being available for download from the website that is maintained by the Administrators; 4.4 s 439B(1) were modified such that any of the Administrators may by instrument in writing appoint another partner or employee of PPB Advisory who is also a registered liquidator to chair the meeting of the creditors; and 4.5 ss 443B(2)(a) and 443B(3) were modified to read in each case "35 business days" rather than "5 business days". 5. Any person affected by this order, including any lessor of property, have liberty to restore on 2 days' notice. 6. The costs of the Interlocutory Application be costs in the administrations of the Companies. 7. The proceeding be listed for directions before Emmett J at 9.30am on Friday, 3 August 2012. Note: Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 749 of 2012 BETWEEN: IAN MENZIES CARSON, DAVID LAURENCE MCEVOY AND CRAIG DAVID CROSBIE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 First to Third Plaintiffs HASTIE GROUP LIMITED (ADMINISTRATORS APPOINTED) ABN 76 112 803 040 and 43 OTHERS Fourth to Forty-Seventh Plaintiffs JUDGE: EMMETT J DATE: 19 JUNE 2012 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 29 May 2012, the Court made orders under s 447A of the Corporations Act 2001 (Cth) (the Act) in relation to the companies in the Hastie Group (see Carson, in the matter of Hastie Group Limited [2012] FCA 626). I gave reasons for making those orders on that date. In these reasons, I shall use the same terms as were defined in my reasons of 29 May 2012. 2 The Hastie Group carried on a diverse range of mechanical engineering, plumbing, electrical and services activities with an emphasis on construction projects and maintenance services. It operated in Australia and internationally, particularly in the United Kingdom, New Zealand and the Middle East. The Hastie Group is divided into three divisions, being the services division, the mechanical engineering and plumbing (MEP) division, and international operations. The focus of the MEP division was subcontracting on construction and engineering projects. Individual companies within the MEP division undertook specific works. At the date of the appointment of the Administrators, the MEP division had approximately 2,530 employees employed across some 1,600 projects throughout Australia. It operated on approximately 1,000 sites in Australia. 3 The international operations were focused in the Middle East. However, the Administrators' investigations into the affairs of the international operations have been limited by lack of funds, and the departure from the Middle East of the Hastie Group's management. The Administrators understand that the international operations division may employ up to 2,000 persons in Saudi Arabia, the United Arab Emirates, and Qatar. There is some concern on the part of the Administrators that staff and contractors in the Middle East do not recognise their appointment, since they have generally refused to take direction from the Administrators. 4 The operations of the Hastie Group were not integrated. Notwithstanding that lack of integration from an operational point of view, a single treasury unit operated, being Hastie Holdings Pty Limited, with all proceeds of trading activities being paid into Hastie Holdings Pty Limited's account. Each company in the Hastie Group was accustomed to drawing its funding requirements from Hastie Holdings Pty Limited. The Hastie Group also had a common financier consisting of a syndicate (the Syndicate) of all major Australian domestic banks, together with two overseas banks. The security trustee of the Syndicate was ANZ Fiduciary Services Pty Limited. Forty-one of the companies in the Hastie Group provided cross-collateralised guarantees supported by registered charges over all of their assets and undertakings to support the obligations of the Hastie Group to the Syndicate. It appears likely that the Syndicate is owed in excess of $536 million by the Hastie Group, consisting of debt of $266 million and bond facilities of $270 million. The bond facilities were used to guarantee the performance of members of the Hastie Group in relation to obligations to contractors. The bonds are not cash-backed and, accordingly, if they are called up, the indebtedness of the Hastie Group to the Syndicate is increased by the amount called up. 5 The members of the Hastie Group have substantial numbers of external creditors over and above the Syndicate. They include unsecured creditors owed approximately $110 million, creditors owed unquantified amounts in respect of building contracts and rental or hire agreements, and employees owed entitlements in an amount of approximately $100 million. So far, approximately 6,000 individual creditors have been identified by the Administrators. 6 The administration of the Hastie Group by the Administrators to date has been complex and time-consuming. As I indicated previously, the Administrators suspended trading in the MEP division following their appointment. That decision was prompted by a lack of working capital, a lack of work that would produce immediate income, and the likelihood that contracts entered into by the MEP division contained clauses entitling the other party to terminate by reason of insolvency. The number of employees in the MEP division has now been reduced from 2,530 to approximately 20. Those employees are predominantly involved in debtor and "work in progress realisation" tasks. The Administrators have not been able to retain management staff, and the directors of the members of the Hastie Group have inconsistent knowledge of the operations of the various members of the Hastie Group. 7 The Administrators have commenced compiling material for the purpose of conducting a review of all of the records of the Hastie Group. The Administrators expect that the review will not be straightforward, and is likely to be a complicated task. The former chief executive officer, the Syndicate and the Receivers all have concerns about the accuracy of the records of the Hastie Group. Because of the difficulties in gathering information, the Administrators have not been in a position to make any substantial investigation into the reasons for the failure of the Hastie Group, whether any person failed in his or her duties with respect to the management of the Hastie Group, whether any antecedent transactions have occurred that might be void or voidable in the event of liquidation, or the identification and tracing of assets other than those subject to hire or rental agreements. 8 The investigations that have been carried out to date have revealed a number of matters as, follows. First, as I have said previously, the Hastie Group entities largely traded on an individual basis. Secondly, only a limited number of the businesses presently appear to be capable of being sold on a going concern basis, although three sales have already been completed. Thirdly, the decentralised nature of the Hastie Group and the nature of its individual businesses has made it difficult to ascertain what property is held and in what locations. Fourthly, it appears that the members of the Hastie Group shared assets and moved assets as between different locations. Fifthly, a significant number of the contracts entered into by the MEP division with builders contain terms that allow the head contractor to retain and use any equipment left on site following a default. It is possible, therefore, that property owned or leased by members of the Hastie Group may be in the custody and use of various head contractors. Sixthly, the Administrators have been involved in investigating approximately 40 retention of title claims to date. They expect that substantial further work will be involved in resolving claims of that nature. Seventhly, it is difficult to complete an accurate summary of the affairs of each member without reference to the affairs of the Hastie Group, given that the affairs of the Group may effectively determine the solvency of individual members. Finally, the former officers of the Hastie Group, as I have said, do not have consistent knowledge of the operations of the members. 9 In the circumstances, the Administrators consider that it will take a considerable time to complete investigations into the affairs of the entire Hastie Group to the extent necessary to understand what insolvent, void or voidable transactions might have occurred. The Administrators presently estimate that it will take approximately 12 weeks to confirm that the records of the Hastie Group are reliable. Once reliability has been established, it will take several months to review the records to form a view as to what further investigations are required. The Administrators believe that such further investigations could take up to six months to complete, although it is difficult to make any precise estimate. The Administrators have formed the view, at present, that it is unlikely that a successful restructuring of the MEP division or the International Operations division could be carried out. 10 No approach has been made to the Administrators by anybody wishing to propound a deed of company arrangement. However, given the relatively early stage of the administration, that possibility cannot be entirely ruled out. One possible purpose for a deed of company arrangement would be to enable the sale of the listed shell, which could have a value of up to $1 million to creditors. 11 As I have said, some three businesses have already been sold. The Administrators have also identified potential sales in relation to another six businesses. The Administrators expect that, with the support of the Syndicate under a proposed indemnity arrangement, they will be able to have access to funds that would otherwise have been realised for the benefit of the Syndicate. They expect that those funds can be used to cover the costs of the administration. 12 On 28 May 2012, the Administrators wrote to all creditors with an interest recorded in the Personal Property Securities Register in respect of members of the Hastie Group. Approximately 80 per cent of those secured creditors have failed to respond. The responses that have been received do not all adequately particularise the equipment or security arrangement under which any security interest is said to arise. Thus, it has been very difficult for the Administrators to identify property the subject of third party security interests by reference to the Personal Property Securities Register. The Administrators have issued notices under s 443B(3) of the Act with respect to property that is not likely to benefit creditors and is subject to lease or hire arrangements. The process of disclaiming assets has been complicated by the inadequate description of many registrations on the Personal Property Securities Register, and the slowness of creditors in providing payout information with respect to those assets. The Administrators intend to put in place a procedure that will allow the timely realisation of assets and the timely resolution of creditors' claims to assets. The Administrators expect that it may be necessary to seek further directions from the Court confirming the appropriateness of the final plans to be put in place with respect to the disposition of the property of members of the Hastie Group. 13 As at the date of appointment of the Administrators, members of the Hastie Group held some 80 leases, of which 13 will be disclaimed after 25 June 2012, following onsite auctions. The Administrators will have disclaimed 23 leases by that date. It is intended that six leases will be transferred to the operators of businesses sold as going concerns. The progress of surrendering the balance of the 13 leases will depend on the success of dealing with assets left at the various rented premises. The Administrators hope that, within the next six weeks, it will be possible to surrender all 13 remaining leases used by the MEP division. The balance of 38 leases will remain with the Receivers. 14 The Administrators have met on a number of occasions with staff from the office of the Minister for Workplace Relations. They have also met with the Minister on a number of occasions to discuss the progress of the administrations, and what arrangements can be put in place to protect employees. On 14 June 2012, the Minister announced that early access to GEERS payments would be granted to approximately 2,080 of the 2,530 former employees of the Hastie Group. The Minister's announcement indicates that, after receiving clear advice from the Administrators that affected members of the Hastie Group would go into liquidation, the Minister will move to ensure that workers can obtain access to GEERS assistance faster. 15 On 14 June 2012, meetings of creditors were convened with respect to 41 of the members of the Hastie Group. The meetings of creditors were held in person at venues in Sydney, Adelaide, Melbourne, Brisbane, and Perth, and by conference call in Abu Dhabi and Dubai. On 15 June 2012, further meetings were convened with respect to two members of the Hastie Group in Canberra, and one in Darwin. 16 At the meetings, creditors were informed that the Administrators intended to approach the Court for an extension of the convening period for the second meeting of up to 150 business days, and for a further 15 business day extension of the periods allowed in s 443B(2), and s 443B(3) of the Act. They were also informed of the intention to approach the Court for modification of the notification provisions contained in s 439A of the Act. Creditors were invited to approach the Administrators if they wished to oppose or support any such application. To date, no creditors have given any indication that they wish to be heard in relation to those matters. 17 Under s 439A of the Act, the Administrators would be required to convene the second meeting of creditors by 25 June 2012. However, the Administrators have formed the view that an extension of the convening period for the second meeting is necessary, and is in the interests of creditors, having regard to the complexity of the administration. Because of that complexity, the Administrators cannot comply with their obligations under the Act, and in particular with their duties to report and investigate in the time specified in s 439A. They require further time to prepare a report that complies with the requirements contained in that provision. 18 The Administrators consider that the return to creditors is likely to be maximised by the continuing voluntary administration, in that an orderly realisation of the assets will then occur. There would also be significant cost savings in having all of the members of the Hastie Group travel together through voluntary administration. Having regard to the intimation given by the Minister concerning GEERS payments, the Administrators do not consider that there would be any prejudice to employees if an extension of the convening period were to be granted. The Administrators also consider that any prejudice to the owners or lessors of property in the possession of the Hastie Group or secured creditors will be minimal. The potential prejudice to creditors is small, compared with the diminished return that a disorderly realisation of assets would result in. Creditors in general are not being asked to suffer further losses. To the extent that some creditors are potentially prejudiced, such as landlords, that prejudice is only for a limited period of time. 19 The Administrators have estimated that it will take up to 150 business days to investigate properly the matters required to be reported on to creditors in the report required under s 439A. Under s 439A(4), the Administrators must provide to the creditors a report about the relevant company's business, property, affairs, and financial circumstances, and a statement setting out the Administrators' opinion about three matters, as follows: whether it would be in the creditors' interests for the company to execute a deed of company arrangement; whether it would be in the creditors' interests for the administration to end; and whether it would be in the creditors' interests for the company to be wound up. The Administrators' reasons for those opinions must be given, along with such other information as will enable the creditors to make an informed decision about those three matters. 20 The Administrators consider that forming a view as to the potential return to creditors would be a substantial and time-consuming task if a deed of company arrangement were to be proposed. Because of the complexity of the Hastie Group, the Administrators do not believe that it is possible to form a view as to the likely outcome of any liquidation in isolation for any one member of the Hastie Group. It is likely that the question of voidable transactions will depend upon the overall position of the Hastie Group. The Administrators will not be in a position to have any useful understanding of that position for at least three months. 21 The Receivers and the Syndicate have indicated to the Administrators that they have formed the view that it would be in the interests of creditors to extend the convening period with respect to the services division for 150 business days. The Receivers are looking to sell, as going concerns, the businesses of the members of the Hastie Group to which they have been appointed. The Receivers consider that their strategy in attempting to achieve sales on a going concern basis would be prejudiced, and possibly frustrated, unless there is an extension of the convening period of at least 150 business days. The businesses of the members of the Hastie Group in receivership represent the most valuable assets of the Hastie Group. The Receivers consider that, in order to secure a result that maximises the return to creditors, it is critical that every opportunity be given to the Receivers to ensure that successful sales of the businesses occur. The receiverships are proving to be complex and time consuming. It is for that reason that the Receivers support the present application by the Administrators. 22 The companies that are subject to the receivership consist of three divisions. The first is Gordon Bros Industries Pty Limited, a stand-alone business operating in Victoria and focusing upon providing refrigeration services to industrial clients, including clients in the mining, pharmaceutical and petrochemical industries, as well as primary food and drink processors. The second is the Commercial Refrigeration Division, which consists of a number of companies, and which designs, manufactures, installs and services commercial refrigeration equipment in Australia. Its customers consist of various supermarket chains in Australia, particularly Woolworths. The third is the services division, which performs different types of preventative maintenance, call-out or emergency work, quoted repairs and light commercial work across a range of clients and projects. It is a national maintenance and service provider for air conditioning and food services products. 23 All of the companies that are subject to receivership, other than Hastie Holdings Pty Limited, are continuing to trade on a business-as-usual basis under the control and supervision of the Receivers. The primary goal of the Receivers has been to stabilise each of the business operations of those companies with a view to effecting their sale as going concerns as soon as reasonably practicable. To the extent that liabilities are being incurred by the companies in receivership as a result of the continued trading, those liabilities are being met by the profits generated from the trading and from funding provided by the members of the Syndicate or realisations from sales. 24 Having regard to the complexity of the businesses that are subject to receivership, and the early stage of the receivership, the Receivers have difficulty, at present, in estimating with any certainty how long the sale processes in respect of all of the businesses are likely to take. Their best estimate is that a going concern sale process is likely to take at least five to six months to be completed. The Receivers consider that the extension of time sought by the Administrators is consistent with the time required by the Receivers to achieve a sale of each of the business divisions of the companies in receivership as going concerns. The Receivers have formed the view that sales on a going concern basis will attract better sale prices than would otherwise be achieved if each of the businesses were sold on a piecemeal basis, and that sale as a going concern will enable a clear and obvious benefit to approximately 1,500 employees of the companies in receivership. Sale as a going concern will also maximise the prospect of bond facilities being refinanced by the incoming purchasers. 25 The members of the Syndicate all unanimously support the extension of the convening period now sought by the Administrators. The relief now sought by the Administrators in their interlocutory process of today is an order under s 439A(6) of the Act that the period within which they must convene a meeting of creditors, pursuant to s 439A, be 150 business days from 25 June 2012. They also seek orders under s 447A(1) of the Act that Part 5.3A of the Act operate as though ss 439A, 439B and 443B were modified in particular respects, by varying the dates and by varying the manner in which notice may be given to creditors. 26 In the circumstances that I have now briefly described, I consider that it is appropriate to accede to the application now made on behalf of the Administrators. Accordingly, I propose to make orders along the lines sought by them in their interlocutory process. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 5 July 2012