FEDERAL COURT OF AUSTRALIA Strawbridge, in the matter of Retail Adventures Pty Limited (Administrators Appointed) v Retail Adventures Pty Limited (Administrators Appointed) [2012] FCA 1286 Citation: Strawbridge, in the matter of Retail Adventures Pty Limited (Administrators Appointed) v Retail Adventures Pty Limited (Administrators Appointed) [2012] FCA 1286 Parties: VAUGHAN NEIL STRAWBRIDGE AND JOHN LETHBRIDGE GREIG AND DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 v RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 File number: NSD 1681 of 2012 Judge: JAGOT J Date of judgment: 14 November 2012 Legislation: Corporations Act 2001 (Cth) Cases cited: Re Australian Discount Retail Pty Ltd [2009] NSWSC 110 Re Riviera Group Pty Ltd (2009) 72 ACSR 352; [2009] NSWSC 585 Date of hearing: 14 November 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 14 Counsel for the Plaintiff: Mr R A Dick SC Solicitor for the Plaintiff: Herbert Smith Freehills Counsel for the Defendant: The defendant did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1681 of 2012 IN THE MATTER OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE AND JOHN LETHBRIDGE GREIG AND DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 Plaintiff AND: RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 Defendant JUDGE: JAGOT J DATE OF ORDER: 14 NOVEMBER 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Until further order, Confidential Exhibit VNS-A to the affidavit of Vaughan Neil Strawbridge sworn 13 November 2012 be kept confidential. 2. The date by which the Plaintiffs are required by section 439A of the Corporations Act 2001 (Cth) (the Act) to convene the second meeting of creditors of Retail Adventures Pty Limited (Administrators Appointed) ACN 135 890 845 (the Company) be extended to 26 February 2013. 3. Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is modified in relation to the Defendant such that, notwithstanding section 439A(2) of the Act, the second meeting of the creditors of the Company may be convened at any time before the end of the convening period (as extended by Order 2), provided that the Plaintiffs give notice of the meeting in accordance with section 439(3) of the Act. 4. The Plaintiffs have liberty to apply to the Court for any purpose connected with the administration of the Company, including, but not limited to, leave to apply for a further extension of the convening period as extended by Order 2. 5. Any person having sufficient interest may apply to vary Orders 2 and 3 on 5 days' written notice to the Plaintiffs' solicitors. 6. The Plaintiffs provide notice to the creditors of the Company in the terms of these Orders by email, where an email address for the creditors is held, or by way of written correspondence sent to their last known address. The Plaintiffs are also to make available on their website, www.deloitte.com, a copy of these Orders. 7. The costs of this application are costs and expenses in the administration of the Company and are to be paid out of its assets 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 1681 of 2012 IN THE MATTER OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: VAUGHAN NEIL STRAWBRIDGE AND JOHN LETHBRIDGE GREIG AND DAVID JOHN FRANK LOMBE, EACH IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 Plaintiff AND: RETAIL ADVENTURES PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 135 890 845 Defendant JUDGE: JAGOT J DATE: 14 NOVEMBER 2012 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application by the joint and several administrators of Retail Adventures Pty Limited (Administrators Appointed) (the company) to extend the convening period in respect of the second meeting of creditors of the company for a period of 90 days. 2 Section 439A(5) of the Corporations Act 2001 (Cth) (the Act) provides for the convening period which in this case would expire on 26 November 2012. Under s 439A(6) the Court may extend the convening period on application. The grounds for extension are specified in s 439A(7), which provides in substance that the Court may only extend the convening period if satisfied that it would be in the best interests of the creditors if the convening period were extended. Section 439B(2) is also relevant in that it provides that a meeting convened under s 439A may be adjourned from time to time but the period of the adjournment or the total of the periods of adjournment must not exceed 45 business days. However, that provision is subject to the general power of the Court, which is invoked in the present case, in s 447A(1) of the Act, which is to the effect that the Court may make such order as it thinks appropriate about how Pt 5.3A of the Act is to operate in relation to a particular company. 3 The application is supported by an affidavit of Vaughan Strawbridge sworn 13 November 2012. In this affidavit, Mr Strawbridge deposes to the fact that he is one of the three joint and several administrators of the company, being appointed on 26 October 2012. Mr Strawbridge describes the company as a subsidiary within the larger corporate group known as the Retail Adventures Group. The company conducts a number of discount variety store businesses under a variety of trading names, employing approximately 5000 staff on a full-time, part-time, and casual basis. There are a total of 268 stores throughout Australia. 4 The first meeting of creditors was convened, pursuant to s 436E of the Act, on 7 November 2012. Importantly, at that meeting creditors were informed, as they had been previously informed, of the intention of the administrators to apply for an extension of the convening period for the second meeting of creditors. Major creditors include two secured creditors, employee creditors, unsecured trade creditors, and landlords and lessors of plant and equipment. Details of the interests of the creditors as presently apparent are contained in Mr Strawbridge's affidavit. 5 Mr Strawbridge explains in his affidavit that given the retail nature of the business, the administrators formed the view that it was critical that the business should continue to trade as a going concern through the Christmas/January period in order to: – (i) preserve the value of the company until such time as a potential deed of company arrangement can be entered into and/or a process for sale of the business be completed, (ii) assist in the sale of older stock, which will enable the value of the stock component of the company's business to be improved, and (iii) maximise potential distributions to creditors upon a disposal or sale of the business. According to Mr Strawbridge, it is the intention of the administrators to commence a sale process in respect of the business as soon as practicable. Mr Strawbridge's proposed timetable for the finalisation of any sale of business agreement explains why the further time is necessary, given the large number of separate lessors in respect of the company's stores. Mr Strawbridge also notes that there is a proposal for entry into a deed of company arrangement with one of the company's parent entities, DSG Holdings Australia Pty Limited. 6 According to the affidavit, each known and contingent creditor has been notified of this application by way of a circular and the presentation at the first meeting of creditors, and a further notice was also sent after the first meeting of creditors. Mr Strawbridge deposes to the fact that as at the date of the affidavit he has not received or been informed of any objection from creditors in relation to the proposed extension of the convening period, and that remains the position today. Also according to the affidavit, the administrators continue to pay employees in the ordinary course of their employment. Further, as the business continues to trade, the company has continued to pay rent to the landlords of premises which are now subject to a licence arrangement. 7 The administrators have also provided their consent, pursuant to s 440B of the Act, to the two secured creditors of the company, enabling them to enforce their rights outside the decision period provided for in the Act. At the second meeting of creditors it is proposed that there be put to creditors for their consideration a possible deed of company arrangement and the issue of the sale of the business will also then be dealt with. 8 Given the size and complexity of the business, including the 268 stores currently being operated and the employment of approximately 5000 staff, to which I have referred, the administrators have reached the opinion that the continued trading of the company's business as a going concern for the extended period to enable finalisation of any proposed deed of company arrangement and/or sale of the business will yield the best result for stakeholders in the company and, accordingly, that it is in the best interests of the company's creditors that the extension of the convening period for the proposed 90 days be granted. 9 The application is supported by comprehensive written submissions identifying the relevant statutory and legal framework and the principles. The principles identified include that where an application such as the present is made the balance that is sought to be struck is, on the one hand, between the expectation that it is generally in the interests of creditors that the administration of the company be conducted as quickly as possible and, on the other hand, that the need for speedy resolution of the administration should not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders of the company. This was reflected in the statement by Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 352; [2009] NSWSC 585 at [18], cited in the written submissions, where his Honour said: The cases show that where a substantial issue in any of these categories is established…the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator's estimate of time has a reasonable basis. 10 The categories to which his Honour was referring are those cases where an extension of time may need to be granted beyond the statutory period, having regard to such matters as the size and scope of the business, the large number of employees of the business, the time needed to execute an orderly process of disposal of assets, the time needed for thorough assessment of a proposal for a deed of company arrangement, where the extension will allow sale of the business as a going concern and, more generally, where the additional time is likely to enhance the return for unsecured creditors. In the present case, it will be apparent that each of these matters to which I have referred are engaged on the present facts. 11 Otherwise, the written submissions in support of the application refer to the decision of Barrett J in Re Australian Discount Retail Pty Ltd [2009] NSWSC 110, in which his Honour said at [21]: The second meeting of creditors is best held at a time when it is possible to give creditors fairly definitive financial information that will assist them in this decision making. In the present case, information about the financial consequences of the sale of the business is crucial, assuming such a sale eventuates. In addition, creditors' decision-making will be much more difficult and more complicated if they are compelled to make a decision about the company's future based on speculation about the possibility of a going-concern sale. Further time for the formulation and digestion of recommendations based on established realities will avoid the possibility of might be a premature decision in favour of winding up as the only practical available option. 12 Again, these principles are engaged in the present case. There is substantial evidence to the effect that the categories in which courts have previously granted extensions of time are engaged in this case. There is a proper evidentiary basis for the proposed extension of time. There is no evidence of material prejudice to those affected by the moratorium imposed by the administration, at least in the sense that any such prejudice is not apparently sufficient to outweigh the countervailing interests identified. I am also satisfied that the extension of time for a 90 day period does have a reasonable basis, having regard to what needs to be done in terms of the bringing forward of a possible deed of company arrangement and also the sale of the business as a going concern. 13 My attention has also been drawn in the written submissions to certain anticipated other applications based on the fact that the same administrators have been appointed to one of the parent companies, making it likely that similar applications will be made in respect of the convening period for that company, as well as consequential orders in relation to the administrators' potential liability and rights to indemnity. Nothing in those matters suggests that the orders presently sought should not be made, and those matters will be allocated a hearing date in order that they too be dealt with. 14 For these reasons, I am satisfied that orders should be made in accordance with the proposed orders. These orders include the appropriate order that any person having sufficient interest may apply to vary orders 2 and 3 on five days' written notice to the plaintiff's solicitors. Orders 2 and 3 provide first for the extension of time for 90 days, which is until 26 February 2013, and secondly that the second meeting be able to be held within that extended period, provided the requisite notice is given. Accordingly, I make orders 1 through to 7 of the proposed short minutes of order. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 19 November 2012