FEDERAL COURT OF AUSTRALIA Kijurina (as Administrator), in the matter of IGEA Life Sciences Pty Ltd (Administrators Appointed) v IGEA Life Sciences Pty Ltd (Administrators Appointed) [2014] FCA 509 Citation: Kijurina (as Administrator), in the matter of IGEA Life Sciences Pty Ltd (Administrators Appointed) v IGEA Life Sciences Pty Ltd (Administrators Appointed) [2014] FCA 509 Parties: BRENT TREVOR-ALEX KIJURINA AND RICHARD ALBARRAN IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 and IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 File number: NSD 477 of 2014 Judge: FARRELL J Date of judgment: 19 May 2014 Catchwords: CORPORATIONS – external administration – application pursuant to s 439A(6) of the Corporations Act 2001 (Cth) – extension of convening period – first application made – where extension might facilitate sale of business as going concern PRACTICE AND PROCEDURE – non-disclosure orders – orders sought pursuant to the Federal Court of Australia Act 1976 (Cth) s 37AF – where information commercially sensitive – length of limitation period – administration of justice Legislation: Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) Cases cited: Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430 Re Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (2009) 72 ACSR 352 Date of hearing: 19 May 2014 Date of last submissions: 19 May 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 32 Counsel for the Plaintiffs: Mr CD Freeman Solicitor for the Plaintiffs: Nelson McKinnon Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 477 of 2014 BETWEEN: BRENT TREVOR-ALEX KIJURINA AND RICHARD ALBARRAN IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 First Plaintiff IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 Second Plaintiff JUDGE: FARRELL J DATE OF ORDER: 19 mAY 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the period within which the administrators of the second plaintiff must convene a meeting of creditors of the second plaintiff under s 439A of the Act be extended up to and including 25 July 2014. 2. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to have effect in relation to the second plaintiff such that the meeting of the creditors of the second plaintiff required by s 439A of the Act may be held at any time during, or within five business days after the end of, the convening period as extended by order 1 above, notwithstanding the provisions of s 439A(2) of the Act. 3. The costs and expenses of the application in respect of the plaintiffs are costs in the administration of the second plaintiff. 4. On the ground that it is in the interest of the administration of justice that such an order be made, the following parts of the affidavit of Brent Trevor-Alex Kijurina sworn on 15 May 2014 (Kijurina Affidavit) and corresponding information contained in Counsel's written submission of 14 May 2014 be suppressed and remain confidential up to and including: (a) The earlier of 25 January 2015 or the date upon which the second plaintiff is placed into liquidation: (i) The numbers in [14]; (ii) The numbers in [16]; (iii) The numbers in [24]; (iv) [31], [32], [33] and [35]; (b) 26 July 2014: (i) The numbers in [45]; (ii) The numbers in [47]; in accordance with the redacted version of the Kijurina Affidavit. 5. Liberty to the plaintiffs to apply to the Court: (a) for any further extensions of the convening period; (b) in relation to order 4; and (c) in relation to order 4(a)(ii), in the event that the entire business is not sold as a going concern to one purchaser. 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 477 of 2014 BETWEEN: BRENT TREVOR-ALEX KIJURINA AND RICHARD ALBARRAN IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 First Plaintiff IGEA LIFE SCIENCES PTY LTD (ADMINISTRATORS APPOINTED) ACN 125 930 878 Second Plaintiff JUDGE: FARRELL J DATE: 19 May 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application for orders pursuant to ss 439A(6) and 447A of the Corporations Act 2001 (Corporations Act) to extend the period within which the first plaintiff (the Administrators) must convene a meeting of the creditors of the second plaintiff (the Company) under section 439A of the Corporations Act by 45 days to 25 July 2014. An affidavit in support of the application was sworn by one of the Administrators, Mr Kijurina, on 14 May 2014 (Kijurina Affidavit). Factual matters referred to in these reasons are derived from the Kijurina Affidavit and unless otherwise indicated, references to a provision of an Act are references to a provision of the Corporations Act. 2 The Administrators were appointed on 15 April 2014 pursuant to a resolution of the directors of the Company. As 15 April 2014 is a date within 25 business days of Good Friday (which occurred on 18 April 2014), the convening period is therefore due to end on 23 May 2014 in accordance with s 439A(5)(a). This is the only application for extension of the convening period which has been made and it has been made within the convening period. Background 3 The Company was registered on 13 June 2007. It is trustee of the IGEA Life Sciences Unit Trust (the Trust) and in that capacity conducts a business of selling a range of beauty and weight loss goods and services in the natural health and well-being market (Business). The brand names of products sold by the Business include "BodyTrim", "Skin Physics" and "David Babaii". 4 The Company sells its products through retail outlets including pharmacies, supermarkets, department stores, beauty outlets and health food stores. It also conducts sales "direct to customer" through a number of websites and online platforms which it operates; some of these sales involve ongoing subscriptions to purchase products including by way of membership of the "Trim Club". 5 On 15 April 2014, the Administrators were also appointed as administrators of Advanced Nutrition Systems Pty Ltd (ANS), a related entity of the Company. The Administrators do not seek an extension of the convening period in relation to ANS. ANS has the right to sell products using the "Quickslim" and "Colon-Flow" brands. ANS uses the resources of the Company, including the premises leased by the Company, the Company's management and the Company's information technology assets. Assets and liabilities 6 The Administrators have not yet received a report as to affairs or a directors' questionnaire, but the directors have been available in person or by telephone and email to answer questions from the Administrators' staff. The Administrators are continuing their investigations. No deed of company arrangement has been proposed by the directors. 7 It appears that as at the date the Administrators were appointed, the liabilities of the Company were $5,846,374.49, of which $535,058.78 was owed to secured creditors, there was $715,759.30 in employee liabilities and $4,595,556.41 was owed to unsecured creditors. According to the Administrators' searches, the Company owns no real property and the Administrators have disclaimed one of the Company's two leasehold properties. The Business is now conducted from the remaining leasehold property. 8 There are five secured creditors recorded in the Personal Property Securities Register. One secured creditor has discharged its security since the Administrators were appointed and one is not owed anything. Another secured creditor is owed $8,839.58 in respect of credit card debt but will set off this amount against funds held in one of the Company's trading accounts. One creditor who has a representative on the Creditors' Committee claims $378,342.14. The Administrators have challenged that creditor's claimed security over stock on the basis that under its supply agreement, title passes to the Company on delivery of goods and there is no charging provision in the supply agreement. The last secured creditor has lodged a proof of debt for $156,716.64 but there appears to be no stock on hand from that creditor. 9 The value of the reported cash at bank, debtors, inventory and plant and equipment is expected to realise less than the Company's liabilities. 10 The intellectual property for many of the Company's products is held by third parties. Similarly, the Company has entered into a range of agreements with service and intellectual property suppliers in relation to the operation of its websites, online store, call centre and computer and telephone systems. Sale of Business 11 The Company has continued to trade since the date the Administrators were appointed. As the main assets of the Business appear to be goodwill and stock, the Administrators have formed the view that the sale of the Business as a going concern is more likely to maximise the returns available for all creditors than the immediate liquidation of the Company. 12 Mr Kijurina expressed the view that that benefits of selling the Business as a going concern during the administration are: (a) it is likely that the obligation to pay employee entitlements will be minimised, since a new employer would take over liability for those employees. The Administrators have terminated the employment of nine out of 57 employees who were employed in the Business at the time the Administrators were appointed. The Administrators are paying the salaries of the remaining employees. (b) trade creditors are currently being paid in the ordinary course, and those suppliers may have the opportunity to continue to supply goods and services to a purchaser. If the Company were not sold as a going concern, there would be a risk that the Company would lose the benefit of the supply agreements. (c) if the Company is wound up, the benefit of the restrictions placed on the landlord by s 440B of the Corporations Act would be lost. 13 The Administrators have undertaken considerable efforts since their appointment to identify buyers for the Business or individual brands: (a) On 19 and 26 April 2014, they advertised for expressions of interest in the Sydney Morning Herald and the Australian Financial Review; (b) Confidentiality deeds have been entered into with multiple parties and they have supplied an Information Memorandum to interested parties; (c) They have engaged a supplier of a virtual data room; (d) They have engaged Origin Securities Pty Limited (Origin) to assist with the sale and Origin has advertised on "MergerMarkets", a news wire service, and sent out flyers and provided information memoranda to interested parties. (e) The expected date for receipt of offers was 15 May 2014, however due to some delays in the provision of information to the data room, that date has not been met. 14 Having regard to the number of requests for the Information Memorandum and the response received by Origin, the Administrators believe there is a strong chance of selling the Business as a going concern in a reasonably quick time but do not believe this can be completed before 30 May 2014. They say they need additional time to complete their investigations and for dealing with issues relating to the sale of the Business. Notice of application 15 On 15 April 2014, the Administrators issued a report to the creditors of the Company (First Report to Creditors) and on 28 April 2014 the first meeting of creditors was held. The creditors voted to elect a committee of creditors (Committee) at the meeting. The Committee comprises four members including one employee and a representative of one of the creditors who claims to be a secured creditor. 16 On 9 May 2014, the Administrators issued an update to the Committee and advised the Committee members of the application to the Court to extend the convening period. Between 9 and 12 May 2014, the Administrators' lawyers sent letters to the secured creditors, the landlord of the leasehold premises and the Australian Securities and Investments Commission notifying them of the application and the no responses have been received. The affidavit of Mr David Armstrong sworn on 19 May 2014 was read; it confirmed that neither the Administrators nor their lawyer had received notice of any objection to the application. Reasons for extension of time 17 The Administrators seek the extension on the basis that the size and scope of the Business and the complex contractual arrangements entered into by the Company mean that further time is required to allow the sale of the Business as a going concern, which they consider to be in the best interests of the creditors. The Administrators identify the following as issues which they have or will encounter in investigating the financial affairs of the Business and pursuing the opportunity for sale: The intellectual property of the Company is licensed from third parties whose consent will or may be required for it to be assigned as part of a sale process; The trading trust structure through which the Business is conducted means that the Administrators need to obtain advice in relation to the identification and realisation of trust assets; The possibility that the Business may be sold in parts having regard to its many facets and products, which may necessitate negotiation of multiple agreements with multiple parties; Negotiations with a health industry entrepreneur who is the public "face" of one aspect of the business; The fact that the products sold in the Business are manufactured and supplied by third parties and a purchaser may need the assistance of the Administrators to negotiate uninterrupted supply; The size of the company and the complexity of its commercial arrangements mean that investigations are still in progress; Some interested parties are currently conducting due diligence; after a purchaser has been identified it will be necessary to negotiate terms of sale of the Business and to allow time for completion of a sale contract; Some interested parties are currently overseas which has caused some delay; and The number of interested third parties whose consent may be required to complete a sale of the Business. Relevant principles 18 The principles relevant to an application under s 439A(6) were summarised in Re Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 (Austcorp) at [18] by Lindgren J and in Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (2009) 72 ACSR 352 (Re Riviera) at [13] by Austin J. Justice Austin identified a number of justifications for allowing an extension of time, including that the time is required to allow the sale of the business as a going concern and that an extension of time is likely to enhance the return for unsecured creditors. 19 In Austcorp, Lindgren J at [18] described the factors which must be balanced in deciding whether or not to make an order extending the convening period: …the function of the court is to strike an appropriate balance between the legislature's expectation that the administration will be a relatively swift and summary procedure, and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders Consideration 20 Having regard to the issues identified by the Administrators and the relevant factors outlined in Re Riviera and Austcorp, I am satisfied that the extension of time should be granted. I accept that the structure of the Business, including the extent of its relationships with third parties, creates complexity for the Administrators in effecting the sale of the Business as a going concern. I am persuaded that in the circumstances of the Company, the sale of the Business as a going concern is likely to maximise the return to creditors and be in the interests of the Company's existing employees. 21 The requested extension is not a lengthy one and on the evidence before me I am satisfied that the Administrators have been diligent in undertaking their responsibilities and have a reasonable basis for their optimism that a buyer may be identified in a relatively short timeframe. Even if a purchaser of the Business is identified by 23 May 2014, I am satisfied the additional period is appropriate in order to allow the Administrators to complete their investigation of the Company's affairs and make arrangements necessary for negotiations and completion of the sale of the Business. That being the case, I am satisfied that granting an extension of time would further the objects of Part 5.3A of the Corporations Act. 22 I will make the orders sought by the Administrators to extend the convening period. CONFIDENTIALITY 23 The Administrators sought confidentiality orders in relation to some material in the Kijurina Affidavit and the exhibit to it. 24 Division 2 of Part VAA of the Federal Court Act of Australia Act 1976 (Cth) (Federal Court Act) replaces the former s 50 and sets out the powers of the Court to make suppression and non-publication orders. Section 37AE stresses that, in making such an order, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice. 25 Such orders can only be made on one of the grounds specified in s 37AG, and in this case the most relevant is s 37AG(1)(a): the order is necessary to prevent prejudice to the proper administration of justice. In Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430 (ACCC v Air NZ), Perram J at [19]-[21] considered the then new s 37AG(1)(a): 19 I do not think that the word 'proper' alters the meaning of the phrase, so that s 37AG(1)(a) reproduces a test with the same content as that which had formerly obtained in relation to s 50. That matters because the meaning and operation of those words have been comprehensively explained by the High Court in Hogan v Australian Crime Commission (2010) 240 CLR 651 at 664 [30]-[33] per curiam. Relevant matters to note about the wording in s 37AG(1)(a) are that, first, before the order is made, it must be 'necessary' and that 'necessary' is, as was explained in Hogan, a high standard. It is different to 'convenient, reasonable or sensible': Hogan at [31]. 20 Secondly, the propinquity of the wording in sub-s (a) to the wording in sub-s (b), with its references to 'prejudice to the interests of the Commonwealth or a State or Territory in relation to national or international security', shows that, as the High Court noted in Hogan at [30], citing the judgment of Bowen CJ in Australian Broadcasting Commission v Parish (1980) 43 FLR 129; [1980] FCA 33 at 133 (FLR), orders of this kind are not concerned with trivialities; that is, they are not lightly to be made. 21 Thirdly, what is involved in assessing whether the order should be made is not a balancing exercise: Hogan at [31]-[32]. It is not a question, on the one hand, of seeking to serve, as best one can, the interests of open justice and, on the other hand, considering the prejudice which may occur if the information is released. The test to be applied is the posing of the question as to whether it is necessary to make the order to prevent prejudice to the proper administration of justice. No balancing exercise is required or permitted. 26 In ACCC v Air NZ Perram J at [35] accepted that orders may be made to suppress commercially sensitive material: 35 I should say, for completeness, that it is an accepted head, under what was formerly s 50 and what is now s 37AF, commercial sensitivity can be a basis for making an order of the present kind. Parish is, of course, the best example of that but, as Mr Steele, who appeared for Expeditors, pointed out, the decision of Greenwood J in Australian Competition and Consumer Commission v Cement Australia Pty Ltd (No. 2) [2010] FCA 1082 is another, as is the decision of Jacobson J in Cyclopet Pty Ltd v Australian Nuclear Science and Technology Organisation [2012] FCA 1326. There are a number of other cases to a similar effect: see, for example, Sportsbet Pty Ltd v State of New South Wales (No 12) [2010] FCA 62. 27 The Kijurina Affidavit was prepared with particular care and its exhibit BTK-1 had 46 Tabs containing (among other things): Tab 23: a valuation of assets, Tab 24: a spreadsheet containing details of salary, superannuation and other entitlements of employees, Tab 25-Tab 28: licence agreements in relation to intellectual property, Tab 29: a list of websites, Tab 30-Tab 33: further intellectual property licence agreements, Tab 33-35: lists of suppliers and vendors to the Business, Tab 38: Information Memorandum, Tab 39: List of interested parties, Tab 40: Agreement with Origin, Tab 41: Flyer issued by Origin seeking interested purchaser; and Tab 46: Correspondence from Origin concerning interested parties. 28 Where an application for extension of a convening period is made by an administrator, especially in circumstances where it is the first application and for a relatively short period, I consider that the Court will generally not need to see the detailed documents supporting the sworn evidence given by the administrator about the sale process being undertaken or concerning the assets of the Company (for instance, intellectual property agreements). While all of the information in the identified Tabs is likely to be of interest to a purchaser of the Business, the detail of this information was unnecessary for the Court in its consideration of the application. On this basis, the documents were not tendered and were extracted from the exhibit before it was tendered into evidence. This obviated the need for the Court to make orders suppressing publication or access to that information. 29 Division 2 of Part VAA of the Federal Court Act imposes an obligation on the Court to limit orders made under it. Subsection (5) of s 37AH includes the requirement that a suppression order or non-publication order must "specify the information to which the order applies with sufficient particularity to ensure that the court order is limited to achieving the purpose for which the order is made". The Court is required to specify a period for which the order is to operate and s 37AJ(2) requires the Court, in deciding the period for which the order is to operate, to "ensure that the order operates for no longer than is reasonably necessary to achieve the purpose for which it is made". 30 Having regard to these provisions of the Federal Court Act and consistent with the overarching purpose specified in s 37M, practitioners should ensure that the evidence in relation to which a suppression or non-publication order is sought is only that evidence which is necessary to the resolution of the application before the Court so that the application for the suppression or non-publication order is as narrow in scope as possible. There is cost and Court time attendant on consideration of applications for suppression and non-publication orders. As the Court has no discretion to allow "ambit" claims to suppress evidence, unless the evidence is required for the just resolution of an application, it should not be tendered. 31 The Administrators are undertaking a process to sell the Business. It is in the interests of creditors and the beneficiaries of the Trust that the price obtained for the Business is maximised. If commercially sensitive information about the Business is disclosed, such as its revenue and business systems, the price to be obtained from potential purchasers is likely to be adversely affected. Similarly, competitive tension can be dissipated if detailed information about the number of bidders and the prices they are willing to pay is disclosed. It would be inappropriate for an efficient sale process to be truncated simply because the Administrator were unwilling to approach the Court for an order extending the convening period because such information was relevant to the application and it could not be protected. That would be inimical to the interests of the proper administration of justice. 32 On this basis, I am satisfied that it would be in the interest of the administration of justice that the following parts of the Kijurina Affidavit and corresponding information in Counsel's written submissions of 14 May 2014 be suppressed and remain confidential up to and including : (a) The earlier of 25 January 2015 or the date upon which the second plaintiff is placed into liquidation: (i) The number of monthly subscribers and the resulting turnover specified in [14]; (ii) The integers in the dollar amounts specified in [16]; (iii) The dollar amounts in [24]; (iv) [31]-[33] and [35]; (b) 26 July 2014: (i) The number of parties referred to in [45]; and (ii) The number of confidentiality deeds and the number of Information Memoranda which have been issued referred to in [47]; in accordance with a redacted version of the Kijurina Affidavit. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate: Dated: 19 May 2014