FEDERAL COURT OF AUSTRALIA A.C.N. 167 118 005, in the matter of A.C.N. 167 118 005 Pty Limited (Administrators appointed) and A.C.N. 169 221 756 Pty Limited (Administrators appointed) [2014] FCA 930 Citation: A.C.N. 167 118 005, in the matter of A.C.N. 167 118 005 (Administrators appointed) and A.C.N. 169 221 756 (Administrators appointed) [2014] FCA 930 Parties: CRAIG PETER SHEPARD, SCOTT BRADLEY KERSHAW, AND CASSANDRA ELYSIUM MATHEWS AS JOINT ADMINISTRATORS OF A.C.N. 167 118 005 PTY LIMITED (ADMINISTRATORS APPOINTED) AND A.C.N. 169 221 756 PTY LIMITED (ADMINISTRATORS APPOINTED) File number(s): NSD 863 of 2014 Judge(s): YATES J Date of judgment: 22 August 2014 Catchwords: CORPORATIONS - application for an extension of the convening period for the second meeting of creditors of each company under s 439A(6) of the Corporations Act 2001 (Cth) Legislation: Corporations Act 2001 (Cth) ss 439A 447A, 443D, 439A Date of hearing: 22 August 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 37 Counsel for the Plaintiff: Michael Izzo Solicitor for the Plaintiff: Ashurst Australia IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 863 of 2014 IN THE MATTER OF A.C.N. 167 118 005 PTY LIMITED (ADMINISTRATORS APPOINTED) A.C.N. 167 118 005 AND A.C.N. 169 221 756 PTY LIMITED (ADMINISTRATORS APPOINTED) CRAIG PETER SHEPARD, SCOTT BRADLEY KERSHAW, AND CASSANDRA ELYSIUM MATHEWS AS JOINT ADMINISTRATORS OF A.C.N. 167 118 005 PTY LIMITED (ADMINISTRATORS APPOINTED) AND A.C.N. 169 221 756 PTY LIMITED (ADMINISTRATORS APPOINTED) Plaintiff JUDGE: YATES J DATE OF ORDER: 22 AUGUST 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be heard instanter. 2. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period specified by s 439A(5)(b) of the Act for convening a meeting of the creditors of A.C.N 167 118 005 Pty Limited (administrators appointed) be extended to midnight on 1 November 2014. 3. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act have effect so that the meeting of creditors of A.C.N 167 118 005 Pty Limited (administrators appointed) required to be held pursuant to s 439A(1) of the Act be held at any time during the extended period referred to in Order 1, or within five business days after 1 November 2014. 4. Pursuant to s 439A(6) of the Act, the period specified by s 439A(5)(b) of the Act for convening a meeting of the creditors of A.C.N 169 221 756 Pty Limited (administrators appointed) be extended to midnight on 1 November 2014. 5. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act have effect so that the meeting of creditors of A.C.N 169 221 756 Pty Limited (administrators appointed) required to be held pursuant to s 439A(1) of the Act be held at any time during the extended period referred to in Order 4, or within five business days after 1 November 2014. 6. Pursuant to s 443D of the Act, the plaintiffs be entitled to be indemnified out of the assets of each company, proportionally, for the costs of and incidental to this application. 7. Any director, creditor or contributory of either company, or any other person having sufficient interest, have liberty to apply on 3 days' notice to vary or amend these orders. 8. By 4.00 pm on 25 August 2014, notice of the making of these orders be published on the website of KordaMentha at the URL identified in paragraph 31(d) of the affidavit of Cassandra Mathews sworn 22 August 2014. 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 863 of 2014 IN THE MATTER OF A.C.N. 167 118 005 PTY LIMITED (ADMINISTRATORS APPOINTED) a.c.n. 167 118 005 AND a.c.n. 169 221 756 PTY LIMITED (ADMINISTRATORS APPOINTED CRAIG PETER SHEPARD, SCOTT BRADLEY KERSHAW, AND CASSANDRA ELYSIUM MATHEWS AS JOINT ADMINISTRATORS OF A.C.N. 167 118 005 PTY LIMITED (ADMINISTRATORS APPOINTED) AND A.C.N. 169 221 756 PTY LIMITED (ADMINISTRATORS APPOINTED) Plaintiff JUDGE: YATES J DATE: 22 AUGUST 2014 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The plaintiffs are the joint and several administrators of ACN 167 118 005 Pty Limited (administrators appointed) and ACN 169 221 756 Pty Limited (administrators appointed). It is convenient to refer to the companies as Seaford Plastics and Seaford Victoria respectively. The plaintiffs apply under s 439A(6) of the Corporations Act 2001 (Cth) (the Act) for an extension of the convening period of the second meeting of creditors of each company. Unless extended, the convening period in each case will expire on 29 August 2014. The extension sought in each case is to 1 November 2014, a period of approximately nine weeks. 2 The plaintiffs were appointed on 1 August 2014. The third-named plaintiff, Ms Mathews, has played a leading role in each administration in consultation with the other plaintiffs, Mr Shepard and Mr Kershaw. Ms Mathews has made an affidavit in support of the application. Background 3 Prior to the plaintiffs' appointments, Seaford Plastics operated a plastics moulding business from premises at 80 Hartnett Drive, Seaford, Victoria. Seaford Plastics only commenced operating the business earlier in the year following an asset acquisition that was completed on 30 April 2014. Seaford Plastics occupied and continues to occupy the premises under a sub-lease from the vendor of those assets. The term of the sub-lease will expire on 30 November 2014. 4 Seaford Victoria is a wholly-owned subsidiary of Seaford Plastics. It was incorporated to provide services to Seaford Plastics and employed the staff who worked in the business. 5 The acquisition of the assets used in the business was financed by the vendor, who held security over them. On 29 July 2014, Seaford Plastics reached agreement with the vendor to repay all amounts owing in respect of the acquisition and the security that was held, including rent of the premises up to 30 November 2014, when, as I have stated, the lease will expire. The payout was financed under an existing loan facility. The repayment of moneys under that facility is secured under a General Security Deed granted by Seaford Plastics in favour of BOSI Security Services Limited, now called Westpac Administration 3 Limited. I will refer to that company as the senior secured creditor. Asset sale to Viscount 6 On 31 July 2014, Seaford Plastics, as vendor, entered into an Asset Sale Agreement with Viscount Plastics Australia Pty Limited (Viscount). On the same day, Seaford Plastics entered into an Implementation Deed with a number of other parties, including Viscount and the senior secured creditor. Although not parties to the deed itself, the plaintiffs are referred to in the deed as the Consenting Parties. Without going into details, it is clear that the Asset Sale Agreement and the Implementation Deed were entered into to facilitate, amongst other things, the making of a deed of company arrangement proposal in respect of Seaford Plastics. 7 In this connection, the Implementation Deed contains terms that the plaintiffs be appointed as voluntary administrators of Seaford Plastics and Seaford Victoria; that all parties thereto except one, whose identity and role is not relevant for present purposes, undertake and procure their related entities to do all things necessary to procure that the second meeting of creditors of Seaford Plastics occurs no earlier than 83 days from the date of completion of the asset sale to Viscount; and that the individuals identified as the Current Management of Seaford Plastics, who I understand to be the current directors of that company, submit a deed of company arrangement proposal with respect to Seaford Plastics to the plaintiffs within five business days of the completion of the asset sale to Viscount. 8 The Asset Sale Agreement was completed on 8 August 2014. Part payment of the purchase price for the assets, $500,000, has been made and applied in part payment of the debt owed to the senior secured creditor. The balance of the purchase price ($500,000) is to be made within two business days of the convening period being extended for a period which ends on a date after 83 days from the date of completion, or upon it being agreed by the creditors at a second meeting of creditors that their meeting be adjourned for the maximum period permitted under s 439B(2) of the Act. The balance of the purchase price will only be payable if the convening period is extended or if the meeting is adjourned as indicated. If not, the purchase price for the assets will be reduced by $500,000. 9 Viscount has now removed all injection moulding tooling from the premises and approximately 75% of the rotational moulding tooling. However, all substantive items of operational plant and equipment remain on the premises. Some of these items are very large. For example, an injection moulding machine, which weighs approximately 40 tonnes, is still to be dismantled and removed. It is contemplated, under current arrangements, that Viscount will remove all purchased assets from the premises by no later than 30 October 2014. Negotiation of deed of company arrangement proposal 10 On 21 August 2014, Ms Mathews received a letter on behalf of those individuals identified as the Current Management under the Implementation Deed. The letter stated that after consultation with the senior secured creditor, those individuals intended to propose a deed of company arrangement with respect to both companies, having the following features: a pooled deed fund for distribution to creditors of the companies; a contribution to the deed fund from the Current Management; and a covenant from the senior secured creditor not to prove in the deed fund or to only prove for a limited amount, with the result that all employee entitlements would be paid in full and unsecured creditors would receive a better return than in a winding up of each company. 11 Ms Mathews has said that the full terms of the deed of company arrangement proposal are still to be determined. Nevertheless, on the basis of discussions she has had with the solicitors for the senior secured creditor and with the Current Management, it is her understanding that the proposal contemplates that the deed fund will be comprised of the proceeds of realisation of the assets (including stock and debtors) of Seaford Plastics, which are the subject of the senior secured creditor's security interest; the $500,000 to be paid by Viscount to Seaford Plastics as the balance of the purchase price; and an additional further contribution in an amount to be confirmed. Creditors 12 Ms Mathews has given evidence that, as at today's date, Seaford Plastics owes approximately $11,710,516 to the senior secured creditor. There are a number of other security interests registered against Seaford Plastics on the Personal Property Securities Register. Ms Mathews has said that these relate to plant and equipment leased by Seaford Plastics or purchase money security interests which have been claimed by various suppliers to that company. Seaford Plastics also owes approximately $2,332,509 to unsecured creditors. 13 Seaford Victoria owes approximately $3,789,649 to its unsecured creditors, each of whom is a former employee of that company. Steps taken by administrators following appointment 14 Ms Mathews has given evidence of the steps that have been undertaken by the administrators following their appointment. They fall into two broad categories. The first category, which I will not seek to summarise, relates to a number of general administrative tasks common to most voluntary administrations. The second category is more specific to the affairs of both companies. These steps include the following. 15 First, the employment of most employees employed by Seaford Victoria has been terminated. Certain key employees have been retained in order to facilitate the removal of the plant and equipment that has been sold to Viscount and to assist the administrators generally. Secondly, an assessment has been made of stock on hand in order to determine what stock can be realised. Thirdly, negotiations have been undertaken with certain customers regarding the return of equipment owned by them which was used by Seaford Plastics in manufacturing products for those customers. Fourthly, the plaintiffs have entered into contractual arrangements permitting Viscount to continue to store the items of plant and equipment acquired under the Asset Sale Agreement and to remove them in an orderly fashion in the period to which I have referred. Preparation of the s 439A(4) report 16 When convening the second meeting of creditors of a company in administration, the administrator must provide a report about the company's business, property, affairs and financial circumstances, which includes a statement setting out the administrator's opinion about 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, or whether it would be in the creditors' interests for the company to be wound up: see s 439A(4) of the Act. 17 Ms Mathews has given evidence that the plaintiffs are not presently able to provide a statement of opinion on these matters. Her reasons are as follows. 18 First, further time is required to complete the removal of the plant and equipment from the premises. That process requires facilitation through the moratorium against creditors taking enforcement action against the companies during the voluntary administration period. Ms Mathews has expressed her apprehension that the removal of the plant and equipment from the premises could be impeded should the sub-lessor seek to take possession. I should indicate that it is not clear to me at the present time what powers the sub-lessor might have in that regard. 19 Secondly, negotiations in respect of a deed of company arrangement proposal remain ongoing as the intimation of the proposal, as set out in the letter to which I have referred, is not in a form that can be put to the creditors of the companies for consideration or approval. 20 Thirdly, in the time available, the primary focus of the plaintiffs has been the facilitation of the removal of the plant and equipment from the premises and their preliminary negotiations in respect of the deed of company arrangement proposal. Ms Mathews has said that she has not had a chance to properly investigate whether the companies have traded whilst insolvent or entered into transactions which may be voidable under Pt 5.7B of the Act. Other reasons advanced for extending convening period 21 As I have noted, the plaintiffs seek an extension of the convening period for each company to 1 November 2014. Ms Mathews has given evidence that, within that period, it is likely that Viscount will have removed all the plant and equipment from the premises. If, for some reason, all the plant and equipment has not been removed by that time, an extension of the convening period would still preserve the plaintiffs' ability to hold and adjourn a second meeting for each company in order to provide more time for that removal. On the other hand, if Viscount is able to remove the plant and equipment prior to the end of the extended convening period that is sought, the plaintiffs would call and hold the second meetings as soon as possible, subject to being satisfied that no other tasks for completion are required during that period. 22 Ms Mathews has expressed the opinion that the interests of those creditors most likely to be affected by the extensions that are sought would be best served if the extensions were to be granted. 23 First, this is likely to facilitate a deed of company arrangement which will make available sufficient funds to pay the employee creditors of Seaford Victoria all their priority entitlements in full. It would avoid Seaford Victoria entering liquidation and its former employees having to claim against the Commonwealth's Fair Entitlement Guarantee Program. It will result in faster dividends being paid to employees than would arise if Seaford Victoria were to be placed in liquidation. 24 Secondly, no prejudice will be caused to the sub-lessor, as Seaford Plastics has already paid rent in respect of its lease of the premises until 30 November 2014 when, as I have indicated, the term of the sub-lease will expire. 25 Thirdly, neither company is subject to a winding up application. 26 Fourthly, to the best of Ms Mathews' knowledge, based on searching online records, no court proceedings are currently pending against the companies and no enforcement processes are pending against them. 27 Fifthly, the claims of all pre-appointment creditors of the companies will be preserved and will be able to be the subject of proofs of debt in the deed fund, should a deed of company arrangement ultimately be agreed to by creditors. 28 Sixthly, the plaintiffs intend to negotiate during the extended convening periods with holders of retention of title security interests in Seaford Plastics' stock and raw materials, with a view to resolving those claims so that any surplus proceeds can be made available for the deed fund. Attitude of creditors to the extension 29 Steps have been taken to gauge the attitude of creditors in relation to the extensions sought. Seaford Plastics' five largest creditors, representing over 95% in value of secured and unsecured debt, have been contacted and have not expressed opposition. The National Workers' Union (NWU) which holds proxies for 35 of the 44 employee creditors of Seaford Victoria has been contacted. The NWU has expressed support for extending the convening periods on the basis that the current proposal for a deed of company arrangement provides for the employee creditors of Seaford Victoria to be paid their entitlements in full. Submissions 30 In submissions, four reasons were advanced for extending the convening periods for the period sought. These correspond to a number of the matters to which I have referred in relation to Ms Mathews' evidence. First, further time is required to remove the plant and equipment sold to Viscount from the premises. Secondly, further time is required to negotiate a deed of company arrangement that can be put to creditors. Thirdly, extensions of the convening periods will trigger payment of the balance of the purchase price by Viscount. Fourthly, extensions of the convening periods will enable a proper report to be prepared under s 439A(4) of the Act. Consideration 31 On the basis of Ms Mathews' evidence and the submissions that have been advanced on behalf of the plaintiffs, I am satisfied that it is appropriate to extend the convening period in each case to 1 November 2014. Although each extension is a relatively long one, I am satisfied that the particular circumstances of this case justify such extensions. It is plainly in the interests of the employee creditors of Seaford Victoria that the convening periods be extended to allow negotiation of what appears to be the only deed of company arrangement proposal that will be made. If that proposal can be successfully implemented, those creditors will see their entitlements paid in full. It is highly desirable that this be done. There is also the real prospect that Seaford Plastics' creditors will be better off than in a winding up of that company. 32 I note that granting extensions of the convening periods will also trigger payment of the balance of the purchase price for the assets of $500,000, which will be paid into a deed fund in respect of which the senior secured creditor has indicated it will not seek to prove. 33 An alternative would be to refuse to grant the extensions at the present time and leave the creditors of both companies to decide whether the meetings should be adjourned for the maximum period of 45 days permitted under the Act which, of course, would also trigger the payment of the balance of the purchase price. However, in light of the evidence of creditors' support, or at least non-opposition, I am persuaded that the better course is to extend the convening periods now, granting liberty to any person showing sufficient interest to move the Court to vary or discharge the orders granting those extensions. 34 In coming to this view, it seems to me that an adjournment of the second meeting of creditors of Seaford Plastics is inevitable, given the size of the senior secured creditor's debt and given that the senior secured creditor supports the applications and is a party to the Implementation Deed which specifically addresses the requirement to seek an extension of the convening period for Seaford Plastics. This then leads to the practical difficulty that, on the present evidence, in all likelihood an adjournment of 45 days will be insufficient to undertake the tasks which Ms Mathews deposes will need to be undertaken to achieve a firm deed of company arrangement proposal and an informed recommendation to all creditors as to where their best interests lie. The likely result, therefore, would be that a further application would be made to the Court for an extension of the convening period in respect of Seaford Plastics. 35 The same general observations can be made with respect to Seaford Victoria. It seems to me that an adjournment of that meeting would be inevitable given the view expressed by the NWU. Once again, that is likely to lead to a further application to extend the convening period in respect of Seaford Victoria. 36 In making orders extending the convening periods, I think that an order should also be made that all creditors be informed of the orders I will now make. This should be done on KordaMentha's website at the URL recorded in paragraph 31(d) of Ms Mathews' affidavit. Disposition 37 Orders substantially as sought should be made. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 22 August 2014