FEDERAL COURT OF AUSTRALIA Kirk, in the matter of RL Adams Pty Ltd (Administrators Appointed) [2017] FCA 1111 File number(s): QUD 323 of 2017 Judge(s): DERRINGTON J Date of judgment: 5 July 2017 Catchwords: BANKRUPTCY AND INSOLVENCY - Administrators seeking an order to extend the period in which administrators must convene second meeting of creditors under s 439A(6) of the Corporations Act 2001 (Cth) – potential liability under Environmental Protection Act 1994 (Qld) - investigation into possible contraventions of the Corporations Act 2001 (Cth) – consideration of importance of sale of the business as going concern. Legislation: Corporations Act 2001 (Cth), s 439A, s 439B Environmental Protection Act 1994 (Qld), Schedule 4 Cases cited: Algeri, Re Colorado Group Limited [2011] VSC 260 Re Linc Energy Ltd (In Liquidation) (2017) QSC 53 Date of hearing: 5 July 2017 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Commercial Insolvency Category: Catchwords Number of paragraphs: 28 Counsel for the Plaintiffs: Mr CA Wilkins Solicitor for the Plaintiffs: Clayton Utz ORDERS QUD 323 of 2017 IN THE MATTER OF RL ADAMS PTY LTD (ADMINISTRATORS APPOINTED) ACN 093 556 613 & CLEARMEDAL PTY LTD (ADMINISTRATORS APPOINTED) ACN 096 432 192 DARRYL EDWARD KIRK AND BRUNO ANTHONY ROBERT SECATORE AS ADMINISTRATORS OF RL ADAMS PTY LTD AND CLEARMEDAL PTY LTD First Plaintiff RL ADAMS PTY LTD (ADMINISTRATORS APPOINTED) ACN 093 556 613 Second Plaintiff CLEARMEDAL PTY LTD ACN 096 432 192 Third Plaintiff JUDGE: DERRINGTON J DATE OF ORDER: 5 JULY 2017 THE COURT ORDERS THAT: 1. Pursuant to r 8.21 of the Federal Court Rules 2011 (Cth), the plaintiffs have leave to file an amended originating application. 2. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth), the period in which the first plaintiffs must convene the second meetings of creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) be extended so as to end on 3 November 2017. 3. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), the second meetings of creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 2 above notwithstanding the provisions of s 439A(2) of the Corporations Act 2001 (Cth). 4. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), the first plaintiffs shall within three business days: (a) publish a copy of this Order on the "News & Events" section of the website maintained by the first plaintiffs' firm, Cor Cordis, at https://www.corcordis.com.au/home/news-events/; and (b) notify the respective creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) of the making of this Order by: (i) where the email address of the creditor is known to the first plaintiffs, sending to the creditor electronically to that email address; and (ii) where the email address of the creditor is not known to the first plaintiffs, sending to the creditor by pre-paid post to the last known postal address of the creditor, a letter or circular informing the creditor of the substance of this Order and enclosing a copy of this Order. 5. The following parties have liberty to apply: (a) Any person with sufficient interest to modify Orders 2, 3 or 4 above, including the Australian Securities and Investments Commission, on giving not less than three business days' notice to the first plaintiffs. (b) The first plaintiffs, for any purpose connected with the administration of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed), including for the purpose of seeking a further extension or further extensions of the convening period. 6. The first plaintiffs' costs of this application be costs in the administrations. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DERRINGTON J: 1 The first plaintiffs in the matter before the Court today are Darryl Edward Kirk and Bruno Robert Secatore, who are the administrators of the second and third plaintiffs, RL Adams Pty Ltd and Clearmedal Pty Ltd respectively. 2 The primary relief sought by the applications is for an order pursuant to s 439A(6) of the Corporations Act 2001 (Cth), that the period in which the first plaintiffs must convene a second meeting of creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) be extended to 3 November 2017. (I shall use the expression "convening period" in these reasons to describe the period during which the second meeting must be held as that is how the expression is used in s 439A(5)). The administrators also seek other ancillary orders in support of their primary relief. 3 There is, perhaps, some urgency in relation to this matter as, unless it is extended, the convening period will expire in two days' time on Friday 7 July 2017. That said, pursuant to s 439A(7) of the Corporations Act the Court may extend the convening period on an application lodged after the expiration of the initial convening period. Nevertheless, the administrators seek to be placed in a position where they have some certainty about their obligations prior to the expiration of that initial convening period. 4 RL Adams Pty Ltd carries on the business of egg production in Queensland from two locations, the first being on land near the township of Pittsworth, south-west of Toowoomba ("the Pittsworth property"). That land is owned by Clearmedal Pty Ltd (Administrators Appointed), which leases it to RL Adams. Those two companies are "related entities" within the meaning of that expression as it is used in the Corporations Act 2001 (Cth) as Ms Laurel Adams is the sole director of both. 5 At the Pittsworth property, RL Adams' business consists of using two pullet rearing sheds and six laying sheds, together with various supporting infrastructure for egg production. That company also conducts a free range egg production facility on land located some 20 kilometres away from the first mentioned parcel. That land is leased from Dennis and Janelle Hintz. Those lessors are apparently not related to either of the companies. The business of RL Adams is substantial and the evidence before the Court indicates that it is the third largest egg production business in Queensland. At the time of the appointment of the administrators, the businesses of RL Adams Pty Ltd apparently employed 36 persons. 6 Mr Kirk and Mr Secatore were appointed administrators of each of the companies on 9 June 2017. Since that time they have conducted a significant amount of work in fulfilling their statutory obligations. The nature and extent of that work is set out in the affidavit of Mr Darryl Kirk of 3 July 2017 and there is no need to particularise the extent of it in these reasons. It is sufficient to note that the work required to be done has been complicated by reason of a number of environmental and animal welfare issues which are apparently a necessary concomitant of the operation of a large egg producing business. 7 It is a matter of great assistance in applications of this nature that Judd J in Algeri, Re Colorado Group Limited [2011] VSC 260 succinctly enunciated the principles which are appropriate to apply in the exercise of the Court's discretion. Those principles, which have been adopted and applied on many occasions, are as follows: When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension. In Re FEA Plantations Ltd [2010] FCA 468, at para 19, Dodds-Streeton J said: Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company. In Re Riviera Group, Austin J noted that extensions had been granted in cases falling within the following broad categories: The reasons given for an extension in subsequent cases can be grouped into the following broad categories: • the size and scope of the business: Re Lombe; Babcock & Brown Ltd (admins apptd) [2009] FCA 349 (Re Lombe); Re Worrell; Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584; [2009] FCA 70 (Re Worrell); Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947; • substantial offshore activities: Re Lehman Bros Australia Ltd [2008] NSWSC 1132; • large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari [2005] VSC 496; Re Ansett Australia Ltd and Korda; sub nom Ansett Australia Ltd (No 3) (FCR) (2002) 115 FCR 409 ; 40 ACSR 433 ; [2002] FCA 90; • complex corporate group structure and intercompany loans: Re Lombe; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd) (ACN 107 863 436) [2008] QSC 272; Re LED Builders Pty Ltd (admin apptd) [2008] NSWSC 633; Hall; Re Australian Capital Reserve Ltd (admins apptd) [2007] FCA 1328; • complex transactions entered into by the company (for example securities lending or derivatives transactions): In Re Lift Capital Partners Pty Ltd (admin apptd) [2008] NSWSC 446 (Re Lift Capital); • complex prospects of recovery proceedings: Re Worrell; Coal Developments (German Creek) Pty Ltd v Cmr of Taxation (2007) 241 ALR 667 ; [2007] FCA 1324; • lack of access to corporate financial records: Re Sims; Destra Corp Ltd [2008] FCA 2002; Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 ; [2007] NSWSC 363; • the time needed to execute an orderly process of disposal of assets: Re Carter, SFM Australasia Pty Ltd (admin apptd) (ACN 105 317 333) (No 2) [2009] FCA 419; Re ABC Learning Centres Ltd; Application by Walker (No 7) (2009) 71 ACSR 560 ; [2009] FCA 454; • the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admin apptd) [2009] FCA 636; • where the extension will allow sale of the business as a going concern: Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admin apptd) [2008] FCA 721; Re Uni-Aire Security Pty Ltd (admin apptd) [2006] FCA 1423; • more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No Pty Ltd (No 2) [2009] FCA 190; Re Fitzgerald; Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; Re Vouris; Marrickville Bowling and Recreation Club Ltd [2008] FCA 622. 8 The essence of his Honour's conclusion is that in the exercise of the discretion it is necessary to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. It was observed by his Honour that where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, the administration process is often afforded additional time. It was also observed there is no place for a predisposition against granting an extension. 9 In this matter the administrators have identified in their affidavit material a number of grounds on which they rely as founding an entitlement to the extension sought. The first matter relied upon is significant. It is that the administrators believe that the greatest return to creditors will be derived from a sale of the egg production business as a going concern, together with the land owned by Clearmedal. It is presumed that the sale of the business will form part of a deed of company arrangement which will be offered to the creditors for their consideration. The administrators depose that they have been informed by marketing agents that it is likely that the business will be capable of being sold at a higher price if it continues to operate during the sale process. As a matter of commercial reality, there can be little doubt that this is probably the case. 10 The administrators also observe that the preservation of the company's business as a whole until a sale can be completed is best achieved with the benefit of the moratorium provided by the voluntary administration process. Again, that consideration would appear to be self-evident. That said, it is perhaps a consideration which ought not to carry too much weight. The moratorium period provided by the administration process necessarily distorts the operation of a free market and there is always a risk that permitting a business to be carried on for any extended period under the protection of the administration might have unintended commercial sequelae on parties who are not presently before the Courts. The courts must be vigilant to ensure that extensions of the moratorium period ought not be used by a company in administration to gain any commercial advantage over competitors. On the material available to the Court, that does not appear to be the case in the present matter. 11 The administrators also indicate that whilst they continue to operate the business so as to maintain its value as a going concern, they will not be doing so without risk to themselves. Counsel for the administrators correctly identified that the administrators will become personally responsible for any liabilities incurred in the carrying on of the business during the administration period. The impact of this consideration is that it emphasises that the administrators' decision to seek an extension of the convening period whilst they continue to carry on the business has not been a strategy undertaken without careful consideration. It can be accepted that this is so. 12 The administrators also rely upon the fact that if they are able to extend the convening period and allowed to continue to operate the business, they will provide employment for a number of persons. Although the total number of RL Adams' employees has declined since the commencement of the administration, it appears that at least 23 full time employees continue to work in the business. Mr Kirk deposes in his affidavit that if the business is broken up, as might be the case if the company is wound up, it is likely that those employees would lose their jobs. On the other hand, he identifies that if the business can continue as a going concern, it is likely that those employees will retain their positions. That issue will always be of not insubstantial weight in the consideration of matters of this nature. 13 The administrators further rely upon the fact that it will take some significant period of time to sell the business. They estimate that an appropriate sale process will take about 12 weeks to complete. From the brief description of the business, and its scope, that appears to be realistic. If the convening period is not extended on this application the only method by which the administrators might extend the administration is by adjourning the second meeting however, as Mr Wilkins, who appeared for the administrators, pointed out in his careful submissions, s 439B(2) of the Corporations Act 2001 (Cth) limits the adjournment of the second meeting for a period of not more than 45 days. That would be an insufficient amount of time in which to undertake the work necessary to prepare the business for sale. 14 As has been noted in many cases, the minimum prescribed periods for the conducting of the meetings of creditors will not meet the needs of all administrations. That is so in the present case where the initial work in ascertaining the nature of the business and taking control of it was extensive and the tasks necessary to allow the business to be sold are substantial. 15 The administrators further rely upon the proposition that an extension of the convening period until 3 November 2017 will allow them to determine whether any deed of company arrangement, as opposed to a sale or restructure, is in the best interests of the creditors of the company. That is a consideration which, in the circumstances, does not seem to carry too much weight. No deed of company arrangement has, to date, been proposed. Indeed, there is no present suggestion that any will be forthcoming. That is not to say the deed may not materialise, however, little weight can be given to the mere possibility that one might. 16 Next, the administrators rely upon the fact that they are presently unable to prepare a meaningful report and statement to the creditors which is required by s 439A(4) of the Corporations Act 2001 (Cth). They assert that this inability arises on the basis that they presently cannot ascertain what return will be received in the sale of the business and other assets. They also say that they are not presently in a position to express any opinion about whether it would be in the creditors' interests for the companies to execute deeds of company arrangement or to be placed into liquidation or to terminate the administration. 17 Further, in support of their claim that they are presently unable to prepare a report to creditors, the administrators say that they have not, as yet, had the opportunity to finalise their investigation into possible contraventions of the Corporations Act 2001 (Cth) in relation to insolvent trading or any other voidable transaction. Whilst these matters are relevant in the exercise of the Court's discretion, in the present application they do not carry any significant weight as the evidence in support of the administration's assertions is far too sparse. That is not said in any pejorative way, however, it might have been expected that if this consideration were to be relied upon to any great extent that substantial, detailed evidence of the difficulties facing the administrators in the particular task identified would have been provided. 18 As it stands, paragraph 13(r) of the affidavit of Mr Kirk is conclusory in nature and does not elucidate the difficulties surrounding the assertion that the administrators have an insufficient understanding of the value of the businesses for the purposes of preparing a report to creditors. Despite those observations, the material does tend to show that the administrators have encountered a difficult business operation and structure and one which is overlaid with obligations concerning the maintenance of animal welfare and substantial obligations in relation to environmental protection. These matters cannot be underestimated, and Mr Kirk's affidavit does appropriately descend into detail about the work involved in dealing with these matters. That, of course, is in addition to the usual issues surrounding the assumption of control of a substantial undertaking. That being the case, I am prepared to accept that some weight should be given to the existence of impediments confronting the administrators in undertaking their assessment of the business and their inability to prepare a useful report to the creditors. 19 A related but additional ground relied upon by the administrators is that they are executive officers of Clearmedal, as defined by Schedule 4 of the Environmental Protection Act 1994 (Qld) because they take part in the corporation's management. As a consequence, they are personally liable to ensure that Clearmedal complies with the environmental protection order that has been given to it by the Department of Agriculture and Fisheries. I accept that this is a difficult area of the law for any insolvency administrator, and Mr Wilkins of counsel has helpfully drawn my attention to the discussion of related issues by Jackson J in Re Linc Energy Ltd (In Liquidation) (2017) QSC 53, 155-174. The liquidators assert that some additional time will assist them in ascertaining their legal obligations under the Environmental Protection Act 1994 (Qld). It is appropriate that significant weight be given to criteria of this nature. Persons who undertake administrations which involve complex regulatory regimes should be afforded a sufficient opportunity to both ascertain their responsibilities and to comply with them. 20 The affidavit of Mr Kirk also establishes that no creditors, whether unsecured or secured, have any objection to the extension proposed by this application. That includes the substantial creditors, National Australia Bank and Clean Energy Finance Corporation. In addition, the Australian Securities and Investments Commission has indicated that it does not propose to intervene in these proceedings, and it accepts that it is a matter properly left to the discretion of the Court. 21 The above considerations are sufficient to warrant the extension of time as requested by the administrators. The affidavit material readily discloses that their intended actions are directed towards the maximising of a return for creditors, and possibly shareholders, by an orderly continuation of the business, with a view to its potential sale. 22 Those tasks, in this case, are not without difficulty, and a standard convening period is insufficient to allow the administrators to pursue their statutory obligations. Necessarily, the complexity of the egg production businesses, with the associated environmental and animal welfare concerns, provides a sufficient reason as to why the administrators are unable to form any comprehensive and detailed report which might assist the creditors in deciding the fate of the company. 23 Of all of the factors propounded by the administrators, the most significant is the administrator's ability to sell the business as a going concern as part of a restructure or deed of company arrangement. The hurdles which the administrators must overcome in order to achieve this are not insignificant, but they are appropriately tackled for the purposes of producing the best result for the creditors and shareholders. 24 It follows that the orders sought by the administrators in the draft order handed to the court this morning ought to be made. That includes the granting of leave to file an amended originating application. The second order will be that the period in which the first plaintiffs must convene the second meeting of RL Adams Pty Ltd (administrators appointed) and Clearmedal Pty Ltd (administrators appointed) be extended so as to end on 3 November 2017. 25 The administrators also ask for an order that they be permitted to convene the second meeting of creditors for each company at any time during or within five days after the end of the convening period, as extended in order 2, notwithstanding the provisions of s 439A(2) of the Corporations Act 2001 (Cth). Mr Wilkins of Counsel has satisfied me of the appropriateness of this order, especially given the flexibility that it offers to the administrators in this matter. 26 The orders sought by the administrators also include orders for the notification and publication of this order, and, as formulated by Mr Wilkins, they are appropriate. Liberty to apply is also provided to people with sufficient interest in these orders, and, again, the draft orders proposed make provision for that. The costs of this application ought to be costs in the administration. 27 This application was appropriately made, and the evidence discloses that the administrators have assiduously attended to their statutory obligations in relation to the complex business activity. On the material presently before the court, no criticism can be made of the fact that an application for the extension of the convening period had to be made. In the result, I make the orders numbered 1 through to 6 in the draft handed to the court. 28 Those orders are: 1. Pursuant to r 8.21 of the Federal Court Rules 2011 (Cth), the plaintiffs have leave to file an amended originating application. 2. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth), the period in which the first plaintiffs must convene the second meetings of creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) be extended so as to end on 3 November 2017. 3. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), the second meetings of creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 2 above notwithstanding the provisions of s 439A(2) of the Corporations Act 2001 (Cth). 4. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), the first plaintiffs shall within three business days: (a) publish a copy of this Order on the "News & Events" section of the website maintained by the first plaintiffs' firm, Cor Cordis, at https://www.corcordis.com.au/home/news-events/; and (b) notify the respective creditors of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed) of the making of this Order by: (i) where the email address of the creditor is known to the first plaintiffs, sending to the creditor electronically to that email address; and (ii) where the email address of the creditor is not known to the first plaintiffs, sending to the creditor by pre-paid post to the last known postal address of the creditor, a letter or circular informing the creditor of the substance of this Order and enclosing a copy of this Order. 5. The following parties have liberty to apply: (a) Any person with sufficient interest to modify Orders 2, 3 or 4 above, including the Australian Securities and Investments Commission, on giving not less than three business days' notice to the first plaintiffs. (b) The first plaintiffs, for any purpose connected with the administration of RL Adams Pty Ltd (Administrators Appointed) and Clearmedal Pty Ltd (Administrators Appointed), including for the purpose of seeking a further extension or further extensions of the convening period. 6. The first plaintiffs' costs of this application be costs in the administrations. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate: Dated: 5 July 2017