FEDERAL COURT OF AUSTRALIA Sallway (Administrator), in the matter of Jamie Oliver Restaurant Group (Australia) Pty Ltd (Administrators Appt) [2018] FCA 789 File number: NSD 744 of 2018 Judge: GLEESON J Date of judgment: 10 May 2018 Date of publication of reasons: 30 May 2018 Catchwords: BANKRUPTCY AND INSOLVENCY – application for extension of time to convene second meeting of creditors under Corporations Act 2001 (Cth) ss 439A and 447A – where extension sought to allow completion of sale of company's business and proper investigation of its affairs – application granted Legislation: Corporations Act 2001 (Cth) ss 435A, 439A, 447A Federal Court of Australia Act 1976 (Cth) s 37AF Insolvency Practice Rules (Corporations) 2016 (Cth) rr 75-15, 75-225 Cases cited: Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed [2017] FCA 635 In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers And Managers Appointed) [2013] FCA 458 Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 Strawbridge, re Custom Coaches (Sales) Pty Ltd (Administrators Appointed ) [2014] FCA 683 Date of hearing: 10 May 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 44 Counsel for the Plaintiffs: Mr ML Rose Solicitor for the Plaintiffs: K & L Gates ORDERS NSD 744 of 2018 IN THE MATTER OF JAMIE OLIVER RESTAURANT GROUP (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 616 272 809 ANDREW SALLWAY, JAMES WHITE AND ANDREW FIELDING IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF JAMIE OLIVER RESTAURANT GROUP (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 616 272 809 First Plaintiff JAMIE OLIVER RESTAURANT GROUP (AUSTRALIA) PTY LTD (ADMINISTRATORS APPOINTED) ACN 616 272 809 Second Plaintiff JUDGE: GLEESON J DATE OF ORDER: 10 MAY 2018 THE COURT ORDERS THAT: 1. The originating process be returnable instanter. 2. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), and on the ground set out in s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), exhibit ATS-2 to the affidavit of Andrew Thomas Sallway sworn 9 May 2018 be marked "Confidential", be filed electronically and not be published, disclosed or accessed except pursuant to an order of the Court until further order. 3. Pursuant to s 439A(6) of the Act, the period within which the first plaintiffs must convene the second meeting of creditors of the second plaintiff under s 439A of the Act (Second Meeting) be extended up to, and including, 15 September 2018. 4. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate such the Second Meeting may be held at any time during the convening period, or within 5 business days after the end of, the convening period as extended by order 3 above, notwithstanding the provisions of 439A(2) of the Act. 5. The plaintiffs, within 3 business days of making these orders, are to take all reasonable steps to give notice of these orders to the creditors of the second plaintiff (including the persons claiming to be creditors), by means of a circular or letter: (a) to be sent electronically by email to the creditors for whom the plaintiffs have an email address; or (b) to be sent by ordinary post to the creditors for whom the plaintiffs have only a postal address. 6. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate such that the requirement on the plaintiffs to issue notices under rr 75-225(1) and 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be modified such that the notice of the Second Meeting will be validly given to the creditors of the second plaintiff by, not less than 5 business days prior to the date of the proposed meeting: (a) sending such notice electronically to the email address of the creditors (including the persons claiming to be creditors) for whom the plaintiffs have an email address; (b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to any creditors not being a creditor referred to in sub-para (a); and (c) causing such notice to be published in The Insolvency Notices website located at: https://insolvencynotices.asic.gov.au/. 7. Subject to further order, pursuant to s 447A(1) of the Act, that Pt 5.3A of the Act is to operate such that all notices (other than a notice of any meeting), reports and communication that the first applicants must or may give or send to creditors of the second plaintiff, may be given or sent to creditors of the second plaintiff as follows: (a) sending such notice electronically to the email address of the creditors (including the persons claiming to be creditors) for whom the plaintiffs have an email address; (b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth), to any creditors not being a creditor referred to in sub-para (a); and (c) causing such notice to be published in The Insolvency Notices website located at: https://insolvencynotices.asic.gov.au/. 8. The following parties have liberty to apply on giving all other interested parties not less than 3 business days' notice: (a) any person who can demonstrate sufficient interest (including any creditor of the second plaintiff) for the purpose of modifying or discharging any orders made pursuant to paras 2 to 4, 6 and 7 above; and (b) the plaintiffs, for the purpose of seeking any further extension of the convening period. 9. An order that the costs and expenses of this application be costs and expenses of the administration of the second plaintiff. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 On 10 May 2018, I heard an ex parte application made by the joint and several voluntary administrators ("administrators") of Jamie Oliver Restaurant Group (Australia) Pty Ltd ("company") under ss 439A and 447A of the Corporations Act 2001 (Cth) ("Act") to extend the convening period for the second meeting of the company's creditors to 15 September 2018 (that is, an extension of about four months), and for ancillary orders. 2 The convening period was due to expire on 15 May 2018. I was satisfied that the convening period should be extended and, accordingly, made orders in accordance with the orders sought by the administrators, with minor modifications. My reasons for making those orders are as follows. 3 The application was supported by an affidavit of Andrew Sallway, one of the administrators, sworn 9 May 2018 and by oral submissions made by Mr Rose, counsel for the administrators. One of the exhibits to the affidavits ("exhibit ATS-2") contained commercially sensitive confidential material comprising "asset sale and purchase agreements" ("sale agreements") for the sale of five of the six restaurants operated by the company ("sale restaurants") to Hallmark Restaurants (Australia) Pty Ltd ("Hallmark") and services deeds pursuant to which the sale restaurants are to be operated pending completion or termination of the sale agreements. 4 In summary, the administrators sought the extension of the convening period to allow time for completion of a sale of the company's business and to afford the administrators time to investigate properly the affairs of the company, so that the administrators may form the opinions required under rule 75-225(3)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth). 5 Mr Sallway expressed the opinion that it would be consistent with the objectives of Pt 5.3A of the Act, and in the interests of creditors of the company as a whole, for the proposed extension to be granted because: (1) Extending the convening period in turn extends the moratorium imposed by Pt 5.3A of the Act. This would give the company and Hallmark an opportunity to negotiate for the assignments of the property leases and the equipment leases required to satisfy the conditions precedent to completion of the sale agreements without the threat that the landlord creditors and other equipment lessors will take possession of the restaurant premises and other leased equipment. (2) Time will be required for the transfer of the company's liquor and food licences to Hallmark or, if necessary, application and approval of new liquor and food licences by the relevant government agencies. (3) Much of the stock in trade, particularly alcoholic beverages, is supplied on a retention of title basis and further that much of the food is perishable. Permitting the sale of that stock in trade to Hallmark while the moratorium is continuing enables the administrators to realise the value of that stock without the threat that the goods in question will be repossessed by the suppliers or will be rendered unsaleable (in the case of perishable goods). (4) In light of the difficulties the administrators have experienced to date in securing the books and records of the company, Mr Sallway requires further time to investigate the financial position and previous affairs of the company in order to satisfy his statutory responsibilities (including, in particular, reporting responsibilities) to the creditors of the company. (5) At this point, no deed of company arrangement ("DOCA") has been proposed or foreshadowed, and it is therefore Mr Sallway's present expectation that at the second meeting of creditors a resolution will be passed placing the company into liquidation. A delay in the commencement of the liquidation of the company resulting from the extension of the convening period does mean that the 84 employees of the company whose employment has been terminated by the administrators are not yet able to lodge claims for unpaid employee entitlements under the Fair Entitlements Guarantee. However, the continued trading of the sale restaurants as a result of the sale agreements and the services deeds has resulted in the avoidance of 196 redundancies. The majority of the employees of the company will therefore benefit from the convening period being extended. Background facts 6 The company was registered on 5 December 2016. The company is a wholly owned subsidiary of Jamie's Italian Limited ("JIL"), a company domiciled in England and Wales. 7 The principal activity of the company prior to the administrators' appointment was the operation of six restaurants trading under the brand "Jamie's Italian" ("businesses") at six locations across New South Wales, Queensland, Western Australia, South Australia, and the Australian Capital Territory. 8 JIL owns the rights to license the use of the "Jamie's Italian" brand and other branding associated with the English celebrity chef Jamie Oliver. 9 Prior to the administrators' appointment, the company attempted to sell the businesses as a going concern. According to a director of the company, Benjamin Shaughnessy, JIL would not and did not consent to any sale of the businesses other than to Hallmark. Mr Shaughnessy has also told Mr Sallway that the company's attempts to secure funding other than from JIL for the company's ongoing trading operations failed, leaving the company with no means of ensuring continued trading other than via an urgent sale to Hallmark. 10 KordMentha advised JIL on the sale of assets of the company to Hallmark. 11 On 13 April 2018, the company entered into the five sale agreements to sell certain assets (including rights, intellectual property, records, fixtures, chattels, inventory and cash floats) of its businesses, except the business located in the ACT, to Hallmark. Each of the sale agreements contains a provision which requires its terms to be kept confidential. 12 Mr Sallway has been informed by Mr Heanen of Hallmark that Hallmark is not interested in acquiring the business of the Canberra restaurant. Administration to date 13 The administrators were appointed to the company on 16 April 2018, pursuant to s 436A of the Act. 14 Mr Sallway's evidence was that the administrators have taken steps to secure the books and records of the company. The supplier of accounting services to the company has purported to exercise a lien over those books and records but, on 1 May 2018, provided the administrators with certain basic financial information. Consequently, the administrators have not yet had the opportunity to conduct a full review of the books and records of the company, and have been able to conduct only an initial limited review of the information they have received to date. The administrators' attempts to secure access to all the books and records of the company are ongoing. 15 At the hearing, Mr Rose informed me that the administrators held cash at bank in the order of $200,000. Trading the sale restaurants 16 The administrators continue to trade the sale restaurants with the assistance of, and at the financial risk of, Hallmark pursuant to the terms of the services deeds, entered into with five special purpose vehicles, each wholly owned by Hallmark. Mr Sallway is in regular communication with Hallmark, several times a day, as to the management of the sale restaurants and their general trading performance. In the event that the conditions precedent under any of the sale agreements are satisfied with respect to any particular restaurant, that asset will transfer to Hallmark and the administrators will receive the consideration payable under the sale agreement, which will be distributed according to the applicable legal priorities. 17 Immediately following their appointment, the administrators closed the ACT restaurant as they lacked funding to continue trading while investigating the possibility of selling the ACT restaurant as a going concern. 18 On 16 April 2018, the administrators and Hallmark Restaurant Holdings (Australia) Pty Ltd ("Hallmark Holdco"), entered into a deed of indemnity which indemnifies the administrators from trading losses during the administration of the company and for the duration of the arrangements and transactions contemplated by the services deeds (among other things). The indemnities in the deed of indemnity are in addition to the indemnities given under the services deeds by the Hallmark special purpose vehicles. 19 Mr Sallway's evidence was that, by entering into the services deeds and the deed of indemnity, the risk of operating losses for the ongoing trading of the sale restaurants during the administration sits with Hallmark, the respective Hallmark special purpose vehicles and Hallmark Holdco. Given that (as Mr Shaughnessy told Mr Sallway) JIL would consent only to Hallmark being authorised to use the "Jamie's Italian" trading brand, and given also that no funding was available to the administrators to meet the ongoing operating costs and expenses of the business, the administrators saw entry into the services deeds as the only means open to them to ensure the continued trading of the business of the company following their appointment. 20 Mr Sallway's evidence was that, if the sale agreements had not been entered into by the company prior to the appointment of the administrators, and if the administrators had not entered into the services deeds following their appointment, the only alternative course of action available to the administrators would have been to immediately close all of the company's restaurants and to terminate the employment of all of the company's 250 employees. In Mr Sallway's opinion, and based on his investigations to date and the information provided to him by KordaMentha and Mr Shaughnessy, immediate cessation of all trading operations on appointment of the administrators would have resulted in a worse outcome for the significant majority of the company's creditors. 21 Mr Sallway also said that, based on information provided by Mr Shaughnessy and KordaMentha and the administrators' initial limited review of the company's finances, the administrators are satisfied that the continued trading of the sale restaurants and the completion of the sale agreements is in the overall best interests of the creditors of the company. If the administrators were to take steps to terminate the sale agreements, no funding would be available to enable continued trading of the restaurants and the administrators would have no option but to immediately close all of the sale restaurants and make all staff at those sale restaurants redundant. First meeting of creditors 22 On 16 April 2018, the administrators circulated to creditors of the company notice of the first creditors' meeting. The report to creditors which accompanied that meeting notice informed creditors that contracts had been entered into for the sale of the company's restaurants (other than the ACT restaurant) prior to the administrators' appointment and that, pending completion of those sales, Hallmark would be taking over the management of the sale restaurants. The report also notified creditors that the steps required to complete the sales were estimated to take two to three months to effect. The first creditors' meeting was held on 23 April 2018. Seventeen creditors submitted a proof of debt and the total value of their claims was $4,306,136. The creditors in attendance at the meeting determined not to appoint a committee of inspection. Mr Sallway notified the creditors present that the administrators would be seeking an extension of the timeframe within which the second meeting of the company's creditors was required to be held. No creditors present at the meeting (including the representative of the secured creditor, HSBC Bank Australia Limited ("HSBC")) raised any concern about the making of such an application. 23 Since their appointment, in addition to conducting the first creditors' meeting and the other activities already mentioned, the administrators have been engaged in the following activities: General administration tasks (1) Holding discussions with the company's directors; (2) opening new bank accounts for the purpose of the administration of the company; (3) communicating with the Australian Taxation Office; (4) instructing solicitors; and (5) complying with statutory obligations. Liaising with employees (6) Holding discussions with the company's employees; and (7) taking steps to try to secure payroll records from the company's previous supplier of payroll management services for the purpose of reconciling the entitlement claims of the company's employees; Liaising with creditors (8) Identifying the company's creditors from the limited books and records of the company secured so far by the administrators, the information provided by the company's directors and employees, and the public records on the Personal Property Securities Register ("PPSR") and ASIC register; (9) taking steps to verify the validity and enforceability of security over property of the company held by secured creditors; (10) communicating with the company's creditors; and (11) taking steps to verify the debts owed to the company's creditors. Preliminary investigation (12) Conducting (to the extent possible) preliminary investigations required pursuant to s 438A of the Act, including investigating with a view to identifying the precise nature and extent of the company's business, property, affairs and financial circumstances (13) investigating and reviewing contracts entered into by the company; and (14) discussing with stakeholders, issues relating to the business, property, affairs and financial circumstances of the company, including the sale of the assets of the company. Creditors Leases 24 Each of the sale restaurants operates from leased premises. Each restaurant lease (other than that for the Western Australia restaurant) contains a provision that entitles the lessor to terminate or otherwise bring the lease to an end before the expiry of its term by reason of the Administrators' appointment. As far as Mr Sallway was aware, no restaurant lessors have issued termination notices. All of the restaurant premises are licensed premises from which alcohol may be sold and consumed on the premises or taken for consumption off the premises. 25 The ACT restaurant premises have been vacated, possession being returned to the landlord creditor. Secured creditors 26 The administrators are continuing to investigate the security interests that have been registered against the company's assets. The administrators have identified 13 secured creditors. 27 There are two creditors registered as holding security over all of the property and assets of the company. One of those is HSBC, which claims to be owed $2,716,486 by the company, according to the proof of debt lodged with the administrators. The other is CPB Electrical & Gas Service ("CPB") which has also registered a purchase money security interest ("PMSI"). Mr Sallway assumes that CPB does not actually hold security over all of the property and assets of the company given that it appears to be a trade supplier and has also registered a PMSI. However, the administrators' investigations about this matter are ongoing. 28 Certain of the PPSR registrations relate to leases of equipment and assets that Hallmark is negotiating to have assigned to it as part of the sale of the restaurants. Others of the registrations relate to PMSIs registered by suppliers asserting retention of title claims. Hallmark is acquiring the assets that are subject to retention of title claims and is taking steps to agree terms with the suppliers for the settlement of any such claims. Employees 29 Based on Mr Sallway's investigations to date, it appears that, as at the date of the administrators' appointment, the company had 250 employees. Immediately following the administrators' appointment, Mr Sallway terminated the employment of 84 of the company's employees, comprising 53 staff previously working at the ACT restaurant, five staff previously working at the company's head office and 26 staff across the sale restaurants. 30 The company has 166 remaining employees. Unsecured creditors 31 Based on Mr Sallway's investigations to date, as at the date of the administrators' appointment the company had 218 unsecured creditors who together were owed a total of approximately $7,196,370. Conditions precedent to completion of sales of restaurants 32 Completion of the sales is conditioned upon certain events transpiring, including: (1) administrators being appointed to the company; (2) entry into the relevant services deed, and there being no outstanding breach of those services deeds; (3) assignment or novation of the relevant property leases and any equipment leases to Hallmark; (4) Hallmark obtaining the relevant liquor and food licences whether by way of transfer from the company or application and approval of the relevant government agencies; (5) issuing of employment offers by Hallmark to certain employees of the company; and (6) Hallmark entering into a development agreement with JIL (presumably licencing Hallmark to use the trading brand, among other things). 33 Only (1) and (2) above have been completed. As to (4), Mr Sallway believes that the transfer applications have been submitted and any such approval is now subject to approval by the relevant government agencies. Otherwise, the conditions precedent remain to be completed. 34 Mr Sallway's evidence was that, based on his experience, completion of the remaining conditions precedent may take in the order of three to four months. In particular, Mr Sallway's evidence was that obtaining the property and equipment leases may take in the order of two to three months, as commercial negotiations are required to take place for each of the five restaurants, lease agreements drafted by lawyers and bank guarantees for rental bonds obtained from Hallmark's financier and provided to the landlords. Prejudice arising from extension of time 35 Mr Sallway expressed the following beliefs concerning the likelihood of prejudice to affected parties by an extension of the convening period: (1) Landlord creditors would not be prejudiced as the restaurant premises have either been vacated with possession returned to the landlord creditor (in the case of the ACT restaurant) or the administrators are liable to pay the rents for the period of occupation of the premises by the company and have made arrangements for the rental costs to be paid or reimbursed by Hallmark under the services deeds during such period. (2) Save for the minority of the company's employees, the company's employees would not be prejudiced as the continued trading of the sale restaurants has resulted in continued employment for the majority of the company's employees (at Hallmark's cost pursuant to the services deeds), with the prospect of the majority being offered new employment by Hallmark pursuant to the terms of the sale agreements if the sales of the sale restaurants complete. (3) Secured creditors would not be prejudiced. Specifically, HSBC would not be prejudiced. Mr Sallway noted that he had met with John Dawson of HSBC on 19 April 2018 to discuss HSBC's position in relation to the company. Mr Dawson also attended the first creditor's meeting on behalf of HSBC. On both those occasions Mr Sallway discussed the proposal to make the application sought in this proceeding and Mr Dawson raised no objection on HSBC's behalf. 36 Mr Sallway was not aware of any specific prejudice which would be suffered by unsecured creditors were an extension of the convening period to be granted. Statutory framework 37 Section 439A of the Act provides relevantly: (1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6). (2) The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period. (5) The convening period is: (a) if the day after the administration begins is in December, or is less than 25 business days before Good Friday—the period of 25 business days beginning on: (i) that day; or (ii) if that day is not a business day—the next business day; or (b) otherwise—the period of 20 business days beginning on: (i) the day after the administration begins; or (ii) if that day is not a business day—the next business day. (6) The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires. 38 Requirements for giving notice of a meeting pursuant to s 439A are set out in rr 75-15 and 75-255 of the Insolvency Practice Rules (Corporations) 2016 (Cth). 39 By s 447A(1) of the Act, the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. Relevant principles 40 In Strawbridge, re Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683, Jacobson J said (at [22]): The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales. 41 The written submissions made on behalf of the administrators set out the summary of the relevant principles in Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed [2017] FCA 635 at [18] to [20], and referred to Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18]. 42 In particular, the written submissions noted that the Court's power to extend a convening period has been exercised where a reason for so doing was to allow a sale of business as a going concern to be achieved: see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (and in that case, the extension granted was for a period of six months). Consideration and conclusion 43 At the hearing of the application, Mr Rose acknowledged that unsecured creditors were not assured of a dividend, noting that no DOCA has been proposed despite this being orthodox route to a dividend. However, Mr Rose observed that the securities held by secured creditors would be a fetter on the effectuation of any sale, their discharge being required in order for any sale to proceed. Mr Rose also pointed to the evidence that Hallmark is presently negotiating to acquire assets subject to retention of title claims. 44 I was satisfied that the Court had power to make the orders sought and that those orders were appropriate. In particular, I was satisfied that the proposed extension was reasonable because: (1) It facilitates the completion of the sale agreements by which as much as possible of the business of the companies will continue in existence, consistent with the object of Pt 5.3A as stated in s 435A of the Act. (2) The alternative to an extension was an immediate liquidation and termination of all employees. That would reduce the value of the business of the company because it would no longer be a going concern. (3) The extension was not expected to prejudice creditors, except a minority of employees whose positions have already been terminated. Conversely, the extension of time is beneficial to the majority of employees by reason of their continued employment and the enhanced prospect of their future employment after the conclusion of the administration. (4) The main secured creditor, HSBC, did not object to the extension of time and nor have other creditors who attended the first creditors meeting and were informed of the proposed extension of time application. (5) The extension appeared to be likely to be beneficial to secured creditors who may be able to be repaid some or all the amounts owing to them from Hallmark. (6) The administrators required further time to convey useful information to the creditors, including a properly informed opinion as to the options available to the creditors at the second meeting, particularly because of the lien that has been exercised over financial records of the business. (7) The orders proposed made provision for prompt notification of creditors of the extension of the time for convening the second meeting of creditors and granting liberty to apply to interested persons including creditors of the company for the purpose of modifying or discharging the relevant orders. (8) On the evidence before me, there was no reason to think that the administrators have delayed in the exercise of their functions. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 30 May 2018