FEDERAL COURT OF AUSTRALIA Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 4) [2020] FCA 671 File number: NSD 357 of 2020 Judge: MARKOVIC J Date of judgment: 8 May 2020 Date of publication of reasons: 20 May 2020 Catchwords: CORPORATIONS – application for orders pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act) further extending the convening period for second meeting of creditors required to be held under s 439A(1) of the Act – application allowed Legislation: Corporations Act 2001 (Cth) ss 435A, 438A, 439A, 439C, 447A(1) Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG(1)(a) Cases cited: Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (No 2) [2010] FCA 499 Re Acquire Learning & Careers Pty Ltd (administrators appointed) [2017] VSC 572 Date of hearing: 8 May 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 41 Counsel for the Plaintiffs: Ms T Jonker Solicitor for the Plaintiffs: Hamilton Locke ORDERS NSD 357 of 2020 IN THE MATTER OF CBCH GROUP PTY LTD ACN 600 219 841, CBCH AUSTRALIA PTY LTD ACN 137 924 791, CBCH BUYING CO PTY LTD ACN 162 989 335 AND COLETTE INTERNATIONAL PTY LTD ACN 158 346 046 (ALL ADMINISTRATORS APPOINTED) VAUGHAN STRAWBRIDGE, SAM MARSDEN AND JASON TRACY IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF CBCH GROUP PTY LTD ACN 600 219 841, CBCH AUSTRALIA PTY LTD ACN 137 924 791, CBCH BUYING CO PTY LTD ACN 162 989 335 AND COLETTE INTERNATIONAL PTY LTD ACN 158 346 046 (ALL ADMINISTRATORS APPOINTED) Plaintiffs JUDGE: MARKOVIC J DATE OF ORDER: 8 may 2020 THE COURT ORDERS THAT: 1. The plaintiffs be granted leave to file the further amended originating process dated 7 May 2020 in the form initialled and dated by Markovic J. 2. Pursuant to s 37AF(1)(b) of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the following documents are to be marked "confidential" on the electronic Court file and are not to be published or accessed, except pursuant to an order of the Court or the written agreement of the plaintiffs, until 5.00 pm on 3 September 2020: (a) confidential exhibit SAM-A to the unsworn affidavit of Sam Andrew Marsden dated 30 March 2020 (Marsden Affidavit) and marked "confidential" (Confidential Exhibit SAM-A); and (b) unsworn affidavit of Sam Andrew Marsden dated 15 April 2020 and marked "confidential" (Confidential Affidavit). 3. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act), Pt 5.3A of the Act is to operate in relation to each company in the Colette Group being CBCH Group Pty Ltd (administrators appointed), CBCH Australia Pty Ltd (administrators appointed), CBCH Buying Co Pty Ltd (administrators appointed) and Colette International Pty Ltd (administrators appointed) such that: (a) s 439A(1) also provided that the meeting of creditors required by that section may be convened and held within the convening period (including within the convening period as extended pursuant to s 447A(1)); and (b) the convening period for the meeting of creditors required to be held pursuant to s 439A(1) be extended up to and including 27 August 2020. 4. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to each company in the Colette Group such that each meeting of creditors required by s 439A(1) of the Act be held during the period as extended by Order 3 above and the period of five business days thereafter, notwithstanding the provisions of s 439A(2) of the Act. 5. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to each company in the Colette Group such that notice of the second meeting of the creditors of the company will be validly given to creditors by: (a) causing the notice to be published on the ASIC published notices website at https://insolvencynotices.asic.gov.au/; (b) sending a hyperlink to the notices published on the ASIC published notices website by email to the email address of each creditor at such email address as is recorded in the books and records of the company; and (c) where an email address is not recorded in the books and records of the company but a postal address is recorded, or where it comes to the attention of the plaintiffs that a notice sent by email has not been delivered, sending by post the notices to the postal address of each creditor at such postal address as is recorded in the books and records of the company. 6. Any person demonstrating sufficient interest in Order 2 above has liberty to apply to vary that order on three business days' notice to the plaintiffs and to the Court. 7. Any creditor of the Colette Group demonstrating sufficient interest in Order 3 or Order 4 above has liberty to apply to vary that order on three business days' notice to the plaintiffs and to the Court. 8. The costs and expenses of and incidental to this application be costs and expenses in the administrations of the companies in the Colette Group and the plaintiffs may allocate those costs amongst the companies on a pro rata basis. 9. Within 48 hours of these Orders, the plaintiffs cause notice of these Orders to be given to the creditors (including each landlord set out in annexure SAM-13 to the Marsden Affidavit (each a Landlord) and including persons claiming to be creditors of each company) and to ASIC by the following means: (a) by email to those creditors who have provided the plaintiffs with an email address; (b) by post or facsimile to all other creditors known to the plaintiffs, or where it comes to the attention of the plaintiffs that a notice sent by email has not been delivered; and (c) by post to ASIC. 10. The plaintiffs have liberty to apply to further extend the convening period for the meetings of creditors of each company in the Colette Group required to be held pursuant to s 439A(1) of the Act. 11. The proceeding be listed for case management hearing on 30 July 2020 at 9.30 am. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: 1 On 8 May 2020 on the application of Vaughan Strawbridge, Sam Marsden and Jason Tracy in their capacity as joint and several administrators (Administrators) of CBCH Group Pty Ltd (CBCH Group), CBCH Australia Pty Ltd (CBCH Australia), CBCH Buying Co Pty Ltd (CBCH Buying) and Colette International Pty Ltd (Colette International) (all administrators appointed) (collectively, the Colette Group or the Companies) I made orders including an order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act) extending the convening period for each of the Companies for the second meeting of creditors required to be held under s 439A(1) of the Act up to and including 27 August 2020 and ancillary orders such that the second meeting of creditors of each of the Companies can be held at any time on or before 3 September 2020. 2 This was the second such application and orders made extending the convening period. On 24 February 2020 Yates J made orders pursuant to s 439A(6) of the Act extending the period under s 439A(5)(a) of the Act in respect of each of the Companies for a period of 90 days up to and including 27 May 2020 such that the second meeting of creditors of each of the Companies could be held at any time on or before 3 June 2020 (First Extension Orders): see Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) [2020] FCA 296 (CBCH Group (No 1)). 3 These are my reasons for making the orders that I made on 8 May 2020. BACKGROUND FACTS 4 The structure of the Colette Group is set out in CBCH Group (No 1) at [5]. In summary it is as follows: (1) CBCH Group is the ultimate holding company of CBCH Australia, CBCH Buying, Colette International and CBCH New Zealand Limited (CBCH NZ), holding 100% of the issued capital of each company; (2) CBCH Australia is the operating and employing entity for the Colette Group's Australian activities; (3) CBCH Buying orders stock from its suppliers which it then sells to CBCH Australia, Colette International and CBCH NZ at cost price; and (4) Colette International has entered into a franchise agreement with Foschini Retail Group Pty Ltd (Foschini) in South Africa which covers eight Colette branded franchise stores, 31 concession stands and an online presence. Foschini purchases its stock from CBCH Buying. 5 At the time the First Extension Orders were made the Colette Group operated 124 stores in Australia as well as an online store. Events following the First Extension Orders 6 After the First Extension Orders were made the Administrators: (1) closed 31 poorly performing stores in Australia which had been previously identified and earmarked for closure; (2) intended to continue to trade the remaining 93 stores for the purpose of a sale or recapitalisation of the Colette Group business, which at the time they anticipated would conclude at the end of April 2020; and (3) intended to undertake the additional work required of them pursuant to s 438A of the Act including various investigations (see CBCH Group (No 1) at [8]-[12]). 7 As Mr Marsden explains, by the end of March 2020 the impact of the novel coronavirus (COVID-19) pandemic was affecting the operations of the Colette Group including that: (1) by the week of 9 March 2020 the Colette Group started to operate at a loss; (2) on 25 March 2020 the sale and recapitalisation process that had been launched was prematurely terminated; and (3) on 26 March 2020 the Administrators closed, but remained in possession of, the 93 remaining retail stores and stood down the Colette Group's 645 employees, which the Administrators have now identified as the correct number based on revised payroll data. 8 From that time the landscape in which the Administrators operated continued to change and was subject to government guidance and government imposed restrictions as to the movement of people, save in limited circumstances, and the closure of businesses which did not provide essential goods and services: see Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 3) [2020] FCA 555 (CBCH Group (No 3)) at [7]-[10]. As a result, the Administrators have, not surprisingly, been unable to finalise their investigations and other work that they had completed and intended to complete during the currency of the First Extension Orders. Further applications made by the Administrators 9 On 1 April 2020 and 15 April 2020 I heard applications made by the Administrators in relation to their personal liability to pay rent and other amounts payable under the leases for the 93 remaining stores of which they remained in possession (Leases). On each occasion I made an order pursuant to s 447A(1) of the Act varying the operation of s 443A(1)(c) and s 443B(2) of the Act such that each of the Administrators was not personally liable for rent and other payments due under the Leases and a direction pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, that each of the Administrators was justified in causing the Companies not to meet their obligations to pay rent pursuant to the Leases. Those orders operated until 6 May 2020: see Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 472 (CBCH Group (No 2)); CBCH Group (No 3). 10 The applications referred to in the preceding paragraph were predicated on the Administrators' opinion, based on financial modelling that they had undertaken, that "mothballing" the Colette Group business was likely to realise the most value for creditors: see CBCH Group (No 2) at [25]; CBCH Group (No 3) at [34]. As explained at [24(4)] of CBCH Group (No 2) "mothballing" the Colette Group business involved closing but retaining possession of the 93 stores for a period of two months followed by a four week trading period during which the sale campaign could be progressed. It also allowed the Administrators to keep open two other alternatives: (1) undertaking a managed wind down of the Colette Group business once the stores reopen by selling stock through the current store infrastructure over an 8 to 12 week period before winding up the Companies; and (2) a restructure through a deed of company arrangement (DOCA), see CBCH Group (No 2) at [24(1)], [24(3)], [25]. 11 The alternative to the "mothballing" strategy was a shut down scenario. The Administrators had, for the purpose of the applications referred to in [9] above, modelled a shut down scenario on two bases referred to as the Shut down 1 Scenario and the Shut down 2 Scenario. The shut down scenarios involve vacating possession of the 93 stores, winding up the Companies and either abandoning all the stock by leaving it in the stores (Shut down 1 Scenario) or attempting to recover some value for the stock by taking it from the stores, storing it and retaining head office staff to manage the online store (Shut down 2 Scenario): see CBCH Group (No 2) at [24(2)]. Developments since 15 April 2020 12 Since about 15 April 2020 the Administrators have been negotiating with the 17 landlords of the 93 remaining stores of which they remain in possession (Landlords) in accordance with the National Cabinet's "Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19" (Code of Conduct). As at 4 May 2020 the Administrators were near to concluding negotiations with all major Landlords. Mr Marsden says that as a result of those negotiations, in general terms: (1) the Landlords have agreed to amendments to CBCH Australia's lease liability under varying terms; and (2) the Administrators are comfortable that the overall rent reduction that they have negotiated with the Landlords is sufficient to enable the stores to reopen and commence in-store trading. 13 Mr Marsden anticipated that it is possible that some stores would reopen for trading shortly and that all stores that are to be reopened will do so by 1 June 2020 provided there are no further COVID-19 related government restrictions imposed. 14 Since 15 April 2020 the Administrators have also taken steps to access the Commonwealth Government's JobKeeper package. They estimate that accessing that package will provide reimbursement for approximately 65% to 75% of the gross total wage bill required to operate the 93 remaining stores. 15 The Administrators have re-enlivened the sale and recapitalisation process which they had prematurely terminated on 25 March 2020. Its status as at 4 May 2020 was as follows: (1) two parties were engaged in the data room and considering the sale and recapitalisation opportunity for the Colette Group business; (2) it was anticipated that one interested party will submit a non-binding indicative offer during the week commencing 4 May 2020; (3) one further interested party had, since 15 April 2020, been added to the data room and was undertaking due diligence prior to making a decision as to whether to submit a non-binding indicative offer; and (4) another interested party was in the process of executing a non-disclosure agreement in order to be added to the data room in the next week, subject to ongoing discussions. 16 If all stores are open for trading by 1 June 2020 Mr Marsden considers that there is a real possibility that there will be a sale and/or recapitalisation proposal by early to mid-August 2020. 17 Mr Marsden also deposes in some detail to the additional work that the Administrators have undertaken since the First Extension Orders and additional work, including investigations that they are yet to complete. I do not propose to set that evidence out in detail. Notification of the application 18 There was evidence before me about service of the application on all of the known creditors of the Colette Group including the Landlords. As at 7 May 2020, two of the Landlords had indicated that they did not intend to appear on the application and no other creditor had notified the solicitors for the Administrators or the Administrators that they intended to appear on the application. 19 When the matter came on before me there was no appearance by or on behalf of any creditor. While the hearing was held by web conference using video conference facilities, the Court's published list of business relevantly invited any interested party wishing to participate in the hearing to contact my Associate by 9.30 am on 8 May 2020. No such contact was made by any person. Further, on the matter being called three times outside the allocated courtroom, there was no appearance or attendance by any party. LEGISLATIVE FRAMEWORK AND LEGAL PRINCIPLES 20 Section 435A of the Act provides that the objective of Pt 5.3A, which concerns the administration of a company's affairs with a view to executing a DOCA, is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. 21 Section 439A of the Act deals with the timeframe in which an administrator of a company must convene a meeting of the company's creditors where they may, under s 439C of the Act, resolve to execute a DOCA, end the administration or wind up the company. Section 439A relevantly provides: (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. … (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. 22 Section 447A provides that the Court may make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. 23 Section 439A does not extend to authorising a further extension under s 439A(6). However, s 447A(1) is available to deal with cases of subsequent extensions: see Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (No 2) [2010] FCA 499 at [35]-[36]. 24 Section 447A(1) permits the Court to alter what would otherwise be the operation of Pt 5.3A of the Act and to permit a company to depart from a mandatory requirement under that Part: see Australasian Memory Pty Limited v Brien (2000) 200 CLR 270. 25 The principles for assessing an application for a further extension of the convening period are the same as those in respect of an initial grant: see Re Acquire Learning & Careers Pty Ltd (administrators appointed) [2017] VSC 572 at [12]. 26 In considering an application under s 439A or s 447A for an extension of the convening period, the Court will have regard to and must reach an appropriate balance between the objectives of Pt 5.3 of the Act and the need for expedition in an administration and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors. Considerations which may support an extension include: the size and scope of the company's business; the existence of a complex corporate group structure and intercompany loans; the time needed to execute an orderly process for disposal of assets; the fact that an extension of time is likely to enhance the return for unsecured creditors; and the impact of any extension upon a person whose claim is affected by the statutory moratorium under Pt 5.3A of the Act: see In the matter of Renex Holdings (Dandenong) 1 Pty Ltd (administrators appointed) [2015] NSWSC 2002 at [7], citing In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 at [13]. 27 In Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [20] I noted the following factors as relevant to a consideration of whether the convening period should be extended: (1) whether the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: see Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363 (Fincorp) at [18]; (2) the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others, a factor which may militate against the too ready grant of an extension: see Fincorp at [4]; and (3) whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and to arrive at the opinion required by s 439A(4), in order to inform creditors adequately so that they, in turn, will be in a position to decide whether to terminate the administration, execute a DOCA or place the company in liquidation: see Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (McGrath and Honey as joint liquidators) (2003) 46 ACSR 77; [2003] FCA 598 at [41]). CONSIDERATION 28 Having regard to the objectives of Pt 5.3 of the Act and the need for expedition in an administration, on the one hand, and the fact that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors, on the other, I was of the opinion that the orders sought by the Administrators to extend the convening period for each of the Companies should be made. The evidence before me about the history and status of the administration of the Colette Group, the future steps to be taken by the Administrators and the likely effect on creditors favoured the making of those orders. 29 The further extension of the convening period was sought by the Administrators for two principal reasons: first, to enable them to pursue their "mothballing" strategy; and secondly, to conclude their investigations of the Colette Group's business, property, affairs and financial circumstances. Together these steps will enable them to provide a recommendation to creditors as required by the Act in respect of the future of the Companies. 30 The Administrators are of the opinion that once the stores reopen and begin trading, the sale process, which has now been re-enlivened, will enable them to achieve either a sale or recapitalisation of the Colette Group business by 27 August 2020. They are also of the view that this approach, that is a sale following "mothballing", will provide the most value to creditors and is therefore in their best interests. This is because: (1) employees retain their jobs and any entitlements are transferred to the purchaser; (2) employees retain access to the JobKeeper subsidy, which is unlikely to be available in a liquidation; (3) the Administrators will continue to meet the reduced rent obligations under the Leases; and (4) creditors may obtain repayment of debts and other synergies capable of providing value. 31 The Administrators are also of the opinion that, even if a sale or recapitalisation is not achieved, the extension will provide them with the opportunity to maintain the store network and sell all current stock in a managed wind down which will return more value to creditors than a fire sale of stock. 32 On the other hand, if the extension is not granted, the Administrators say they will have insufficient time to pursue a sale or recapitalisation following the "mothballing" of the stores or a managed wind down and will move to sell the stock through a fire sale. The Administrators consider this to be the least beneficial scenario for creditors. 33 As set out at [18]-[19] above, no creditor notified the Administrators of an objection to the application and no creditor appeared on the application to oppose it. 34 In any event, in my opinion, the evidence established that there was no prejudice to the creditors in making the orders sought. In particular: (1) no recoveries have been identified for a liquidator further to investigate or pursue where the outcome for creditors would be adversely impacted by the extension; (2) the Administrators have applied for the JobKeeper subsidy for 324 eligible employees who are currently stood down and have made JobKeeper wage payments to those employees. Another 51 employees may be eligible and will receive the full amount of any subsidy to which they are entitled. Those payments to eligible employees will continue once the stores reopen. Access to that subsidy would not be available to employees in a liquidation; (3) employees who are currently stood down but are not eligible for the JobKeeper subsidy are able to draw down on any pre-appointment annual leave entitlements; (4) full-time employees who have not been stood down and continue to work have been paid their usual wages; (5) the Landlords have become unsecured creditors for a portion of the rent payable to them. However, 11 of the 17 Landlords (representing 50 of the 93 stores) have called on bank guarantees giving them some priority. The Administrators have negotiated with the Landlords and will meet the now reduced rental obligations; and (6) the Administrators will continue to meet all approved supplier expenses incurred while the Companies continue to trade. CONFIDENTIALITY ORDERS 35 The Administrators also sought an extension of the orders I had previously made pursuant to s 37AF(1)(b) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in relation to confidential exhibit SAM-A to the unsworn affidavit of Mr Marsden dated 30 March 2020 (Confidential Exhibit SAM-A) and the unsworn affidavit of Mr Marsden dated 15 April 2020 which is marked "confidential" (Marsden Confidential Affidavit). 36 Section 37AF(1)(b) of the FCA Act empowers the Court to make a suppression or non-publication order prohibiting or restricting the publication or other disclosure of information that relates to a proceeding before the Court and is, relevantly, information that comprises evidence or information about evidence. Section 37AG of the FCA Act sets out the grounds upon which such an order can be made including that the order is necessary to prevent prejudice to the proper administration of justice: see s 37AG(1)(a) of the FCA Act. The suppression order or non-publication order must specify the ground or grounds on which the order is made: see s 37AG(2) of the FCA Act. 37 I have previously found both Confidential Exhibit SAM-A and the Marsden Confidential Affidavit to be information relating to a proceeding before this Court which comprises evidence or information about evidence: see CBCH Group (No 2) at [67]; CBCH Group (No 3) at [71]. 38 Mr Marsden gave evidence as to why he seeks an extension of the orders previously made for the suppression or non-publication of Confidential Exhibit SAM-A and the Marsden Confidential Affidavit. In particular the Administrators are concerned that disclosure of that information would likely negatively impact any future sale of the Colette Group business or its stock given the relative size of the industry and the nature of the potential purchasers. The Administrators are concerned that disclosing the information may cap the value offered for the Colette Group business by any potential purchaser. 39 I was satisfied that maintaining the confidentiality of Confidential Exhibit SAM-A and the Marsden Confidential Affidavit would serve to protect the value in the Colette Group business which, in turn, will allow the Administrators to administer the affairs of the Colette Group for the benefit of its creditors. I was satisfied that the clear public interest in the due and beneficial administration of the Colette Group for the benefit of its creditors justified the making of the orders sought in relation to the continued non-publication of Confidential Exhibit SAM-A and the Marsden Confidential Affidavit pursuant to s 37AF of the FCA Act on the grounds set out in s 37AG(1)(a) of that Act. 40 I made the order for the period up to and including 3 September 2020 which is the day five business days after 27 August 2020, being the date by which the second meeting of creditors is required to be held in light of the order made extending the convening period for each of the Companies. CONCLUSION 41 For those reasons I made the orders sought by the Administrators. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 20 May 2020