FEDERAL COURT OF AUSTRALIA Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1059 File number: NSD 232 of 2020 Judge: GLEESON J Date of judgment: 8 July 2020 Date of publication of reasons: 23 July 2020 Catchwords: CORPORATIONS – application under s 447A of the Corporations Act 2001 (Cth) to extend the convening period for the second meetings of creditors – where applicant seeking order to permit the meetings to be held on any business day within 5 business days after the end of the convening period as extended – where convening period has already previously been extended – where initial and subsequent extensions sought to enable sale of the businesses as going concerns - application granted Legislation: Corporations Act 2001 (Cth) ss 439A, 447A, Pt 5.3A Insolvency Practice Rules (Corporations) 2016 s 75-225 Cases cited: Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) [2020] FCA 418 Chamberlain, Re South Wagga Sports and Bowling Club Ltd (Admin Apptd) [2009] FCA 25 Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115 Mentha, Re The Griffin Coal Mining Company Pty Ltd (Admin Apptd) (ACN 008 667 285) (No 2) [2010] FCA 499 Re ABC Learning Centres (No 8) [2009] FCA 994; (2009) 73 ACSR 478 Re Acquire Learning & Careers Pty Ltd (administrators appointed) [2017] VSC 572 Re Harrisons Pharmacy Pty Ltd (Admin Apptd) (Recs and Mngrs Apptd) [2013] FCA 1102 Owen v Madden (No 5) [2013] FCA 1443 Date of hearing: Determined on the papers Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 15 Solicitor for the Plaintiff: William James ORDERS NSD 232 of 2020 IN THE MATTER OF B K CHEMISTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 156 536 373) AND B K CHEMISTS NO. 2 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 163 847 765) MICHAEL JAMES BILLINGSLEY AND LUCI PALAGHIA IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF B K CHEMISTS PTY LTD (ADMINISTRATORS APPOINTED) (ACN 156 536 373) AND B K CHEMISTS NO. 2 PTY LTD (ADMINISTRATORS APPOINTED) (ACN 163 847 765) Plaintiff JUDGE: GLEESON J DATE OF ORDER: 8 JULY 2020 THE COURT ORDERS THAT: 1. Pursuant to s 447A of the Corporations Act 2001 (Cth) (Act), the period within which the Administrators must convene a meeting of creditors of B K Chemists Pty Ltd (Administrators Appointed) (ACN 156 536 373) and B K Chemists No. 2 Pty Ltd (Administrators Appointed) (ACN 163 847 765) (Companies) under s 439A of the Act (Second Meeting) be extended up to and including 9 September 2020. 2. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate so that the Second Meeting may be held at any time during, or within 5 days after the end of, the convening period as extended by order 1 above, notwithstanding the provisions of s 439A(2) of the Act. 3. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the Confidential Affidavit of Michael James Billingsley sworn 8 July 2020, and Annexures "A" and "B" to that affidavit, not be further disclosed by publication or otherwise. 4. Order 3 is to operate until the conclusion of the administration of the Companies. 5. The applicants notify all known officers, contributories and creditors of the Companies (including persons claiming to be creditors) of these orders by means of a circular to be sent by email (where the applicants hold email contact details) or by post, such notice to be sent or transmitted by Friday 10 July 2020. 6. There be liberty to any director, contributory or creditor of the Companies, or any other person with a sufficient interest, to apply to vary or amend any of these orders on two days' notice. 7. The applicants' costs of and incidental to the interlocutory process filed on 8 July 2020 be costs in the administration of the Companies, and be paid out of the property of the Companies. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 By interlocutory process filed on 8 July 2020, the plaintiffs (administrators) applied under s 447A of the Corporations Act 2001 (Cth) (Act) to extend the convening period for the second meetings of creditors of BK Chemists Pty Ltd (Administrators Appointed) and BK Chemicals No. 2 Pty Ltd (Administrators Appointed) (together companies) to 9 September 2020 and to permit the meetings to be held on any business day during or within 5 business days after the end of the convening period as extended. 2 The matter was determined by me on the papers as a matter of urgency because the convening period was due to expire on 9 July 2020, having previously been extended by orders made on 5 March 2020: Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) [2020] FCA 418. 3 After considering two affidavits of Michael Billingsley sworn 8 July 2020, I was satisfied that the convening period should be extended. Accordingly, I made orders in the terms sought by the administrators. 4 These are my reasons for making those orders. Background to application 5 The administrators were appointed on 10 February 2020. 6 The first meetings of creditors of the companies were held concurrently on 20 February 2020. 7 On 5 March 2020, the administrators applied to this Court for the first extension of the convening period. The extension was sought to allow time for the administrators to endeavour to sell the companies' businesses as going concerns; and to make reliable estimates of liabilities and potential realisations. The extension was granted on the basis of the desirability of those aims. 8 On 30 June 2020, business sale agreements were exchanged for the sale of the companies' three pharmacy businesses. However, Mr Billingsley formed the view that completion of the sales may not occur prior to, relevantly, 9 July 2020. Although Mr Billingsley's view was that completion may not occur by the "End Date" as defined in the business sale agreements, his belief was that completion was likely to occur within two months of 8 July 2020, based on matters that included the purchasers' expectation of finance approval in the week of 8 July 2020; that a necessary application to the Department of Health had not yet been submitted and that the lessor of the three relevant premises had agreed to a lease arrangement for the premises post completion of the sale. 9 Concerning the administration since 5 March 2020: (1) Mr Billingsley stated that there had been some changes to the identity and number of creditors, and that debts owed to creditors now total at least an estimated $27.56 million. (2) The administrators have done the following work: (a) continued to trade the businesses to conserve their value, ensuring the continuation of their operations and continued employment of staff; (b) formulated and implemented COVID-19 policies and procedures for trading; (c) negotiated, finalised and exchanged the BSAs; and (d) conducted investigations into the historical financial affairs of the companies; (3) It is still the case that all trade creditors whose services are continuing during the administration have and are being paid, or have entered into consignment arrangements. (4) Neither NAB nor API expressed any objection to the further extension of the convening period; (5) Mr Billingsley is now in a position to complete the report to creditors in accordance with s 75-225 of the Insolvency Practice Rules (Corporations) 2016. Grounds for a further extension of the convening period 10 Mr Billingsley expressed the opinion that a further extension of the convening period was necessary and in the interests of creditors to: (1) enable the businesses to continue to trade in order to complete the sales of the businesses as going concerns; and (2) attend to matters ancillary to the completion of those sales such as assigning or novating contracts or leases. 11 If the extension were not granted, Mr Billingsley proposed to recommend that the companies enter into liquidation. Mr Billingsley noted that this may result in the termination of all current employees. Legal framework 12 By s 447A(1), the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. There is no doubt that s 447A supports an order extending a convening period, following an earlier extension under s 439A: Mentha, Re The Griffin Coal Mining Company Pty Ltd (Admin Apptd) (ACN 008 667 285) (No 2) [2010] FCA 499 at [36]; Chamberlain, Re South Wagga Sports and Bowling Club Ltd (Admin Apptd) [2009] FCA 25; Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115 at [32]. 13 Multiple extensions of time were granted in Re ABC Learning Centres (No 8) [2009] FCA 994; (2009) 73 ACSR 478, see especially at [52] and [53]; Re Harrisons Pharmacy Pty Ltd (Admin Apptd) (Recs and Mngrs Apptd) [2013] FCA 1102; Owen v Madden (No 5) [2013] FCA 1443; and Re Acquire Learning & Careers Pty Ltd (administrators appointed) [2017] VSC 572. 14 The same principle apply as for an extension under s 439A, and were identified in my earlier judgment. Conclusion 15 I was satisfied that the convening period should be extended for each company for the further period sought because: (1) the administrators had successfully negotiated sales of the companies' businesses as going concerns, and exchanged contracts, but require additional time to complete those sales, thereby maximising the value that may be obtained for those businesses; (2) the administrators believed that they will be able to achieve successful completion of the sales within two months; (3) the two secured creditors did not object to the proposed extension; (4) all trade creditors who are continuing to provide services to the businesses have and are being paid, or have entered into consignment arrangements; (5) Mr Billingsley's opinion was that the further extension of the convening period would be in the interests of the companies' creditors; (6) there is no suggestion of any delay on the part of the administrators in the exercise of their functions; (7) if the extension was not granted, the companies would probably be placed into liquidation with a consequent loss of value of the companies' businesses; and (8) the proposed orders provided for prompt notification of the companies' creditors, enabling them to apply to vary or amend the orders made on short notice; (9) taking into account these matters, I was satisfied that it would be in the best interests of the companies' creditors if the convening periods were extended in accordance with the application. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 23 July 2020