Federal Court of Australia Walker, in the matter of Plumbfirst Pty Ltd (Administrators Appointed) [2023] FCA 441 File number: NSD 390 of 2023 Judgment of: CHEESEMAN J Date of judgment: 8 May 2023 Date of publication of reasons: 9 May 2023 Catchwords: CORPORATIONS – application under s 439A(6) of the Corporations Act 2001 (Cth) to extend the convening period for second creditors meeting and related orders – whether basis for extension and estimate of time required is reasonable – whether any material prejudice – whether in best interests of creditors and the companies – whether public interest is served in averting insolvency – Held: Application granted. Legislation: Corporations Act 2001 (Cth) ss 439A(5), 439A(6), 447A Insolvency Practice Rules (Corporations) 2016 (Cth) s 75-225 Cases cited: Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 Farnsworth v About Life Pty Ltd (Administrator Appointed), in the matter of About Life Pty Limited (Administrator Appointed) [2019] FCA 11 In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers And Managers Appointed) [2013] FCA 458 Re Riviera Group Pty Ltd [2009] NSWSC 585 Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 41 Date of hearing: 8 May 2023 Counsel for Plaintiff: Mr M Rose Solicitor for Plaintiff: King & Wood Mallesons ORDERS NSD 390 of 2023 IN THE MATTER OF PLUMBFIRST PTY LTD (ADMINISTRATORS APPOINTED) ACN: 606 165 173 ALAN LEE WALKER AND GLENN IAN LIVINGSTONE IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF PLUMBFIRST PTY LTD (ADMINISTRATORS APPOINTED) ACN 606 165 173 Plaintiff order made by: CHEESEMAN J DATE OF ORDER: 8 May 2023 THE COURT ORDERS THAT: 1. The Originating Process be made returnable instanter. Extension of Convening Period 2. Pursuant to s 439A(6) of the Corporations Act 2001 (Cth), the convening period within which the plaintiffs must convene the second meeting of creditors of Plumbfirst Pty Ltd (Administrators Appointed) and each of the companies listed in the Schedule (together, including Plumbfirst Pty Ltd, the Companies) under s 439A of the Act (Second Meeting) be extended from 11 May 2023 to 10 August 2023. 3. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate such that the Second Meeting may be held at any time during, or within five business days after the end of, the convening period as extended by paragraph 2 above, notwithstanding the provisions of s 439A(2) of the Act. Service and Notices 4. The plaintiffs, within seven business days of making these orders, are to take all reasonable steps to give notice of the orders to the Companies' creditors (including the persons claiming to be creditors), by means of a circular: (a) to be sent by email transmission to creditors for whom the plaintiffs have a current email address; or (b) to be sent by ordinary post to creditors for whom the plaintiffs have only a postal address. 5. Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate such that the requirement on the plaintiffs to issue notices under ss 75-225(1) and 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be modified such that notice of the Second Meeting will be validly given to any creditors by, not less than five business days prior to the date of the proposed meeting: (a) giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Companies for whom or which the plaintiffs hold an email address; (b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the Corporations Regulations 2001 (Cth), to any creditors not being a creditor referred to in sub-paragraph (a); and (c) causing such notice to be published in The Insolvency Notices website located at: https://insolvencynotices.asic.gov.au/. 6. 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 Companies) for the purpose of modifying or discharging any orders made pursuant to paragraphs 2 and 3 above; and (b) the plaintiff, for the purpose of seeking any further extension of the convening period. Costs 7. The plaintiffs' costs of and incidental to this application be costs and expenses in the administration of each of the Companies, and be paid out of the assets of the Companies. SCHEDULE A. Firstaction Group Pty Ltd (Administrators Appointed) ACN 139 666 247 B. Plumbfirst Elecfirst Comfyfirst NSW Pty Ltd (Administrators Appointed) ACN 639 243 360 C. Elecfirst Pty Ltd (Administrators Appointed) ACN 606 391 048 D. Comfyfirst Pty Ltd (Administrators Appointed) ACN 152 881 135 E. Bblautofirst Pty Ltd (Administrators Appointed) ACN 647 331 262 Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.. REASONS FOR JUDGMENT CHEESEMAN J: INTRODUCTION 1 This is an ex parte application brought by Mr Alan Lee Walker and Mr Glenn Ian Livingstone, the administrators of six related companies, Plumbfirst Pty Ltd (administrators appointed) ACN 606 165 173; Firstaction Group Pty Ltd (administrators appointed) ACN 139 666 247; Plumbfirst Elecfirst Comfyfirst NSW Pty Ltd (administrators appointed) ACN 639 243 360 (Plumbfirst NSW); Elecfirst Pty Ltd (administrators appointed) ACN 606 391 048; Comfyfirst Py Ltd (administrators appointed) ACN 152 881 135; and Bblautofirst Pty Ltd (administrators appointed) ACN 647 331 262, (together, the Companies). The administrators seek, inter alia, an order extending the period within which they must convene the second meeting of creditors in respect of the Companies under s 439A(6) of the Corporations Act 2001 (Cth). 2 The Companies operate the HomeFirst business which is a major plumbing and electrical services business. The business has operated in Victoria since 2011, South Australia since 2016 and New South Wales from 2020 to January 2023. 3 Mr Walker and Mr Livingstone were appointed as voluntary administrators of each of the Companies pursuant to resolutions of each of the Companies' boards of directors in accordance with s 436C of the Act. The administrators rely on the affidavit of Mr Walker affirmed on 8 May 2023. Mr Walker is a registered liquidator and has over 20 years of experience in advisory services, corporate recovery, corporate restructuring and strategic and independent business reviews for a large range of entities. 4 The first meeting of creditors of each of the Companies was held on 24 April 2023 pursuant to s 436E of the Act. A Committee of Inspection was appointed in relation to each of Plumbfirst, Elecfirst and Comfyfirst. No Committee of Inspection was appointed in relation to the remaining three of the Companies. 5 The administrators' work to date has included two major tasks. First, in unravelling the relatively complex affairs of the individual companies in circumstances where the Companies appear to have been operated with varying degrees of interconnectedness. Secondly, in preparing for and administering a competitive expressions of interest campaign (EOI campaign) to test the market for the sale of the business and / or assets of the Companies, or proposing and agreeing a deed of company arrangement (DOCA). 6 The administrators submit that they require the extension of time for two principal reasons. First, to carry out further investigations with a view to sorting out the intermingling of individual companies' affairs and ascertaining where assets and liabilities properly lie, and thereafter to obtain advice in relation to pooling. Secondly, to progress the EOI campaign currently being undertaken by the administrators, including to provide for the contingency that the timeline for the EOI campaign, which Mr Walker regards as ambitious in his experience, requires extension. 7 Unless the Court otherwise orders, the convening period for the second meeting of creditors of each of the Companies will expire on 11 May 2023. 8 Following the hearing of this application, I made orders in the form sought by the administrators. These are my reasons for doing so. BACKGROUND 9 Since their appointment, the Administrators have commenced the usual array of investigations into the Companies' affairs, the detail of which is traversed in Mr Walker's affidavit. 10 The core business operations of the Companies comprise trade services offered to residential and commercial customers and include plumbing; heating, ventilation and air conditioning; electrical; and vehicle maintenance. Each of the Companies provides different services, and / or operates in different geographic areas: (a) Plumbfirst operates in metropolitan Melbourne and Adelaide providing residential and commercial plumbing services; (b) Firstaction provides head office support services to the Group's business including customer service, accounts, payroll and call operations and assistance; (c) Plumbfirst NSW operated in metropolitan Sydney and provided residential and commercial plumbing services from 2020 until trading ceased in January 2023; (d) Elecfirst operates in metropolitan Melbourne and Adelaide providing residential and commercial electrical services; (e) Comfyfirst operates in metropolitan Melbourne and Adelaide providing residential and commercial air-conditioning services as well as tendering for long-term construction contracts with commercial and government entities; and (f) Bblautofirst provides vehicle maintenance services to the other Companies and general vehicle repair services and roadworthiness testing and certification as a VicRoads licensed vehicle tester. 11 Based on their investigations to date, the administrators attribute the financial decline of the Companies and the business to a significant increase in the cost base of the business which adversely impacted the Companies' collective financial performance; the impact of the COVID-19 pandemic from March 2020 which had a direct impact on the business; and the lockdowns imposed in Victoria in response to the pandemic; and the significant expense of setting up the New South Wales based business of Plumbfirst NSW in February 2020, which business was then also adversely affected by the lockdown imposed in response to the pandemic. APPLICABLE PRINCIPLES 12 Section 439A of the Act 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). Note: For body corporate representatives' powers at a meeting of the company's creditors, see section 250D. (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. (7) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application. (8) If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to: (a) the fact that the application was made after that period; and (b) any other conduct engaged in by the administrator; and (c) any other relevant matters. 13 Section 439C of the Act provides that, at a meeting convened under s 439A, the creditors may resolve that the company execute a deed of company arrangement, that the administration should end, or that the company be wound up. 14 The applicable principles are well-established and were summarised by Markovic J in Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 as follows: 18. In exercising the jurisdiction to extend time under s 439A(6) the Court must have regard to the objects of Pt 5.3A of the Act as set out in s 435A. Those objects are to maximise the chances of the company or as much as possible of its business continuing in existence or, if that is not possible, to result in a better return for the companies' creditors and members than would result from an immediate winding-up of the company. 19. The approach taken by the Court in applications of this type is well settled. The power to extend the time for convening the second meeting is one that should not be exercised as of course. Rather, the Court must strike an appropriate balance between the expectation that administration will be a relatively speedy matter and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders (see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 (Harrisons Pharmacy) (per Farrell J) at [11] and the authorities referred to therein). 20. Other relevant factors, particularly in the circumstances of this case, are: (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]). 15 In the present application, the administrators also seek an order under s 447A of the Act, permitting the meeting to be held at any time during the convening period as extended. Such an approach is desirable having regard to the competing considerations engaged when an application is made to extend the convening period: Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18]. 16 The rationale which informs the administrators' application is to complete a thorough EOI campaign with a view to potentially selling the business as a going concern and more generally, to use the additional time in a way likely to enhance the return for creditors. Both these reasons are well recognised as sound bases for extending the convening period in appropriate cases: see Re Riviera Group Pty Ltd [2009] NSWSC 585 at [13]; In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers And Managers Appointed) [2013] FCA 458; and Farnsworth v About Life Pty Ltd (Administrator Appointed), in the matter of About Life Pty Limited (Administrator Appointed) [2019] FCA 11. CONSIDERATION 17 The present status of the administration of the Companies is explained in the detailed evidence relied on by the administrators. 18 On a consolidated basis (and subject to adjudication) the Companies have: (1) approximately $32.8 million in liabilities, comprised of (i) approximately $1.6 million in outstanding priority employee entitlements owed to 151 employees; (ii) approximately $20.7 million owed to 106 unsecured creditors; (iii) approximately $1.6 million owed to secured creditors; and (2) approximately $10.1 million in related party debts; and (3) $3.26 million in current assets (excluding related party receivables). 19 The Companies' financier, Australia and New Zealand Banking Group Limited (ANZ), discharged its general security on or about 30 March 2023, and the Companies do not have any secured creditors with a security interest registered in respect of all present and after-acquired property. 20 The Companies remaining secured creditors derive their respective interests from various asset finance arrangements. The administrators have identified 128 interests registered on the Personal Property Securities Register (PPSR) against certain assets owned by the Companies, relating to 156 motor vehicles and 227 items of plant and equipment. The administrators' investigation in relation to these interests is ongoing and is anticipated to take up to three more weeks to complete. 21 The books and records of the Companies indicate there are approximately 106 creditors of the Companies. To date, the Administrators have received informal proofs of debt from 23 ordinary unsecured creditors, together claiming a total of $20.7 million (excluding intercompany loans), which have not yet been adjudicated. The administrators anticipate that further proofs of debt will be submitted. 22 Based on the administrators' investigations to date, the six largest creditors of the Companies (subject to adjudication) are: (1) The Deputy Commissioner of Taxation, which claims to be owed approximately $9.6 million by the Companies; (2) The State Revenue Office of Victoria, which claims to be owed approximately $7.5 million by the Companies, on a consolidated basis; (3) Tradelink Pty Ltd, which claims to be owed approximately $980,911 by Plumbfirst and Comfyfirst, collectively; (4) Australian Air Conditioning Distributors Pty Limited, which claims to be owed approximately $852,078 by Firstaction; (5) Metal Manufacturers Pty Ltd, which claims to be owed approximately $372,772 by the Companies; and (6) ANZ, which claims to be owed approximately $121,035 by Firstaction. 23 The Companies also have significant levels of intercompany debt, each company being a debtor and / or creditor to one or other of the Companies. 24 As at the date of the administrators' appointment, the Companies had 151 employees with total outstanding employee entitlements of approximately $1.6 million, comprising rostered days off, annual leave, leave loading and long service leave. There were no outstanding or unpaid wages as at the appointment date. Nine employees of Plumbfirst and two employees of Elecfirst were made redundant after the appointment date. The administrators are presently in the process of confirming the outstanding entitlements owed to these employees as well as whether there are sufficient circulating asset proceeds of Plumbfirst and Elecfirst to meet the priority claims of those employees. 25 As at the date of the administrators' appointment, the Companies leased four trading premises located in Victoria and South Australia. The leases in respect of the premises remain on foot, and the administrators have continued to pay rent and other outgoings in the ordinary course. If the convening period is extended, the administrators intend to pay rent and other outgoings for the duration of the administration. 26 Against that background, the administrators seek an extension of the convening period from 11 May 2023 to 10 August 2023. I am satisfied that it appropriate to exercise the power to grant the extension of the convening period for the following reasons. 27 First, the extension sought is for approximately three months. The desirability of granting the extension in the present circumstances has been explained in the affidavit of Mr Walker, who, as mentioned, is a registered liquidator and has over 20 years of experience in corporate solvency and restructuring. 28 Mr Walker deposes to the fact that both he and his fellow administrator are of the view that it is in the interests of creditors and the Companies for the convening period to be extended. The administrators' reasons for reaching that opinion have been explained in Mr Walker's affidavit. In short, they include: (1) That as a result of varying degrees of financial interconnectivity and intermingling across the Companies, particularly with respect to the Companies' assets and liabilities, additional investigation, including obtaining advice as to equitable interests that certain Companies may have, is required. (2) That the administrators are continuing to operate Plumbfirst, Elecfirst, Comfyfirst and Bblautofirst as going concerns which is time consuming. It involves in excess of two-hundred transactions daily and receipts of up to $1 million per week, as well as frequent communication with counterparties. (3) Further investigations are required to confirm the liability position of Plumbfirst NSW, which ceased trading in January 2023, so the administrators can form a view as to whether Plumbfirst NSW should be included in the EOI campaign; (4) Notwithstanding that the EOI campaign has been indicatively timetabled in such a way as to facilitate the second creditors' meeting being held as early as 2 June 2023 it is the administrators' considered opinion based on their experience that EOI campaign is likely to take longer to complete than the indicative timetable provides and is likely to be extended. Accordingly, at this time the administrators are not confident about whether a sale or DOCA can be achieved, and if so by what time. For this reason, the administrators seek an extension of time which they believe will accommodate their present uncertainty as to timing; (5) That the value of services businesses, including those conducted by the Companies, are typically maximised when the business is permitted to continue to operate as a going concern. If the extension of the convening period is not granted, it is likely that the Companies will be placed into liquidation at the second meeting of the creditors of the Companies and, as best the administrators can assess it, the likely return to creditors will be significantly lower in a liquidation scenario; 29 The administrators estimate they will require an additional four to six weeks to finalise their investigation into the Companies — including with respect to voidable transactions, insolvent trading claims, proofs of debt received from creditors, and PPSR interests — for the purpose of preparing a fulsome report and associated recommendation to creditors in accordance with s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth). 30 Mr Walker deposes to the fact that key stakeholders of the Companies have been notified of the application and are broadly supportive, or at worst, having been notified have not sought to intervene or raise objection. 31 First, the Committees of Inspection of Plumbfirst, Elecfirst and Comfyfirst met on 5 May 2023, at which time the administrators communicated their intention to, and rationale for, seeking an extension of the convening period. The attending members of each of the Committees unanimously supported the administrators making the extension application. 32 Secondly, a circular resolution dated 2 May 2023 was distributed to all creditors of Plumbfirst, Elecfirst and Comfyfirst and as at the hearing, the administrators had not been made aware of any objection to the making of the application or of an intention by any creditor or other interested person to intervene in the application. 33 Meetings have been held with the employees of the Companies on 2 May 2023 (in Adelaide), on 3 May 2023 (in Melbourne) and on 4 May 2023 (in the Companies' head office in the outer suburbs of Melbourne). At each meeting, the administrators informed the employees of the present application. No objections were raised in respect of the application at any meeting. 34 As at the date of the administrators' appointment, Firstaction leased four trading premises — three in Victoria and one in South Australia. Each of these leases remains on foot and the administrators have continued to pay rent and other outgoings. As mentioned above, the administrators intend to do so for the duration of the administration. The lessors have been given notice of this application, and the administrators have spoken with each of the lessors' representatives. Each lessor has indicated their support for the application. 35 If the Court declines to grant the extension it is likely that the Companies will be placed into liquidation at the second creditors' meetings. The wages and other entitlements of the remaining employees which have accrued since the administrators were appointed are presently being paid by the administrators. Mr Walker considers that the prospects of the maximum number of employees retaining their roles is enhanced if the business continues as a going concern and if a sale or DOCA can be achieved. Mr Walker's preliminary view, based on his experience in similar scenarios, is that the Companies and their creditors will be worse off if the Companies are placed into liquidation. Mr Walker considers it likely that the Companies' creditors would receive a significantly lower aggregate return in a liquidation scenario as compared to a potential sale or DOCA. 36 The administrators are not aware of any prejudice which may be suffered by any creditor by reason of the Court granting the extension sought. No person appeared at the hearing to oppose the application. The orders proposed by the administrator provide for notice to be given of the orders to creditors of each of the Companies and for liberty to be granted to person who can demonstrate a sufficient interest to apply to the Court to re-list the matter. 37 Although the administrators seek a three-month extension, the administrators also seek orders permitting the convening of the second meetings of creditors at any time prior to 10 August 2023. Mr Walker's evidence is, and his counsel submitted that, the administrators propose to hold the meetings as soon as reasonably practicable. 38 I recognise that granting an extension of the convening period is a departure from the general requirement that administrations should be of relatively short duration and the sale of companies or their businesses or corporate rearrangements can and should occur with expedition: In the matter of Oventus Medical Limited (Administrators Appointed) [2022] FCA 840 at [32]. However, for the reasons I have given, I am satisfied that the extension sought in the context of the administration of these Companies has been adequately explained by the administrators, is appropriately confined having regard to the purpose of the extension and is in the best interests of creditors and the Companies. 39 The administrators have also sought ancillary orders as to the form in which notice is to be given to creditors which are practical and which will facilitate the timely provision of notice. Accordingly, I made ancillary orders as sought. 40 The administrators sought, and are entitled to, an order that their costs of this application be their costs in the administration. CONCLUSION 41 Accordingly, for these reasons I made orders in accordance with the administrators' application at the conclusion of the hearing on 8 May 2023. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate: Dated: 9 May 2023