New South Wales Supreme Court CITATION : Cvitanovic v Jolly Roger Exports Pty Ltd [2003] NSWSC 729 revised - 12/08/2003 HEARING DATE(S) : 08/08/03 JUDGMENT DATE : 8 August 2003 JUDGMENT OF : Gzell J DECISION : Extension of 30 days granted CATCHWORDS : CORPORATIONS - Voluntary administration - Extension of time to execute deed of company arrangement - Payment of fund to administrator a condition precedent to execution - Whether extension for 30 days should be granted - Complicated transactions with two separate groups of investors - Views of creditors abstaining and voting against deed - Possibility of losing overseas exports accreditations - Whether further extension can be granted outside the statutory 21 day period LEGISLATION CITED : Corporations Act 2001 (Cth) Sydney Ringtread Tyres Pty Ltd (administrator appointed) (2001) 38 ACSR 221 Mentha v Sydney Airports Corporation Ltd (2002) 120 FCR 310 CASES CITED : Stout & Scales v Permanent Trustee Australia Ltd [1998] VSCA 168 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Re Redrock Media [1999] NSWSC 182 PARTIES : Daniel Ivan Cvitanovic as Administrator of Jolly Roger Exports Pty Ltd (Administrator Appointed) - Plaintiff Jolly Roger Exports Pty Ltd (Administrator Appointed) - Defendant FILE NUMBER(S) : SC 4210/03 COUNSEL : Mr J T Johnson - Plaintiff SOLICITORS : Access Business Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J FRIDAY 8 AUGUST 2003 4210/03 DANIEL IVAN CVITANOVIC v JOLLY ROGER EXPORTS EX TEMPORE JUDGMENT 1 I have before me an ex parte application by the administrator of Jolly Roger Exports Pty Ltd under the Corporations Act 2001 (Cth), s 444B(2)(b) for an extension of time within which to execute a deed of company arrangement until 5 September 2003. That is 30 days after the date prescribed by the statute for execution of the deed. 2 The proposed deed of company arrangement is so structured that it is a condition precedent to its execution that an initial contribution of $1,450,000 be made. A subsequent payment of $30,000 is to be made within 30 days of execution of the deed. Those contributions will constitute the fund to be administered under its terms. 3 The basis for the application is that the party that has agreed to make the contributions has said that it has taken longer to finalise the arrangements than was first thought. 4 When the matter first came before me, I was concerned at the length of the extension being sought. The policy underlying the stricture in the Corporations Act 2001 (Cth), s 444B(2)(a) that a deed of company arrangement must be executed within 21 days of the meeting of creditors at which it was resolved to execute the deed, is because of the moratorium provisions that apply under Pt 5.3A up to and including the date of execution of the deed. 5 I was also concerned to ascertain the views of the creditors who had opposed the execution of the deed. 6 In Sydney Ringtread Tyres Pty Ltd (administrator appointed) (2001) 38 ACSR 221, Barrett J said that when an application such as this is before the Court, it is a matter of balancing the benefits and detriments to be obtained from pursuing the deed of company arrangement possibility against those which will flow if the period prescribed by the Corporations Act 2001 (Cth), s 444B(2)(a) is allowed to expire without extension, so that the company passes automatically into liquidation. 7 I have no doubt that there are benefits to be had by allowing the deed of company arrangement to be executed. The administrator's report to creditors sets out in detail the advantages of executing it. 8 This is not a case such as confronted Goldberg J in Mentha v Sydney Airports Corporation Ltd (2002) 120 FCR 310 in which his Honour formed the view that the purpose of the extension was to prolong the administration in order to avoid a result that execution of the deed might bring about. 9 Hanbury Capital Ltd indicated by letter of 5 August 2003 that arrangements had been put in place by which the funds would be raised, but the process of completing the necessary documentation between the various parties and arranging the marshalling of funds to pay the administrator and building owner was taking longer than expected. 10 Further information has been placed before me in the form of a letter from Hanbury of 7 August 2003. It explains that there are two investor groups involved. One group is purchasing the Botany plant fit out, plant and equipment. The second group is purchasing a portion of the equity of Jolly Roger Exports Pty Ltd as a going concern. 11 The first group requires a formal valuation of the fit out, plant and equipment prior to settlement. To that end, Hanbury has obtained a quotation from Edward Rushton Australia Pty Ltd, one of the few valuers qualified to conduct such a valuation. Hanbury is awaiting advice as to when that company can undertake and complete the mandate. 12 The second group has prior experience in exporting live eels to Japan and is interested in the business because of its licences and accreditations, its established customer base and its track record over the last 10 years. That group has undertaken its own due diligence and Hanbury understands that they are satisfied with their findings and were meeting with a lawyer yesterday afternoon. 13 Hanbury is concerned that if the requested extension of time is not granted and the company is placed in liquidation, most of the current going concern value being attributed to the company by the investors will be lost. It is concerned that the licences and accreditations might become void and the established customer base around the world will immediately enter into arrangements with other suppliers. 14 The company under administration exports seafood to the European Union, Japan and the United States of America. The evidence before me indicates that each country has an authority that has accredited the company to export to it. Accreditation is given after extensive health related requirements are satisfied and inspections are undertaken. The process is long and costly. There is only one other entity in New South Wales that holds an EU accreditation. Since accreditation is at the discretion of the overseas authorities, the administrator and Hanbury are concerned that if the company is placed in liquidation, the accreditations might be lost on the basis that the authorities might form the view that a company in liquidation could not maintain the health related standards. 15 Counsel raised with me yesterday a problem associated with a grant of a relatively short extension period. Reference was made to the decision of the Victorian Court of Appeal in Stout & Scales v Permanent Trustee Australia Ltd [1998] VSCA 168 in which Phillips JA at par 16 doubted whether an application for an extension of time could be made outside the statutory 21 day period. However, his Honour did not decide the issue, having come to the conclusion that, as a matter of discretion, an extension should not be granted. It seems to me that the matter has now been resolved to the contrary effect by the decision of the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. 16 National Australia Bank, a secured creditor, abstained from voting on the execution of the deed of company arrangement. The Australian Taxation Office and the Commonwealth Bank of Australia opposed its execution. 17 Evidence has now been placed before me that a representative of NAB was content with an extension of 30 days as was a representative of CBA. Three messages to the officer of the ATO with the conduct of this matter went unanswered. 18 In Re Redrock Media [1999] NSWSC 182, Austin J granted a relatively short extension of time of seven days for the execution of deeds of company arrangement conditional upon all creditors being properly notified of what was happening. Counsel has indicated to me that the administrator is prepared, as a condition of any extension of time, to undertake to notify all creditors of the extension, and reasons for it. 19 Notwithstanding some misgivings in relation to the length of time, I think it is in the interests of the creditors and of the company that the application be granted in order that the necessary funds may be generated and the condition precedent to the execution of the deed may be fulfilled. 20 I therefore make an order in terms of par 1 of the originating process. I direct the administrator, on or before Tuesday 12 August 2003, to notify all creditors of the making of this order and the reasons therefor. I order that the costs of the application be costs in the administration. ********** Last Modified: 08/18/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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