Re TPE Kintech; ex parte Carter [2004] NSWSC 250

Reported Decision : 49 ACSR 106

New South Wales Supreme Court

CITATION : Re TPE Kintech; ex parte Carter [2004] NSWSC 250 HEARING DATE(S) : 24 March 2004 JUDGMENT DATE : 24 March 2004 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Convening period extended

CATCHWORDS : CORPORATIONS - voluntary administration - extension of convening period - director's late offer to develop deed proposal with assistance of external accountants - relevant considerations - whether order should be made to permit meeting to be held within extended period LEGISLATION CITED : Corporations Act 2001 (Cth) ss 439A, 447A CASES CITED : Re Daisytech [2003] FCA 575 Re Pan Pharmaceuticals Limited [2003] FCA 598 PARTIES : Philip Patrick Carter and Gregory Winfield Hall as administrators of TPE Kintech Pty Ltd (Administrators Appointed) (Ps) FILE NUMBER(S) : SC 2104/04 COUNSEL : Ms J A Soars (Ps) SOLICITORS : Henry Davis York (Ps)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

WEDNESDAY 24 MARCH 2004

2104/04 RE TPE KINTECH PTY LTD (ADMINISTRATORS APPOINTED); EX PARTE CARTER JUDGMENT (Ex tempore; revised 26 March 2004) 1 HIS HONOUR: The first plaintiffs were appointed voluntary administrators of the company on 5 March 2004. They have held the first meeting of creditors required by Pt 5.3A of the Corporations Act and they now wish to have a 22-day extension of the convening period for holding the second meeting of creditors pursuant to s 493A(6). 2 The company supplies the mining and other industries with heavy industrial and fabricated equipment. It has about fifty employees, none of whom has been dismissed since the appointment of the administrators. Mr Eric Heller is the beneficial owner of all of the company's shares, and he and Herawaty Heller are the directors of the company. 3 The second meeting of creditors was due to be convened no later than 25 March 2004. On 23 March 2004 Mr Carter, one of the administrators, received a telephone call from Mr Heller. Mr Heller indicated that he wished to form a proposal for a deed of company arrangement and needed approximately a week to do so. He said he was being assisted by HLB Mann Judd, chartered accountants. Mr Carter told him that if the Court ordered that the convening period be extended, he and his co-administrator would need to receive the proposal by 2 April 2004. Mr Carter has spoken with a person at HLB Mann Judd who has confirmed the firm's appointment to assist in preparation of the deed proposal. Mr Carter has informed that person that the proposal will be needed on or before 2 April. 4 Mr Carter and his co-administrator, who are insolvency practitioners of substantial experience, have expressed to the Court the opinion that if a deed proposal from Mr Heller provides a reasonable return to creditors it will be in the interests of creditors that they be apprised of that alternative to liquidation, so that they are able to make a comparison between the deed proposal and liquidation. 5 The administrators express the opinion that if the company is wound up its consolidated total liabilities will be in excess of $4 million. The company's assets, if sold on a going concern basis, would yield approximately $1.4 million but on a winding up basis perhaps no more than $500,000. The company has a secured creditor, Transfield, whose debt is $500,000. Administration expenses would be likely to amount to about $300,000 and employee entitlements between $1.5 and $2 million. The probability is, therefore, that in liquidation there would be a dividend to employees but no dividend whatever to unsecured creditors. 6 In the circumstances, the administrators wish to have an extension of a sufficient period to enable them to receive and consider Mr Heller's proposal, if it eventuates, and then report to the creditors. They wish also to be able to have the Committee of Creditors which has been appointed consider any such proposal. 7 The members of the Committee of Creditors have all informed the administrators that they support the application for extension of the convening period. So also does the secured creditor, Transfield. The lessor of the company's business premises has not indicated any intention to exercise rights of re-entry, and the employees have not indicated any intention to exercise any rights that they might have that would otherwise be affected by the moratorium imposed by Pt 5.3A. 8 The Court must always be conscious of the risk of prejudice to the general body of unsecured creditors that can arise through a substantial extension of the convening period under s 439A(6). In Re Pan Pharmaceuticals Limited [2003] FCA 598 (6 June 2003), Lindgren J received submissions to the effect that it should be left to creditors to decide, at a meeting convened within the statutory period, whether to agree to an adjournment and, if so, for how long, on the ground that any delay will cause prejudice to creditors and they are the best judges of their own interests. On the other hand, in circumstances such as the present one, the Court should take into account the views of experienced insolvency practitioners in the position of administrators, and the unnecessary costs that would be consumed by convening a meeting of creditors in circumstances where a proposal has been foreshadowed but not available within the statutory period and, therefore, not capable of being put before the creditors if the convening period is not extended. 9 In the Pan Pharmaceuticals case, Lindgren J considered these matters in light of the relevant legal principles, and concluded that the issue is whether an extension is necessary to enable the administrators to arrive at an opinion so as to place creditors in the position to choose between the three courses identified in s 439C, namely a deed of company arrangement, liquidation or return of the company to its directors. 10 It will sometimes be appropriate to extend the convening period so as to generate for the creditors a deed of company arrangement which can be compared with the other alternatives. As Lindgren J said (at [42]), there is inevitably a tension between the objective of providing adequate information to creditors and the broad aim of speedy administration which underlies Pt 5.3A, but where, in a case such as the one before him and the one before me now, there is carefully assembled evidence on the part of the administrators to support their view that a short delay would be likely to give the creditors the chance of a better outcome, then the appropriate course is to grant the extension. 11 Finally, the plaintiffs wish to preserve for themselves the flexibility of holding the second meeting of creditors at a time earlier than the period of five business days after the end of the extended business period, should it happen that the deed of company arrangement proposal emerges in such a timely fashion that they can prepare their report more quickly than they now anticipate. 12 The effect of ss 439A(2) and (6) is that the meeting is required to be held after the end of the extended convening period and within five business days thereafter. The section does not allow for the meeting to be held within the extended convening period, though after the original convening period. 13 In Re Daisytech [2003] FCA 575, Lindgren J held that it is open to the Court under s 447A to make orders having the effect that the second meeting of creditors could be held during the extended convening period or the period of five business days thereafter, notwithstanding the effect of s 439A(2). 14 I respectfully agree with his Honour's reasoning and conclusion. I think it is appropriate to make an order under s 447A in this case. **********