New South Wales Supreme Court CITATION : Lombe & Cathro as administrators of Kirby Street (Holding) Pty Ltd [2009] NSWSC 949 HEARING DATE(S) : 04 & 05 August 2009 JUDGMENT DATE : 5 August 2009 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 5 August 2009 DECISION : Refer to paras 14 and 15 of judgment. CATCHWORDS : CORPORATIONS – administration – creditor's meeting – application to extend convening period for second meeting of creditors by further three months after two earlier extensions – in creditors' interests to extend the period as sought – application granted CASES CITED : Lombe v Australian Discount Retail Pty Ltd [2009] NSWSC 110 PARTIES : David John Frank Lombe and Simon John Cathro (as administrators of Kirby Street (Holding) Pty Limited (previously known as Australian Discount Retail Pty Limited) ACN 116 349 113 and the companies in the schedule attached to the originating process FILE NUMBER(S) : SC 1526/09 COUNSEL : Applicants: C R C Newlinds SC SOLICITORS : Applicants: Freehills IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 5 August 2009 1526/09 David John Frank Lombe and Simon John Cathro (as administrators of Kirby Street (Holding) Pty Limited (previously known as Australian Discount Retail Pty Limited) ACN 116 349 113 and the companies in the schedule attached to the originating process JUDGMENT 1 HIS HONOUR: On 20 January 2009 the plaintiffs were appointed administrators of Australian Discount Retail Pty Ltd and 38 subsidiaries ("the ADR Group"). On the same day receivers were appointed to the assets of the ADR Group. On 16 February 2009 orders were made extending the period for the convening of the second meeting of creditors to 9 March 2009. On 3 March 2009 the period was further extended to 18 August 2009 (Lombe v Australian Discount Retail Pty Ltd [2009] NSWSC 110). The plaintiffs seek a further three-month extension of the convening period to 18 November 2009. 2 The background to this application and the reasons the convening period of the second meeting of creditors was extended to 18 August 2009 are fully set out in the reasons of Barrett J in the above judgment. I will not repeat the matters there set out. His Honour foresaw that a further extension might be sought and granted the plaintiffs liberty to apply. This application was made pursuant to that liberty. 3 As envisaged at the hearing on 2 March 2009, an agreement for the sale of the business of the ADR Group was entered into. The agreement was entered into on 20 March 2009. The purchaser is Retail Adventures Pty Ltd. That agreement was completed on 3 April 2009. However, the vendors were not required to provide assignments to the purchaser of the 300 leases in respect of 360 properties leased by the ADR Group. Rather, as foreshadowed in Barrett J's reasons (at [10]-[12]), the purchaser has been given a licence by the vendors of the properties and is required to use reasonable endeavours to obtain assignments of leases or to obtain surrenders and grants of new leases from the landlords. 4 The negotiations with the landlords have been lengthy and complex. On 27 July 2009 the plaintiff sent a circular to all of the landlords advising, amongst other things, that: " The Receivers have advised that whilst a large number of in principle agreements have been reached and/or finalised by way of executed documentation with landlords, RA has requested a further extension to allow sufficient time for the remaining lease agreements between RA and the respective landlords to be finalised/executed. The Receivers subsequently requested the Administrators to apply to the Court for a further extension of the convening period of 3 months to allow for final documentation to be executed with as many landlords as possible. Impact on Position of Creditors We have been advised by the Receivers that: 1. The Asset Sale Deed contains an adjustment provision for redundancy costs and lost shop profit in the event that RA is unable to negotiate a new lease arrangement; 2. A negative adjustment (in the event of failure to achieve new lease arrangements) has the potential to eliminate any surplus available for the unsecured creditors; 3. An extension of the convening period for a further three months should allow sufficient time for the vast majority of landlords to finalise/execute documentation for the assignment of existing lease or new lease arrangements; and 4. On this basis, a surplus of funds is likely to be available to Administrators for the unsecured creditors that may not be possible without the extension of the convening period. As such, from the information provided by the Receivers, it would appear that a further extension of the convening period is in the best interest of the unsecured creditors. " 5 The landlords were asked to contact the plaintiffs if they wished to be heard on this application to extend the convening period for a further three months. Only two landlords objected to the proposed extension and their objections have since been withdrawn. 6 Some 42 of the shops have closed or will be closing. Of the balance of the shops and distribution centres, assignments of lease have been executed with respect to approximately 71 premises. Deeds of assignment or surrenders and new leases have been drafted in respect of more than 200 other premises. It is expected that the assignments or new leases will be assigned because agreement has been reached on terms between the purchaser and the landlords. But the documentation to give effect to such agreements is not yet in place. In respect of fewer than 20 premises the landlords have advised orally that they would be willing to enter into either an assignment of lease or a surrender of the existing lease and the grant of a new lease, but the parties have not yet prepared the documents to reflect those in-principle agreements. There is a handful of premises where negotiations with the landlord continue. 7 The committees of creditors unanimously support the application to extend further the convening period. At the end of the convening period the purchaser's licence to occupy and trade from the stores comes to an end. It may be anticipated that the purchaser will terminate the employment of the employees of the stores for which the purchaser does not have a lease. The purchaser will be entitled to a downward adjustment of the purchase price in respect of redundancy costs and lost shop profit. 8 If the convening period does not end until after the majority of the remaining leases have been transferred, the current best estimate of the plaintiffs is that it is likely that there will be a surplus available to unsecured creditors who could receive a distribution of approximately four to six cents in the dollar. On the other hand, if the convening period were to end on 18 August 2009 without there being any significant additional leases transferred, then, unless other arrangements are negotiated with the purchaser, the purchase price would be reduced such that it is unlikely there will be a surplus available to be distributed to unsecured creditors. 9 Whether the convening period is extended or not, the plaintiffs will recommend to creditors at the second meeting that the companies should be wound up. No deed of company arrangement has been proposed and none is in prospect. In effect, the receivership has effected a de facto winding-up. 10 In these circumstances, the power to extend the period for convening the second meeting of creditors should be exercised with a view to promoting that course which will have the best prospect of maximising the return to creditors (s 435A(b)). 11 It is in the interests of creditors generally that the convening period be further extended. Such an extension would also be in the interests of the employees whose employment may be terminated if the leases of the relevant stores are not assigned or transferred to the purchaser and the stores are thereafter closed. There are over 4,800 employees in that position. 12 It does not appear that any person would be prejudiced by the further extension which is sought. The landlords are being paid the rent and outgoings that have fallen due since the appointment of the plaintiffs as administrators. The orders will preserve liberty to any person with a sufficient interest to apply to modify or discharge the orders for the extension of the convening period. 13 In this case, the balance between, on the one hand, maximising return to creditors and, on the other, achieving a prompt outcome of the administration clearly favours the former. Although an extension of the convening period for up to nine months is lengthy, as Barrett J said in his reasons of 3 March 2009 at [23], it is not productive to make comparisons of the periods of extension with different cases as each case turns on its own facts and circumstances. 14 I am satisfied that it is in the creditors' interests to extend the period as sought. For these reasons, I make the orders in accordance with the short minutes of order, amended as discussed in the course of counsel's submissions, which I initial and date today and place with the papers. These orders may be entered forthwith. 15 I direct that if any non-party applies to have access to the transcript of the hearing of 4 or 5 August, that that transcript not be released without at least 48 hours' prior notice to the solicitors for the plaintiffs. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.