Inglewood Farms Pty Ltd v AM No. 1 Pty Ltd (administrators appointed) [2012] NSWSC 564

Supreme Court New South Wales

Medium Neutral Citation: Inglewood Farms Pty Ltd v AM No. 1 Pty Ltd (administrators appointed) [2012] NSWSC 564 Hearing dates: 14 May 2012 Decision date: 14 May 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Winding up application adjourned and costs reserved. Catchwords: CORPORATIONS - Winding up - Corporations Act 2001 (Cth) s 440A(2) - Application for the adjournment of winding up application - Relevant factors as to whether application should be adjourned. Legislation Cited: - Corporations Act 2001 (Cth) ss 440A(2), 467, 467(1)(b) Cases Cited: - Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admin apptd) [2009] FCA 269; (2009) 71 ACSR 81 - Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47; (2003) 44 ACSR 377 - Deputy Commissioner of Taxation v Polcarp Pty Ltd [2011] FCA 1142 Category: Interlocutory applications Parties: Inglewood Farms Pty Ltd (Plaintiff) AM No. 1 Pty Ltd (administrators appointed) (Defendant) Representation: Counsel: J.T. Johnson/L.J. Friedwald (Plaintiff) C.D. Wood (Defendant) Solicitors: Slater & Gordon (Plaintiff) Hugh & Associates (Defendant) File Number(s): 12/81860

Judgment - EX TEMPORE 1This is an application for the adjournment of a winding up application. That winding up application is brought by the Plaintiff, Inglewood Farms Pty Limited ("Inglewood Farms") and the adjournment application is brought by the administrators appointed to the Defendant, AM No. 1 Pty Limited (administrators appointed) ("Administrators"). The winding up application was filed on 12 March 2012 and was first returnable on 30 April 2012, on which date the Administrators were appointed. The application is supported by three affidavits of Glenn Shannon sworn 30 April 2012, 8 May 2012 and 11 May 2012 and two affidavits of Peter Lucas dated 9 May 2012. 2This application is brought under s 440A(2) of the Corporations Act 2001 (Cth) which provides that: "The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up." The application is also brought, in the alternative, under the Court's inherent jurisdiction and under s 467 of the Corporations Act, which provides that on hearing a winding up application the Court may, relevantly, adjourn the hearing conditionally or unconditionally. Those two jurisdictions to adjourn a winding up application co-exist: Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47 (2003) 44 ACSR 377 per Campbell J at [14]. In Deputy Commissioner of Taxation v Polcarp Pty Ltd [2011] FCA 1142 at [4], Perram J noted that the difference between the two jurisdictions was that s 440A(2) required the Court to adjourn the proceedings if the relevant pre-condition was satisfied whereas s 467(1)(b) was not mandatory and conferred a discretion on the Court. 3In the present case, the Administrators seek an adjournment of the winding up application to 12 June 2012, in circumstances that the last date for the second creditors meeting is 5 June 2012. I raised with the parties in the course of submissions whether there was any advantage in a shorter adjournment. Mr Wood, who appears for the Administrators, and Mr Johnson, who appears for the Plaintiff, did not oppose that course if an adjournment was granted, although the Administrators' primary position is to seek the longer adjournment and Inglewood Farms' primary position is that the winding up application should not be adjourned. 4Relevant factors to an adjournment application include the length of the proposed adjournment and whether there is persuasive evidence that creditors' interests will be served by that course, for example, because assets would produce a larger dividend to creditors if realised under a voluntary administration rather than a winding up. Little evidence may be needed to the justify a short adjournment at an earlier point in an administration, but greater evidence may be required to support an adjournment as the administration proceeds: Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd above; Australian Securities and Investments Commission v Storm Financial Ltd(recs and mgrs apptd) (admin apptd) [2009] FCA 269; (2009) 71 ACSR 81 at [25]. 5A number of factors support the view that, at least at this stage, the Court can be satisfied that it is in the interests of the company's creditors for the company to continue under administration in the immediate future, rather than be wound up. That is not to say that that course will necessarily continue and events as they develop may lead to a change in that position. The first of those factors is that, prior to the appointment of the Administrators, the company had entered into a Sale Agreement with a third party and cl 18 of that Sale Agreement provides that it may be terminated if a liquidator is appointed. Accordingly, declining to adjourn the winding up and a successful winding up application would increase the risk of termination of that Sale Agreement. Mr Johnson, who appears for Inglewood Farms has submitted that that Sale Agreement was entered into in connection with a "pre-pack", where elements of the administration may have been contemplated before the Administrators were appointed. That may or may not be the case; even if it is the case, the question for the Court is whether an administration which preserves the possibility of that Sale Agreement being completed is preferable to a winding up at this point. There are, it seems to me, reasons that cl 18 of the Sale Agreement may reflect a genuine commercial interest of the purchaser, rather than merely being, as was implicit if not explicit in the submissions of Inglewood Farms, an attempt to avert a liquidation. The company's business is presently conducted as a going concern; the company has leases and goodwill which may be prejudiced if the company is placed in liquidation; and the attractiveness of a purchase of the business to a purchaser might well be reduced or extinguished in that situation. The business operates from leased premises and uses leased equipment, and the administrators presently have the benefit of the statutory moratorium, which a liquidator would not. A letter dated 8 May 2012 from the purchaser's solicitors emphasises the risks to the sale of the business as a going concern if a liquidator is appointed. 6The Administrators have also tendered a further offer from a third party which provides an alternative mechanism for sale of the company's business, albeit that it is expressly subject to due diligence, and also contemplates the sale of the business as a going concern. 7Importantly, this is not a case where the Court is required to compare an administration continuing in the long term with a liquidation as true alternatives. It is open to the Administrators, as Mr Wood emphasises, to sell the business during the administration period. The creditors have the option, at a second meeting, of either entry into a deed of company arrangement, if one is proposed; or that the administration should end, which may not be a likely scenario in circumstances that there appears to be a real suggestion that the company may presently be insolvent; or that the company be wound up. If the company is wound up, then a liquidator will be appointed and the options available to a liquidator include the pursuit of the claims for insolvent trading or preference claims which are within Inglewood Farm's contemplation. 8In these circumstances, the requirements of s 440A(2) of the Corporations Act are presently satisfied, in that it is in the interests of creditors that the administration continue. I am more readily able to reach that state of satisfaction on the basis that the adjournment is for a shorter period, allowing the Court to re-assess the position when further information is available to the Administrators, and I consider that this is a proper course in circumstances that the administrators have led less substantial evidence than one would expect would be available to them once their investigations are further advanced. 9In these circumstances, I do not propose to adjourn the winding up for the full period requested by the Administrators, but instead to list the matter before me at 9.30am on 29 May 2012, which is, I have been informed, the day after a report will have been sent to creditors in anticipation of the second meeting of creditors. The Court may then make a further assessment whether on the information then available, it remains in the interests of creditors that the company continue to be in administration, in which case the winding up would be further adjourned under s 440A(2) of the Corporations Act. I will reserve costs pending the further hearing on 29 May 2012. 10Accordingly, I order that the winding up application be adjourned to 9.30am on 29 May 2012 before me and that costs be reserved to that date.