Supreme Court New South Wales Medium Neutral Citation: In the matter of Fostide Pty Limited (administrators appointed); Vostie Pty Limited (administrators appointed); Pimleigh Pty Limited (administrators appointed); Milby Holdings Pty Limited (administrators appointed); Balhaven Pty Limited (administrators appointed); Mehut Pty Limited (administrators appointed) [2013] NSWSC 782 Hearing dates: 15 April 2013 Decision date: 15 April 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Administrators to submit form of orders to be made in chambers. Catchwords: CORPORATIONS - management and administration - meetings - orders sought by administrators for extension of time to convene second meeting of creditors - order sought permitting notice by email - whether extension of convening period is in the interests of creditors. Legislation Cited: Corporations Act 2001 (Cth) ss 439A, 439A(6), 447A(1), 600G, 600G(1) Cases Cited: - ABC Learning Centres Ltd (admins apptd) (recs and mgrs apptd) v Honey [2010] FCA 353 - Carson, Re Hastie Group Ltd (No 2) [2012] FCA 717 - Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 - Re Austcorp Group Ltd (admins apptd) [2009] FCA 636 - Re Carson (as administrators of Hastie Group Ltd) (admin apptd)) [2012] FCA 626 - Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 - Re Riviera Group Pty Ltd (admin apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 Category: Interlocutory applications Parties: Martin John Green and Peter Paul Krejci, each in their capacity as joint and several administrators of Fostide Pty Limited (administrators appointed); Vostide Pty Limited (administrators appointed); Pimleigh Pty Limited (administrators appointed); Milby Holdings Pty Limited (administrators appointed); Balhaven Pty Limited (administrators appointed); Mehut Pty Limited (administrators appointed) (Plaintiffs) Representation: Counsel: J.T. Johnson (Plaintiffs) Solicitors: Watson Mangioni (Plaintiffs) File Number(s): 2013/116962 Judgment 1Mr Martin Green and Mr Peter Krejci, as joint and several administrators of Fostide Pty Limited (administrators appointed) ("Fostide") and five other companies ("Companies") apply under s 439A(6) of the Corporations Act and s 447A(1) of the Act for orders that the dates by which they are required, under s 439A of the Act, to convene a second meeting of creditors of the Companies be extended to 31 July 2013, an extension of some three and a half months, or alternatively such other date as may be ordered by the Court. 2They also seek a modification of Part 5.3A in a form commonly made in such applications, under s 447A of the Corporations Act so that the second meeting may be convened prior to five business days before the end of the convening period, on the basis that the plaintiffs would give notice of the meeting as required by the Act. They recognise that liberty should be granted to any person having a sufficient interest in respect of any of the Companies to apply to vary or discharge the orders, on notice to them. They also seek an order permitting them to give notice to creditors of the terms of these orders by email, where an email address for creditors is held, or otherwise by correspondence, and also propose to make the orders available on the administrators' website. 3The application is supported by Mr Krejci's affidavit sworn 11 April 2013, which sets out the background to the application. In summary, Messrs Green and Krejci were appointed as joint and several administrators of the Companies by resolutions of their directors on 17 March 2013. The first meeting of creditors took place on 27 March 2013 and a committee of creditors was appointed in respect of one of the Companies, Balhaven Pty Limited (admin apptd) ("Balhaven"). Each of the Companies are subsidiaries of another company, Universal Retail Brands Pty Limited ("URB") and the URB group operates, relevantly, the "Events" and "Queenspark" retail business from approximately 74 stores throughout Australia, employs over 375 staff and has a substantial annual turnover. The creditors of the company include secured creditors, employees, landlords and more than 100 unsecured creditors. 4Mr Krejci's evidence is that one of the Companies, Fostide, owned and operated the "Events" assets and business; four of the Companies leased stores from which the business operated; and the sixth, Mehut Pty Limited (admin apptd) employed staff. Operations of the Companies were funded by intercompany transactions. 5Mr Krejci gives evidence that he and Mr Green believe that it is beneficial to continue to operate the business through the administration period to preserve its value and maximize the return to creditors, and have licensed an entity related to the directors to operate the business on its own account and at its own risk. The administrators note that a successful restructure of the business would enable the employees to maximize the prospect of ongoing employment with the business if possible, plainly a significant matter. 6Mr Krejci also sets out the work done by the administrators since their appointment, which is extensive, as would be expected given the scale of the business, the involvement of secured creditors and lessors and employees. In that period, 25 stores have been closed when the administrators did not exercise property rights in respect of the premises and 49 stores have continued to trade under the license agreement to which I have referred. I should note, in passing, that it appears that the lessors have not formally consented to the licensing of the relevant premises, which may or may not be consistent with the relevant leases. However, that is not a matter which is relevant to the present application and no lessor has sought to appear in this application to take any point as to that matter. 7The directors of the Companies have informed the administrators that URB and its shareholders intend to put forward a deed of company arrangement, incorporating a pooling proposal, in respect of the Companies but need time to formulate the proposal. Mr Krejci indicates that he and Mr Green have formed the view that: "An extension of the Convening Period will maximise the chances of the business continuing to trade and is likely to result in a better return to all creditors compared to a liquidation scenario which is likely to cause substantial creditor claims to crystallise as a result of the cessation of business." 8Mr Krejci notes that the Companies other than Fostide generally have no assets on a stand alone basis and any return to creditors of those companies may only be possible through a pooled deed of company arrangement or recoveries by a liquidator and that Fostide's assets are encumbered to third parties. 9Mr Krejci notes that the time required to assess the likely outcome on a liquidation, the position in respect of inter-company loans, the justification of the suggested pooling arrangement and ensure that any proposed creditors' trust comply with regulatory guidelines is likely to be substantial, and that any deed of company arrangement will also require extended negotiations with secured creditors and landlords. 10A circular to creditors dated 9 April 2013 advised of the administrators' intent to bring this application and set out the reasons for bringing the application, in similar terms to Mr Krejci's affidavit. Mr Krejci indicates that he has not received objections to the application. He draws attention to correspondence with the legal representatives of two lessors of property occupied by the Companies. In particular, by e-mail dated 10 April 2013, solicitors representing a major lessor noted that there had been, to its knowledge, no negotiations with lessors and that it had not been provided with information as to the suggested deed proposal, notwithstanding the suggestion that a pooled deed of company arrangement would depend on discussions with lessors; that it saw nothing in the creditors' circular that indicated that the extension of a convening period was warranted at a substantial level; it contended that the business was not trading but was being run by another entity as licensee; and raised concerns (to which Mr Krejci expressly refers in his affidavit as a matter requiring further investigation) that the Companies had incurred rental liabilities in excess of $1.5 million in the three months prior to the appointment of the administrators and that other companies in the group which are not in administration may have benefited by the non-payment of rent. 11Plainly, a number of these matters are significant and, in particular, Mr Krejci has properly acknowledged the significance of any question arising from the non-payment of rent and any benefit which may have been obtained by other parties in the group as a matter requiring further consideration. On the other hand, neither that major lessor, nor other lessors or secured creditors, nor other creditors generally, have appeared to oppose the application when the matter was called. Their right to do so, including seeking any variation of the orders made for setting them aside, will be preserved by the order sought by the plaintiffs granting them liberty to apply to do so, if so advised. The matters raised by that major creditor must also be balanced against the very significant benefit or, inter alia, employees of the group by seeking to secure the survival of the business, to the extent that result can be achieved. 12Section 439A(6) of the Corporations Act allows the Court to extend the convening period on an application made during that period. Such an application involves a balancing exercise: Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; Re Riviera Group Pty Ltd (admin apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 at [16]. In particular, the Court must reach an appropriate balance between the expectation that an administration will be relatively speedy and summary and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return to creditors, and the desirability of allowing the administrators time to present meaningful choices to creditors at the second creditors' meeting: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611. 13In Re Austcorp Group Ltd (admins apptd) [2009] FCA 636 at [18] Lindgren J similarly pointed to the objective speed in an administration on the one hand, and the desirability of maximising the return for creditors and any return for shareholders on the other. His Honour noted that the prospects of a better outcome for the creditors through a longer period of administration may, in some cases, outweigh the general expectation of a prompt resolution of the administration, and also noted that it was often desirable that an extension be accompanied by an order under s 447A, of the kind here sought by the administrators, permitting the meeting to be held at any time during the convening period as extended. 14I must also have regard to the fact that an extension of the convening period for the second meeting will, in effect, extend the period during which secured creditors and lessors are subject to the moratorium imposed by Part 5.3A of the Corporations Act, while the company is in administration. That matter is potentially adverse to the rights of lessors and secured creditors, although any adverse impact upon them must be balanced against the advantage to the other creditors and employees of the group, and the legislative policy recognised in Part 5.3A of the Act, which includes the preservation of businesses where that result may properly be achieved. In the present case, I can more readily find that the balance favours the extension of time, notwithstanding the extension of the moratorium affecting secured creditors and lessors that will follow, where no secured creditors or lessors have actively sought to oppose that extension, and where their right to do so will be preserved by the orders which are sought. 15I did, however, raise with Mr Johnson, who appears for the administrators, in the course of oral submissions, whether the preferable course would be to make an order initially extending the time for a shorter period, on the basis that a further extension application may be made at the end of that shorter period, if it is necessary. It seems to me that that course is preferable to extending the period to convene the second meeting by the full three and a half month period sought. It allows the Court to be better informed, for example, at the end of a six week period, as to whether progress has been made in respect of the proposed deed of company arrangement and as to the progress of, for example, any negotiations with lessors or secured creditors which may be necessary to allow such a deed to be achieved. It may be that the administrators are able to progress matters more quickly, in which case no further extension will be required. It may be that, by that time, the prospects of a deed of company arrangement being implemented have deteriorated, such that no further extension should then be granted. It may be that, by that time, matters are progressing as the administrator presently anticipates, and a further extension of time is then required. 16It seems to me to be preferable to extend the time for that shorter period, recognising that a further extension may later be required, on the basis that, first, the Court will then be in a better position to exercise a discretion as to a further extension and, second, that course mitigates the disadvantage to secured creditors and lessors of a longer extension, by ensuring that the extension only continues for such longer period as may properly be necessary in balancing factors as they then exist. 17I will, therefore, extend the period of time to the end of May 2013, and make directions permitting any further extension of time to be made returnable shortly before the expiry of that period. 18The administrators also seek an order permitting them to provide notice of these orders to creditors by email, where an email address is held, or otherwise by way of written correspondence, and contemplate making these orders available on the administrators' website. Such an order goes beyond the recognition of electronic communications in s 600G of the Corporations Act in two respects, firstly, because the notice which is contemplated being given is not a notice of the particular matters specified in s 600G(1) of the Act and, second, because the orders sought does not contemplate that the recipient has advised an electronic address for the receipt of the particular form of notice. Nonetheless, it seems to me that the modification sought is an appropriate one, where the giving of notice in that manner is likely to address issues of costs and practicality, and where electronic notifications are now more widely accepted in the wider community. For example, orders have been made permitting notice of meetings to be given by electronic means and otherwise by notice on an administrator's website: ABC Learning Centres Ltd (admins apptd) (recs and mgrs apptd) v Honey [2010] FCA 353; Re Carson (as administrators of Hastie Group Ltd) (admin apptd) [2012] FCA 626; Carson, Re Hastie Group Ltd (No 2) [2012] FCA 717. 19In these circumstances, I will make orders in the form contemplated by the originating process, with the amendment that, first, the period of time for which the plaintiffs are required to convene the second meeting will be extended, in the first instance, to 31 May 2013, but recognising the possibility that a further extension application may be brought in due course; second, the plaintiffs will have liberty to apply, including for any further extension of the convening period, at any time prior to 31 May 2013; and third, I will direct that the matter be listed in the Corporations Motions List at 9.45am on 27 May 2013, with a view to making such further extension orders as may be appropriate on that date, and that any further application for such further extension orders be supported by an affidavit indicating the then current status of the administration, and any relevant matters as to the progress of any proposal for a deed of company arrangement and any negotiations with lessors or unsecured creditors. 20The administrators should submit a form of orders to give effect to the orders contemplated by the originating process, amended as I have indicated, to my Associate and I will make those orders in Chambers once they are received. ********** 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. Decision last updated: 21 June 2013