Supreme Court New South Wales Medium Neutral Citation: In the matter of Creative Memories Australia Pty Limited (admins apptd) [2013] NSWSC 1294 Hearing dates: 28 May 2013 Decision date: 28 May 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Orders made extending forward into a liquidation allowing electronic communication for notice of second meeting of creditors. Order that costs of the application be costs in the administration of the company. Catchwords: CORPORATIONS - management and administration - meetings - orders sought to modify means of dispatch of the notice of a second meeting of creditors - where the company had in the ordinary course communicated with its customers and its consultants by email - where substantial probability that the company will transition to a voluntary liquidation at the time of the second creditors' meeting - whether mailing notice of the second creditors' meeting would be a substantial expenditure - whether appropriate to extend an order allowing electronic communication forward to a liquidation of the company. Legislation Cited: Corporations Act 2001 (Cth) ss 439A, 439A(4), 446A, 447A, Pt 5.3A Cases Cited: - Gibbons v Liberty One Ltd (in liq) [2002] NSWSC 274; (2002) 41 ACSR 442 - Re One.Tel Ltd [2002] NSWSC 1081; (2003) 43 ACSR 305 Category: Interlocutory applications Parties: Peter Paul Krejci & Walter Paul Burges as voluntary administrators of Creative Memories Australia Pty Limited (administrators appointed) (First Plaintiff) Creative Memories Australia Pty Limited (Administrators Appointed) (Second Plaintiff) Representation: Counsel: C. Harris SC (Plaintiffs) Solicitors: Colin Biggers & Paisley (Plaintiffs) File Number(s): 2013/164650 Judgment - EX TEMPOre 1Mr Peter Krejci and Mr Paul Burges as voluntary administrators of Creative Memories Australia Pty Limited (admins apptd) ("Company") and the Company seek orders under s 447A of the Corporations Act 2001 (Cth) seeking to modify Pt 5.3A of the Act in respect of the means for dispatch of the notice of a second meeting of creditors to be convened under s 439A of the Act and the documents to be sent to creditors under s 439A(4) of the Act. 2They seek an order that those documents may be given to creditors, so far as those creditors are either customers or consultants of the Company, by publishing a notice of the order on the administrators' and the Company's websites (at least while the Company's website remains active); sending the notice and an internet link to the relevant report to electronic addresses of customers and consultants for which the administrators have an electronic address; otherwise sending a letter and copy of the notice to creditors for whom no notification is sent in that way with a statement that the report is available on the administrators' website; and publishing notice of the meeting and notice of the availability of the report and a telephone number by which creditors may contact the administrators in a national newspaper. The administrators exclude from that suggested regime employees and trade creditors of the Company who will be notified of the meeting and sent a copy of the report in the ordinary way. The administrators also seek to extend that regime into a liquidation of the Company, in the event that creditors resolve, at the second meeting of creditors, that the Company should pass into liquidation. 3This is a further application in respect of electronic communications in the administration of this Company. An earlier application was made by the former administrators of the Company, in respect of the first meeting of creditors, and I determined that application in my Judgment delivered on 6 May 2013. I set out the structure of the Company and its consultants and creditors and customers in that earlier judgment and the further evidence before me is consistent with the evidence to which I referred in that judgment. 4This application is supported by a further affidavit of Mr Krejci dated 27 May 2013 who indicates that he and Mr Burges were appointed as administrators in place of Messrs Crowe-Maxwell and White at the first meeting of creditors. He sets out the background to the Company's business, and notes that it employed 22 employees at the date of his appointment and also had trade creditors who were about 60 in number. The Company also had approximately 11,000 direct customers, with whom it engaged in online trading directly and indirectly through consultants, and had about 800 consultants who were responsible for sale of its materials who are potential creditors of the Company. 5Mr Krejci's evidence is that creditors of the Company include the employees, the trade creditors, customers and consultants in respect of potential commission claims. Mr Krejci's evidence is that the amount owing to trade creditors is approximately $400,000 spread across the number of those creditors; the amounts owing to VIP customers are minimal, and in most cases less than $50, and the amounts owing to consultants are yet to be determined. 6Importantly, as I noted in my earlier judgment, and as Mr Krejci's affidavit confirms, the Company had in the ordinary course communicated with its customers and its consultants by e-mail. 7Mr Krejci also gives evidence that it appears the Company is insolvent, with a very significant asset deficiency; its parent company in the United States is currently the subject of a Chapter 11 bankruptcy proceeding and no deed of company arrangement has been proposed. In these circumstances, there seems to be a substantial possibility that the Company will transition to a voluntary liquidation at the time of the second creditors' meeting. 8Mr Krejci's evidence is, not surprisingly, that the process of mailing copies of the report and notice of the second creditors' meeting to each of the Company's creditors would be lengthy, time consuming and expensive, given the number of customer and consultant creditors to which I have referred and the fact that the notice and the report are likely to run to approximately 75 pages. Mr Krejci anticipates that the cost of posting the notice and the report to each of those 11,000 creditors would likely cost over $100,000, which is a substantial expenditure in the administration of an insolvent company. 9Mr Krejci and Mr Burges indicate that, in these circumstances, and given the relatively small debts owed to the customers and creditors, they seek to adopt the process contemplated by the application, involving sending the notice and internet link to e-mail address of customer and consultants creditors, mailing the notice and the report to trade creditors and employees, and otherwise publicising the notice and report in the manner to which I have referred above. 10In my earlier judgment, I summarised the authorities in respect of the use of e-mail and other electronic means of communication within administrations, and noted that it was plain that the Court had power under s 447A of the Corporations Act to authorise the use of such communications, and that there were several authorities in which the Courts had authorised the use of such means of communication in respect of, inter alia, second meetings of creditors, typically in combination with notice given on an administrator's website and newspaper advertisement. In this case, it seems to me that a compelling case has been established for an order in a similar form, so far as customer and consultant creditors of the Company are concerned. It seems to me appropriate, as Mr Krejci and Mr Burges have recognised in the form of their application, that communications with employee and trade creditors proceed in the ordinary way. 11The administrators also seek a further order, extending the regime for electronic communication to which they have sought to a liquidation of the Company, if creditors resolve at the second meeting of creditors that the Company should be wound up. As Mr Harris, who appears for the administrators points out, it is plain that the Court has jurisdiction to make such an order under s 447A of the Corporations Act in respect of a Company then in liquidation, where its liquidation has commenced with a voluntary administration and it then passes into liquidation at the second meeting of creditors: Gibbons v Liberty One Ltd (in liq) [2002] NSWSC 274; (2002) 41 ACSR 442; Re One.Tel Ltd [2002] NSWSC 1081; (2003) 43 ACSR 305. In particular, Mr Harris points out that the Court may make orders under s 447A of the Act, in that situation, modifying the operation of s 446A of the Act, by which the administrator becomes a liquidator in that situation. One circumstance in which such orders have been made is, for example, in respect of the holding of annual meetings and sending out reports in respect of such meetings in circumstances that a liquidation which arises in that manner continues for more than a year. 12The administrators point out, plainly correctly, that the same issues to which they refer in respect of the cost of communication with customer and consultant creditors would also arise in a liquidation as now arise in an administration. I initially considered whether it would be preferable to defer making such an order, on the basis that any such order should be made after the Company was placed in liquidation, and when the relevant communications to which it referred were known. It may be that there would be no great disadvantage in that course, since it would only require the liquidators then to approach the Court for the making of an order at that time, in circumstances that the Court's jurisdiction to make that order is well-established. 13However, Mr Harris has persuaded me that there is, in fact, no utility in deferring such an order to that time. That proposition may be tested by a simple example. Assume that, at the second meeting of creditors, the administrators are appointed as liquidators and then seek, perfectly appropriately, to communicate with customer and consultant creditors to advise of their appointment. The same issues would arise in respect of that communication as now arise. There is no utility in requiring the administrators, who may then have been appointed as liquidators, further to approach the Court at that point, in order to make the same arguments as have already been put before me, to establish exactly the same inconvenience as has already been established. It is impossible to contemplate, in my view, any communication to customer and consultant creditors in the course of a liquidation that would not sensibly be made by electronic means in this way, in the light of the particular circumstances; conversely, it is equally impossible to contemplate any situation in which it could be cost-effective for the liquidator to communicate with 800 consultants and 11,000 potential customer creditors by mail, in the course of a liquidation, with ordinary course communications in the liquidation. 14For this reason, accepting that the Court has jurisdiction to make orders under s 447A of the Corporations Act which extend forward into a liquidation, I am also satisfied that it would be a proper exercise of the Court's discretion to makes those orders now, in anticipation of the possibility that a liquidation may occur at the second creditors' meeting. Those orders will not take effect if creditors do not resolve that the Company should pass into liquidation. 15The form of orders sought by the administrators preserves the ability of any interested party to bring an application to vary or set them aside, in an appropriate case. 16In these circumstances, I make orders in accordance with the short minutes of order initialled by me and placed in the file, amended as discussed in the course of submissions. These orders include an order that the costs of the application be costs in the administration of the Company, which I consider is appropriate in circumstances that this application has plainly been made in order to advance the interests of the administration. 17I also make an order that Exhibit A1 in this application be returned to the custody of solicitors acting for the administrators, to be retained by them or the administrators pending the completion of the administration and/or winding up. ********** 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: 12 September 2013