In the matter of Keystone Group (Receivers and Managers Appointed) (Administrators Appointed) [2016] NSWSC 1011

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Keystone Group (Receivers and Managers Appointed) (Administrators Appointed) [2016] NSWSC 1011 Hearing dates: 18 July 2016 Date of orders: 18 July 2016 Decision date: 18 July 2016 Jurisdiction: Equity - Corporations List Before: Barrett AJA Decision: Orders for extension of convening period and otherwise in accordance with short minutes of order Catchwords: CORPORATIONS – voluntary administration – second meeting of creditors – application by administrators for extension of convening period – where receivers in office are working towards orderly sale as a going concern – no matter of principle Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Re Diamond Press Australia Pty Limited [2001] NSWSC 313 Category: Principal judgment Parties: Plaintiff – Keystone Group Holdings Pty Ltd Defendant – Ex Parte Representation: Counsel: Plaintiff - NCT Bilinsky Ex Parte

Solicitors: Plaintiff - K&L Gates Ex Parte File Number(s): 2016/197624

Judgment 1. BARRETT AJA: The first plaintiffs are the administrators under Pt 5.3A of the Corporations Act 2001 (Cth) of 42 companies that make up the Keystone Group. The companies operate a number of restaurants and bars in respect of which liquor licences are held. The administrators were appointed very soon after a group of senior secured creditors had appointed receivers and managers of the assets and undertakings of the 42 companies. 2. As things currently stand, the period for convening the second meeting of creditors called for by Pt 5.3A in relation to each company will expire on 26 July 2016. 3. The administrators, with the consent of the receivers, seek orders under s 439A(6) extending the convening period until the end of January 2017 which is effectively an extension of six months. 4. Several considerations are recognised by the case law as of particular relevance to applications of this kind. The core considerations are the attitude of secured creditors, employees, lessors and others affected by the statutory moratoria that Pt 5.3A imposes; the attitude of unsecured creditors; whether the administrators will have sufficient time within which to prepare a meaningful report for the purposes of the second meeting; and whether additional time might encourage the emergence of a deed of company arrangement proposal. 5. Relevant evidence about these matters and the situation more generally comes from the affidavit of Ms Barnet, one of the administrators, and from a letter from the receivers which forms part of the exhibit to Ms Barnet's affidavit. 6. The receivers are currently operating the several businesses. They have undertaken certain efficiencies which they expect will enable them to continue on that course until the end of the period of the extension sought. They estimate that that period will be sufficient to enable them to negotiate sale of the businesses as going concerns if prospective buyers are forthcoming. 7. The measures referred to by the receivers appear at this relatively early stage to be consistent with achieving sale or at least reaching the point of binding contracts within the foreshadowed period if sale proves possible at all. 8. The affairs of the group appear to be complex and some time and effort will be required by both the receivers and the administrators to understand in full the interrelationships and entitlements as among the group members. That is an element of complexity that does not arise in most cases. 9. It should be added that the course on which the receivers have embarked involves cash flow which is thought will be sufficient to satisfy the ongoing entitlements of employees, lessors and trade creditors to the extent required to continue the operation of the businesses. 10. There are some 4000 unsecured creditors. Of these about 100, accounting for some $83 million, were present at the first meeting of creditors at which an application of the present kind was foreshadowed. The evidence does not suggest any opposition by unsecured creditors to the course proposed or the making of the orders sought. 11. Secured creditors fall into several groups. The secured creditors by whom the receivers were appointed account for $75 million of debt and positively approve the extension proposal. The attitudes of other secured creditors, being the companies' bank and certain secured note holders, are not precisely known but their interests, so far as the voluntary administration as distinct from the receivership is concerned, do not appear to differ from those of the senior secured creditors. 12. As for lessors of premises, the evidence shows that one lessor purported to terminate its lease in consequence of the insolvency of the particular lessee company, a result that the statutory moratorium has forestalled. All other lessors have, it seems, been content to continue to receive rent under the new regime. 13. As for the employees, the receivers, as I have said, continue to operate the business and expect to proceed on that course while efforts are made to secure a buyer or buyers. Part and parcel of that strategy is continued payment of employees' remuneration. 14. As things stand, there is reason to think that no particularly demonstrated prejudice will inure to any of the classes I have mentioned if the extension sought is given. 15. As to the possible emergence of a deed of company arrangement, I think it is accurate to say that the administrators are not aware of any particular proposal but do not rule out the possibility that one may emerge. 16. It has been said on more than one occasion that the function of the court on an application of this kind is to strike an appropriate balance between, on the one hand, the expectation that administration will be a speedy and summary matter and on the other hand the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders: see, for example, Re Diamond Press Australia Pty Limited [2001] NSWSC 313. 17. In the whole of the context disclosed by the evidence before me, I am persuaded that it is preferable, having regard to the objectives of Pt 5.3A, that the additional time sought should be granted, particularly since that additional time will be devoted to, and has been calculated by reference to, what appears to be a responsibly conceived timetable for testing the market in the hope that returns may be maximised through an orderly sale without undue haste and with adequate opportunity to consider proposals received and, as necessary, to take advantage of any competition that may emerge in the market for corporate control in the particular area 18. The orders sought include a grant of liberty to apply to any person who can demonstrate sufficient interest to seek variation or discharge of the extension and related orders upon appropriate notice being given to the administrators. In that way, any material consideration which has not to this point emerged and which is seen by some person with a sufficient interest to warrant revisiting of the decision to grant the extension can be placed before the court. 19. I now make the orders in the short minutes of order which I initial and date today and place with the papers.