FEDERAL COURT OF AUSTRALIA

ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947

PETER WALKER & GREGORY MOLONEY (IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF ABC LEARNING CENTRES LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED) & ORS, IN THE MATTER OF ABC LEARNING CENTRES LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED)  and ORS

NSD 1846 of 2008

EMMETT J

27 NOVEMBER 2008

SYDNEY

IN THE MATTER OF ABC LEARNING CENTRES LIMITED & ORS,

THE COURT ORDERS THAT:

1.                  Pursuant to section 439A(6) of the Corporations Act 2001 (the Act), the period within which First Plaintiffs must convene meetings of creditors of each of the Second Plaintiffs under section 439A of the Act be extended up to and including 31 March 2009.

2.                  Pursuant to section 447A(1) of the Act, the meetings of the creditors of the Second Plaintiffs required by section 439A of that Act may be held at any time during, or within 5 business days after the end of, the convening period, as extended by Order 1 above, notwithstanding the provisions of section 439A(2) of the Act.

3.                  Liberty be granted to the First Plaintiffs to apply to the Court for any further extensions of the convening period referred to in Order 1 at any time prior to 31 March 2009.

4.                  Liberty to apply be granted to any person who can demonstrate sufficient interest to modify or discharge these orders upon appropriate notice being given to the Plaintiffs.

5.                  The costs and expenses of this application be costs and expenses of the administration of the Second Plaintiffs.

6.                  Further consideration of the Originating Process filed on 27 November 2008 be adjourned to 6 February 2008.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

SCHEDULE 1

All in Administration and with Receivers and Managers Appointed

IN THE MATTER OF ABC LEARNING CENTRES LIMITED & ORS,

REASONS FOR JUDGMENT

1                     The first plaintiffs (the Administrators) are the administrators of the second plaintiffs (the Companies).  Under the provisions of the Corporations Act 2001 (Cth) (the Act), pursuant to which they have been appointed, the Administrators are required to convene a second meeting of creditors within the convening period as defined.  Under s 439A(2), the meeting must be held within five business days before, or within five business days after, the end of the convening period.  The convening period is 20 days from the date of appointment of the Administrators, which is 4 December 2008.  However, the Administrators have applied to the Court pursuant to s 439A(5) to extend the convening period.  Shortly after the appointment of the Administrators, Messrs Christopher Honey, Murray Smith and John Cronin (the Receivers) were appointed joint receivers and managers of each of the Companies. 

2                     Several weeks prior to the appointment of the Administrators, the Receivers were engaged by secured creditors of the Companies to undertake in investigation and review of the Companies.  Accordingly, the Receivers have had some time, in addition to the time since their appointment, to form opinions about the business affairs of the Companies.  As receivers, they are in day-to-day control of the business affairs of all the Companies. 

3                     At the first meeting of creditors, held pursuant to the Act on 18 November 2008, the chairman of the meeting, one of the Administrators, indicated to the creditors who attended that he expected to make an application to the Court to extend the convening period for the second meeting.   The creditors were informed that the Administrators hoped to have the Court make an order extending the convening period to February or March 2009.  The creditors were informed that, if the Court so approved, the second meeting would be held in late March or early April 2009. 

4                     The Administrators have now applied for an order extending the time.  That application is supported by the Receivers, who consider that it is necessary that the convening period be extended to the end of March 2009.  The Administrators have received from Messrs Henry Davis York, the solicitors for the Receivers, a letter of19 November 2008 indicating the Receivers’ view that an extension is desirable.  By the letter, the Receivers also undertook to meet the Administrators’ reasonable cost of making the application. 

5                     In the letter, the Receivers inform the Administrators that they estimate that they have sufficient funds available to them to continue the trading of the Companies up to the end of December 2008.  The Receivers also indicate that they consider it to be in the best interests of the creditors to make the application I have referred to.  The Receivers informed the Administrators in the letter that they are addressing a number of matters, such as the size and complexity of the group of which the Companies are members (the ABC Group), the numbers of employees and contractors and the positions of lessors and suppliers.  In addition, they are formulating a possible restructure plan for the ABC Group in order to maximise the value and sale potential of the ABC Group’s assets, in particular the childcare centres carried on in Australia. 

6                     The Receivers point out that the receivership is a very significant and complex external administration, involving 39 companies, which operate 1045 childcare centres, processing over 100,000 childcare transactions each week.  The Companies employ 16,000 employees and contracts the equivalent of a further 1600 full‑time agency staff.  Most of the premises on which the childcare centres operate are leased to various companies within the ABC Group.  The Receivers express the view that, if the creditors are to be affordedthe benefit of a restructure or sale of the business and assets of the Companies, a reasonable period of time is required to enable all of the matters to which I have referred to be fully examined. 

7                     Because of the appointment of the Receivers, it has not been possible for the Administrators to undertake the necessary review of the affairs of the Companies.  The Administrators, therefore, rely on the Receivers for detailed information concerning the interests of creditors.  The Administrators are of the view that the extension of a convening period is in the interests of creditors.  That opinion is based on the information provided by the Receivers since the Administrators, as I have said, have no direct knowledge of the affairs of the Companies themselves.  However, if in the future the Administrators form the view that the continued trading of the Companies or the borrowing of further funds is not in the best interest of creditors, the Administrators would propose either to convene the second meeting of creditors forthwith or seek further directions from the Court. 

8                     The power to extend the time for convening the second meeting is one that should not be exercised as of course.  An important objective of Part 5.3A is that creditors be informed as soon as possible about a company’s position and be put in a position to vote on the future of the company as soon as possible.  The Court’s function, on an application such as the present one, is to strike an appropriate balance between the expectation that external administration will be a relatively speedy and summary matter and the requirement that the sensible and constructive actions required for maximising the return for creditors and possible return for shareholders are not prejudiced.  If the Court is persuaded that the prospects of a better outcome for creditors will be improved by a potentially longer period of administration, then the Court would ordinarily grant an extension. 

9                     Another important consideration is whether an extension is necessary to enable an administrator to prepare and provide the report and statements and, in particular, to arrive at the opinions, contemplated by s 439A(4).  The Administrators are required to express their opinion and make a recommendation to the creditors as to whether the Companies should be returned to their directors, enter into a deed of company arrangement, or be wound up.  The fact that the Companies are under the day-to-day control of the Receivers is a significant factor from the point of view of the Administrators.  The books and records of all of the Companies are in the control of the Receivers, who are in a position to make any decision whether to continue to trade and whether to close some of the childcare centres presently being operated by the Companies.  The Administrators have only those funds that are provided by the Receivers to enable them to carry on their functions. 

10                  In considering the exercise of the discretion to extend the time, the Court must take account of various interests that might be affected by the extension, such as secured creditors, landlords and unsecured creditors generally, as well as employees.  As I have indicated, the secured creditors, through the Receivers, have requested the extension.  All landlords of premises occupied by the ABC Group are currently being paid rent and no rights conferred by s 443B of the Act have been exercised by the Administrators.  Section 443B relates to the making of payments for property used or occupied by and in the possession of a company while an administrator is in control.  The unsecured creditors who attended the first meeting indicated no opposition to an extension of time when informed of the possibility by the Administrators.  There is no reason to think that the employees would be prejudiced by the extension and indeed, so far as their employment is being continued, it would appear to be to the advantage of employees for the administration to continue on the present basis. 

11                  In all of the circumstances, I consider that it is appropriate to exceed to the application made by the Administrators.  However, as I have indicated, the Administrators may, if circumstances are appropriate, seek to convene a meeting earlier than the time limited by s 439A(2).  Accordingly, the Administrators desire the flexibility to be able to convene the second meeting earlier than during the 10 days that would be fixed by extending the convening period.  Therefore, they have sought, in addition, an order pursuant to s 447A(1) of the Act to deal with that matter. 

12                  Section 447A provides that the Court may make such orders it thinks fit about how Part 5.3A is to operate in relation to a particular company.  Section 447A should not be given a limited operation.  Clearly, the flexibility sought by the Administrators is appropriate.  I can see no prejudice to any of the interested person, to whom I briefly referred, by permitting the Administrators to convene a meeting to be held, otherwise than within the ten days contemplated by the Act.  Accordingly, I propose to make an order under s 447A to give the Administrators that flexibility. 

13                  The originating process pursuant to which relief is sought also claims such further or other orders as may, from time to time, be necessary in the course of the administration of the Companies.  Accordingly, I propose to stand over the originating process for further hearing, if necessary, in the New Year, on the basis that the Administrators have liberty to approach the Court at any stage for the purposes of restoring the preceding for hearing on an earlier date if necessary or adjourning that hearing if a hearing is not necessary on that date. 

Associate:

Dated:         27 January 2009