FEDERAL COURT OF AUSTRALIA

Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636

CORPORATIONS – extension of time for convening of second meeting of creditors of company in voluntary administration – applicable principles.

Corporations Act 2002 (Cth) ss 439A, 447A

ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application byWalker (No.7) [2009] FCA 454 cited

Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 cited

In the matter of Global Food Equipment Pty Ltd (Under Administration); Carter v Global Food Equipment Pty Ltd (2007) 25 ACLC 1173; [2007] NSWSC 901 cited

In the matter of LED Builders Pty Ltd (Administrators Appointed) [2008] NSWSC 633 cited

Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110 cited

Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 cited

Re AFG Insurances Ltd [2002] NSWSC 803 cited

Re Chemeq Ltd (Administrators Appointed); ex parte McMaster [2007] WASC 154 cited

Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446 cited

Re Diamond Press Australia Pty Limited [2001] NSWSC 313 cited

Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 cited

Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 cited

Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 cited

Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77 cited

BRIAN RAYMOND SILVIA AND MARTIN JOHN GREEN (IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF AUSTCORP GROUP LIMITED) (ADMINISTRATORS APPOINTED) (ACN 011 042 318), AUSTCORP GROUP LIMITED (ADMINISTRATORS APPOINTED) (ACN 011 042 318),

BRIAN RAYMOND SILVIA AND ANDREW JOHN CUMMINS (IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF AUSTCORP TOWERS INVESTMENT PTY LIMITED (ADMINISTRATORS APPOINTED)

(ACN 106 233 078) AND AUSTCORP FUNDS MANAGEMENT LIMITED (ADMINISTRATORS APPOINTED) (ACN 113 412 703) and

AUSTCORP TOWERS INVESTMENT PTY LIMITED (ADMINISTRATORS APPOINTED) ACN 113 412 703 AND AUSTCORP FUNDS MANAGEMENT LIMITED (ADMINISTRATORS APPOINTED) (ACN 113 412 703)

NSD 487 of 2009

LINDGREN  J

12 JUNE 2009

SYDNEY

IN THE MATTER OF AUSTCORP GROUP LIMITED (ADMINISTRATORS APPOINTED) (ACN 011 042 318);

AUSTCORP TOWERS INVESTMENT PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 106 233 078);

AUSTCORP FUNDS MANAGEMENT LIMITED (ADMINISTRATORS APPOINTED) (ACN 113 412 703)

THE COURT ORDERS THAT:

1.                  Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (“the Act”), the period within which the Administrators of the Second Plaintiff must convene a meeting of creditors of the Second Plaintiff under section 439A of the Act is extended up to and including 30 September 2009.

2.                  Pursuant to section 439A(6) of the Act, the period within which the Administrators of  the Fourth Plaintiffs must convene a meeting of creditors of each of the Fourth Plaintiffs under section 439A of the Act is extended up to and including 30 September 2009.

3.                  Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to have effect in relation to Austcorp Group Limited (Administrators Appointed) ACN 011 042 318 (the Second Plaintiff) such that the meetings of the creditors of the Second Plaintiff 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.

4.                  Pursuant to section 447A(1) of the Act, Part 5.3A of the Act is to have effect in relation to each of Austcorp Towers Investment Pty Limited (Administrators Appointed) ACN 113 412 703 and Austcorp Funds Management Limited (Administrators Appointed) ACN 113 412 703 (the Fourth Plaintiffs) such that the meeting of the creditors of each of the Fourth 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 2 above notwithstanding the provisions of section 439A(2) of the Act.

5.                  Liberty is 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 30 September 2009.

6.                  Liberty is granted to the Third Plaintiffs to apply to the Court for any further extensions of the convening periods referred to in Order 2 at any time prior to 30 September 2009.

7.                  Liberty to apply is granted to any person including any creditor who can demonstrate sufficient interest to make such application as he, she or it may be advised, to vary or discharge these orders upon 48 hours notice being given to the Plaintiffs and to the Court.

8.                  The costs and expenses of this Application in respect of the First and Second Plaintiffs are costs and expenses of the Administration of the Second Plaintiff.

9.                  The costs and expenses of this Application in respect of the Third and each of the Fourth Plaintiffs are costs and expenses of the Administration of that Fourth Plaintiff.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE MATTER OF AUSTCORP GROUP LIMITED (ADMINISTRATORS APPOINTED) (ACN 011 042 318);

AUSTCORP TOWERS INVESTMENT PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 106 233 078);

AUSTCORP FUNDS MANAGEMENT LIMITED (ADMINISTRATORS APPOINTED) (ACN 113 412 703)

REASONS FOR JUDGMENT

INTRODUCTION

1                     On 28 May 2009 I made orders extending the period within which the administrators of three companies in administration must convene a meeting of the companies’ creditors under s 439A of the Corporations Act 2001 (Cth) (the Act).  These are the reasons why I made those orders.

FACTS AND LEGISLATION

2                     The three companies are part of the Austcorp Group (the Group).  They are:

·               the second plaintiff, Austcorp Group Limited (administrators appointed) (AGL), of which the first plaintiffs, Messrs Silvia and Green are the administrators;

·               Austcorp Towers Investment Pty Limited (administrators appointed) (ATIPL), one of the fourth plaintiffs, of which the third plaintiffs, Messrs Silvia and Cummins, are the administrators; and

·               Austcorp Funds Management Limited (administrators appointed) (AFML), also one of the fourth plaintiffs, of which the third plaintiffs, Messrs Silvia and Cummins are also the administrators

3                     The plaintiffs appear to have grouped ATIPL and AFML together because Messrs Silvia and Cummins are the administrators of both them of them.  In all three cases the administrators were appointed on 6 May 2009.

4                     Section 439A(1) of the Act requires the administrator of a company under administration to convene a meeting of the company’s creditors within the “convening period” as fixed by subs (5) or as extended under subs (6) of s 439A.

5                     Section 439A(5) defines the convening period.  In the circumstances of the present cases, that period was the period of 20 business days beginning on the day after the administration began.  The three administrations began on 6 May 2009 (see s 435C(1) of the Act).  The next day was 7 May 2009.  The period of 20 business days expires on 3 June 2009.

6                     Section 439A(6) empowers the Court to extend the convening period on an application made, relevantly, during the 20 business day period.  The present application has been made within that period.

7                     For the reasons given in the following section, the first and third plaintiffs seek an order extending the convening period up to and including 30 September 2009.  Since the present convening period is due to expire on 3 June 2009, the extension sought is a little less than four months.

8                     It remains to note that s 439A(2) provides that the meeting must be held within five business days before, or within five business days after, the end of the convening period.  The first and third plaintiffs seek an order under s 447A(1) of the Act to permit the three meetings to be held at any time during the convening period as extended or within five business days thereafter.

9                     The Group is a large group of companies, comprising 37 active companies and 123 dormant companies.  Most of the active companies are special purpose vehicles (SPVs). 

10                  The Group owns seventeen investment or development properties (real estate).  There are extensive cross-collateralised securities and obligations within the Group.  In excess of ten secured lenders are owed approximately $550 million. 

11                  The parent company is Austcorp International Limited (AIL), of which AGL, ATIPL and AFML are wholly owned subsidiaries.  ATIPL is the trustee of the Austcorp Towers Investment Trust (ATIT), and AFML is the responsible entity of the Austcorp Towers Trust (ATT) and the Austcorp Property Trust (APT).

12                  The public has invested some $50 million in units in the ATT. The ATT has invested some $50 million in units in the ATIT, which has lent some $50 million to APT. APT has in turn lent some $50 million to AGL.

13                  As noted above, numerous SPVs, owning seventeen investment properties, are subsidiaries of AGL.  The SPVs are not in administration.  Negotiations are in progress directed to realising value of the underlying assets.

14                  The major chargeholder, BOS International (Australia) Limited, which holds a first ranking charge over the assets and undertakings of AGL and AFML, has consented to the granting of the extension of time.

15                  Prior to 31 December 2007 when the relevant part of the Corporations Amendment (Insolvency) Act 2007 (Cth) (2007 Act) commenced, subs (6) of s 439A provided:

The Court may extend the convening period on an application made within the period referred to in paragraph (5)(a) or (b), as the case requires.

The 2007 Act substituted “during or after” for “within”.

16                  In Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110 (Lombe), Barrett J noted the changes made by the 2007 Act to subss 439A(5) and (6), and the introduction of the new subss (7) and (8). His Honour observed (at [29]) that there is a question as to whether s 439Aas amended has caused s 439A(6) to be available on successive occasions.  The present application is the first application for an extension and therefore the question does not arise before me.

17                  Counsel submitted that s 439A(7) is applicable, but it is not.  That subsection, which provides that the Court may extend the convening period only if satisfied that it would be in the best interests of the creditors to do so, applies only where the application for the extension is made after the convening period has expired.  In the present case, the application was made during the convening period.

18                  The overlapping considerations affecting the exercise of the discretion whether to extend the convening period may be summarised as follows:

(a)                the Court should recognise the objective of speed of administration that was associated with the introduction of Part 5.3A by the Corporate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recognise the objectives stated in para 507 of the explanatory memorandum associated with the Bill for that Act, that it was expected that the power to extend the period would be exercised infrequently since it is an important objective of Part 5.3A that  creditors be fully informed about the company’s position as early as possible and have an opportunity to vote on its future as soon as possible:  Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J) at 612; Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 (Owen J) at [5];

(b)               the function of the Court is to strike an appropriate balance between the legislature’s expectation that the administration will be a relatively swift and summary procedure, and 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:  Re Diamond Press Australia Pty Limited [2001] NSWSC 313 (Barrett J) at [10]; Re Pan Pharmaceuticals Ltd (2003) 46 ACSR 77 (Lindgren J) (Pan Pharmaceuticals) at [42]; Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 (Austin J) at [5];

(c)                the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192 (Barrett J) (Fincorp) at [18];

(d)               a particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others: Fincorp 62 ACSR 192 at [4];  Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 (Jacobson J) at [9];

(e)                the application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in s 439A(4), in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration, execute a deed of company arrangement or place the company in liquidation: Pan Pharmaceuticals (2003) 46 ACSR 77 at [41]; ABC Learning Centres Limited, in the matter of  ABC Learning Centres Limited;  application by Walker (No.7) [2009] FCA 454 (Emmett J) (ABC Learning Centres)at [28];

(f)                 it is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended: see the order made in Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446 (Daisytek) at [10]–[18].

19                  Lengthy extensions have been granted where the administrator’s investigations are complex, see, for example Re AFG Insurances Ltd [2002] NSWSC 803 (Barrett J) (five months); Re Chemeq Ltd (Administrators Appointed); ex parte McMaster [2007] WASC 154 (Le Miere J) (almost six months); ABC Learning Centres [2009] FCA 454 (Emmett J) (ten months).

the grounds on which the extension is sought

20                  The administrators in the present case apply for an extension of time on the basis that a deed of company arrangement (DOCA) may yet be proposed for the purpose of a reconstruction of the Group.  Mr Silvia’s evidence is that the merits of any DOCA will take three to four months to emerge.  Pending the proposal of any DOCA, he suggests that it would be in the interest of all creditors to allow time to the administrators to attempt to deal with or realise the individual properties held by the Austcorp companies.  The administrators are to seek funding from the various SPV creditors in relation to the specific projects, as their own funds are limited.

21                  According to Mr Silvia’s affidavit, it is currently unknown whether a DOCA will be proposed. If it is proposed, it is likely to take the form of a consolidated fund that would include unsecured creditors of the SPVs, where those creditors might otherwise receive no dividend.

22                  The SPVs are not currently under administration, although, according to Mr Silvia’s evidence, some of them may in due course go into administration and may execute DOCAs specific to them respectively.  In his opinion, however, in the immediate term it would be in the interests of creditors that the SPVs avoid being placed into receivership or administration in order to minimise costs and maximise asset sale prices.  This course would increase the return to creditors.

23                  Mr Silvia’s affidavit states that the extension of the convening period will not unduly prejudice any other stakeholder. He intends to continue his efforts to obtain funds for the payment of employee entitlements. Mr Silvia further states that the extension of the convening period will not prevent the administrators from investigating such issues as they need to investigate; nor affect any potential actions that might be taken by a liquidator, if one were to be appointed.

24                  At the first meeting of creditors of AGL, Mr Silvia as Chairman informed those present that he and Mr Green proposed to seek the extension of the convening period for up to four months. According to Mr Silvia, no creditor sought to be heard in opposition to that course.

25                  At the first meeting of the creditors of each ATIPL and AFML, Mr Cummins as Chairperson asked those present whether they had any objection to the Administrators seeking an extension of the convening period of three to four months. Again, no creditor sought to be heard in opposition to that course.

26                  In their first report to the committee of creditors of AGL, Mr Silvia and Mr Green informed the committee that it would take three to four months for the merits of any DOCA proposal to emerge, and that they (Messrs Silvia and Green) proposed to seek an extension of the convening period for no longer than four months.  At the first meeting of the committee of creditors of AGL, the members of the committee agreed unanimously that the administrators should make an application to the court to extend the convening period for a period no greater than 4 months.  The members of the committee of creditors of AFML have signed a circular resolution indicating that they agree with the proposed extension.

27                  I considered on the basis of the evidence referred to above that it was in the interest of creditors that the extension of a little less than four months that was applied for should be granted. 

28                  In Daisytek 45 ACSR 446, I noted that the granting of an extension of time left untouched the problem that s 439A(2) required that the meeting be held within five business days after the extended convening period.  The 2007 Act altered the position to require that the meeting be held within five business days before or within five business days after the end of the convening period or that period as extended.  The plaintiffs seek an order under s 447A of the Act that would permit the holding of the meeting at any time within the period of the extended convening period and five business days thereafter.  It was my opinion that such a “Daisytek order” should be made.  Such an order has often been made; cf Lombe [2009] NSWSC 110, In the matter of Global Food Equipment Pty Ltd (Under Administration); Carter v Global Food Equipment Pty Ltd (2007) 25 ACLC 1173; [2007] NSWSC 901 (White J); In the matter of LED Builders Pty Ltd (Administrators Appointed) [2008] NSWSC 633 (Austin J). 

29                  I also thought it appropriate to reserve liberty to any creditor to apply.

Conclusion

30                  For the above reasons I made the orders referred to.

Associate:

Dated:         12 June 2009