FEDERAL COURT OF AUSTRALIA

Silvia, in the matter of FEA Plantations Ltd (Administrators Appointed)

[2010] FCA 468

THE COURT DIRECTS THAT:

1.                  Pursuant to s 447D(1) of the Corporations Act 2001 (Cth) (“the Act”), the first plaintiffs (“administrators”) shall within 2 business days of the date on which this Order is made:

(a)        publish a copy of this Order on the administrators’ website, www.briferrier.com.au, and on the third plaintiff’s website, www.fealtd.com; and

(b)        publish a copy of this Order on the administrators’ website, www.briferrier.com.au, and on the third plaintiff’s website, www.fealtd.com; and

(c)        send a copy of this Order:

(i)         to the personal electronic address of each creditor of the second plaintiff, FEA Plantations Pty Ltd (ACN 055 969 429) (“FEAP”), and the third plaintiff, Forest Enterprises Australia Ltd (ACN 009 553 548) (“FEA”), who has requested that the administrators communicate with her, him or it by electronic means; and

(ii)        to each secured creditor of the second plaintiff, FEAP, and the third plaintiff, FEA, and to each known third party landlord referred to in paragraphs 20 and 24(c) of the affidavit of Peter Paul Krejci sworn on 12 May 2010.

THE COURT ORDERS THAT:

2.                  Pursuant to s 439A(6) of the Act, the convening period for the meetings of creditors of the second plaintiff, FEAP, and the third plaintiff, FEA, is extended up to and including 13 September 2010.

3.                  Pursuant to s 447A(1) of the Act, the second meetings of creditors of the second plaintiff, FEAP, and the third plaintiff, FEA, required by s 439A of the Act may be held at any time on or before, or within 5 business days after, 13 September 2010, notwithstanding the provisions of s 439A(2) of the Act.

4.                  Liberty is granted to the plaintiffs to apply to the Court for any further extension of the convening period referred to in paragraph 2 above at any time prior to 13 September 2010.

5.                  Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to operate in relation to the second plaintiff, FEAP, and the third plaintiff, FEA, as if s 439A of the Act provided that the notice of the second meeting of creditors to be convened pursuant to s 439A of the Act (“the notice”) and the documents required to be sent to creditors pursuant to s 439A(4) of the Act (“the report”) may be given to all creditors of the company by:

(a)                sending the notice and an internet link to the report to the personal electronic address of each creditor of the company who has requested that the administrators communicate with her, him or it by electronic means;

(b)               sending the notice and an internet link to the report to the personal electronic address of each creditor of the company for whom or which the administrators have a personal electronic address;

(c)                sending a one page paper letter and a paper copy of the notice to all known creditors of the company to whom or which no notification is sent pursuant to sub-paragraph 5(a) or (b) of this Order, along with a statement that the report is available on the administrators’ website, www.briferrier.com.au, and on the third plaintiff’s website, www.fealtd.com; and

(d)               causing a notice to be published in a national newspaper (at least 5 business days before the second meeting of creditors) providing:

(i)                 notice of the date, time and location of the second meeting of creditors;

(ii)               notice that the report is available on the administrators’ website, www.briferrier.com.au, and on the third plaintiff’s website, www.fealtd.com; and

(iii)              details of a telephone hotline number by which any creditor may contact the administrators to request a paper or electronic copy of the report.

6.                  Pursuant to s 447A(1) of the Act, subject to further order, all future notices, reports and communications that the administrators must or may give or send to creditors of the second plaintiff, FEAP, and the third plaintiff, FEA, may be given and or sent in accordance with the procedure described in paragraph 5 above.

7.                  Liberty is granted to any person (including any creditor of the second plaintiff, any creditor of the third plaintiff and the Australian Securities and Investments Commission) who can demonstrate sufficient interest to apply to vary or discharge these orders, or any part of them, on 2 business days notice in writing being given to the plaintiffs and to the Court.

8.                  The costs and expenses of this application be costs and expenses of the administration of the second plaintiff, FEAP, and the third plaintiff, FEA.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

introduction

1                     The first plaintiffs, Brian Silvia, Peter Krejci and Mathew Muldoon, are the joint and several administrators of the second plaintiff, FEA Plantations Ltd (administrators appointed) (“FEAP”) and Forest Enterprises Australia Ltd (administrators appointed) (receivers and managers appointed) (“FEA”).  The plaintiffs principally seek a four month extension of the time for convening the second meetings of creditors under s 439A of the Corporations Act 2001 (Cth) (“the Act”) and orders modifying the prescribed regime for giving notice of the second meetings.

2                     The plaintiffs, by application dated 12 May 2010, apply pursuant to ss 439A(6), 447A(1), 447D(1) and 1337B of the Act and s 19 of the Federal Court of Australia Act 1976 (Cth) for orders and directions:

(a)                extending the convening period for the second meeting of creditors of FEAP and FEA up to and including 13 September 2010, and permitting the second meeting to be held at any time on or before or within five business days after 13 September 2010;

(b)               permitting the notice of the second meeting and the report, pursuant to s 439A of the Act, to be:

(i)                  sent electronically to those creditors for whom the administrators have an electronic address or who have requested that means of communication; or

(ii)                for the balance of known creditors, sent by means of a one page letter and paper copy of the notice, with a statement that the report is available on the administrators’ website;

together with publishing a notice in a national newspaper at least five business days prior to the second meeting stating the date, time and location of the second meeting, and that the report is available on the FEA’s website and giving details of a telephone hotline which any creditor may contact to obtain a paper or electronic copy of the report;

(c)                that, subject to further order, all future notices, reports and communications to creditors may be given in the above way;

(d)               a direction that the administrators, within two days of this order, publish a copy of it on the administrators’ and FEA’s website and send a copy to the personal electronic address of each creditor of FEAP and FEA who has requested that the administrators communicate by electronic means; and

(e)                an order granting liberty to any person with a sufficient interest, including creditors and ASIC, to apply to vary the above orders on two business days’ written notice; and

(f)                 an order that the costs and expenses of this application be costs and expenses in the administration of FEAP and FEA.

3                     At the hearing of the application, the court was informed that Mr Muldoon had resigned as an administrator on 12 May 2010.

4                     On 14 April 2010, the administrators were appointed to FEA (the holding company), FEA and two other subsidiaries, Tasmanian Plantation Pty Ltd (“TP”) and FEA Carbon Pty Ltd (“FEA Carbon”) pursuant to a resolution of the directors.

5                     By s 439A(5) of the Act, the convening period thus expires on 13 May 2010.  The application was not filed until today, 12 May 2010.  Although, by s 439A(7) of the Act, the convening period may be extended after it has expired, there was nevertheless a degree of urgency.

background to application

6                     The background to the application is set out in the affidavit of Peter Krejci, one of the administrators, sworn 12 May 2010.

7                     Following the appointment of the administrators, the secured creditors, the ANZ Fiduciary Services Pty Ltd as security trustee for the Australia and New Zealand Banking Group Limited (“ANZ”) and Commonwealth Bank of Australia (“CBA”), immediately appointed receivers and managers to FEA and FEA Carbon, and mortgagees in possession to the property of TP.

8                     The court was informed that the secured creditors are together owed approximately $200 million.

9                     The first meeting of creditors for all four companies was held on 27 April 2010.  A resolution to appoint different administrators was passed in respect of TP and FEA Carbon.

10                  FEA, the holding company, is listed on the Australian Stock Exchange.  The companies own and operate timber plantations and a sawmill in Tasmania.  FEA has 200 employees.  FEAP (which has no employees) by a head management agreement subcontracted to FEA its obligations as the responsible entity of a number of managed investment schemes.

11                  The receivers of FEA gave notice of termination of the head management agreement and the ANZ notified FEAP that the floating charge in its favour over FEAP’s assets was henceforth a fixed charge.

12                  FEAP is the responsible entity for 17 managed investment schemes involving a total of approximately 13,000 investor growers.  The schemes commenced in 1993 and increased annually until 2009.

13                  The phases of development and financial arrangements between growers and FEA differ according to the dates of the various schemes.

14                  The leasing arrangements and location of land leased for the purpose of the schemes also differ.  In some cases, land leased by FEAP to investors is subleased from FEA or other related entities and, in other cases, from third parties.  The land is located in different States, and different legislation applies to forestry rights in different States and Territories.

15                  On 30 April 2010, Finkelstein J extended to 31 May 2010 the time for the administrators to give notice to lessors under s 443B(3) of the Act.  Mr Krejci deposes that the administrators do not anticipate being in a position to determine whether to give notice to lessors until 31 May 2010, that is, until after the convening period under s 439A(5) has expired.

Extension of convening period

16                  Mr Krejci deposes that, due to the complexity of the schemes, the complex financial arrangements of FEA and FEAP, and the uncertain status of the leases and associated matters, the administrators are not in a position to complete the enquiries necessary for them to form the opinions and provide the report to creditors required by s 439A(4) of the Act.

17                  Matters said to justify the four month extension of the convening period for the second meetings and the related completion of the associated reports and statements included:

(a)                The fact that the review of cash flows and business plans of the managed investment schemes, although commenced prior to the appointment of the administrators, is not yet completed.  The review must be completed before the administrators can determine their recommendations to creditors.

(b)               The large number of growers participating in 17 different schemes, which vary in the size of the plantations, the stage of development and the number of participants, and may include growers investing in more than one scheme.  The parties to the leases and subleases also vary.

(c)                The application of different statutory forestry regimes, the effect of which must be assessed.

(d)               The previous interrelated responsibilities of FEA and FEAP in relation to the schemes.  Despite the termination of the head management agreement, FEA is said to remain “custodian” and, pursuant to the charges, its receivers and managers assert rights to possession and control of various records of the companies and the schemes.

(e)                No reports as to affairs have been completed by the directors.

(f)                 There are difficulties in obtaining information, as FEA is, in effect, controlled by the receivers, and managers as if they were custodian of the schemes.

(g)                The receivers and managers have expressed interest in realising the assets of FEA and FEAP, but the administrators are as yet unable to form a view of the desirability of a sale and need to canvass the views of growers and interested parties in relation to winding up or restructuring the schemes.  That process is anticipated to require about three months and the recommendations may vary according to the different schemes.

(h)                The administrators have been approached by parties interested in restructuring or purchasing the assets of the schemes, which could produce better outcomes for creditors than the sale suggested by the secured creditors.

18                  On 11 May 2010, telephone meetings of the committees of creditors of FEA and FEAP were held, at which the administrators advised that they would seek a four month extension of the convening period.  The proposal was approved by all members save the representatives of ANZ and CBA, who suggested a one month extension.  At the hearing of the application, the court was informed that the secured creditors had subsequently acceded to a three month extension.

19                  Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company.

20                  In Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636, Lindgren J surveyed the relevant considerations and recognised that lengthy extensions had been granted.  His Honour stated:

[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).

21                  In Re Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (2009) 72 ACSR 352, Austin J at para 11 surveyed the authorities and summarised, at para 13, the reasons given for extension in cases subsequent to Mann v Abruzzi Sports Club Ltd(1994) 12 ACSR 611 as follows:

[13] The reasons given for an extension in subsequent cases can be grouped into the following broad categories:

o        the size and scope of the business: Lombe, Re Babcock & Brown Ltd (admins apptd)  [2009] FCA 349; Worrell; Re Storm Financial Ltd (recs and mgrs apptd)  [2009] FCA 70; ABC Learning Centres Ltd, Re of ABC Learning Centres Ltd; application by Walker (No 5)  [2008] FCA 1947;

o        substantial offshore activities: Lehman Bros Australia Ltd  [2008] NSWSC 1132;

o        large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari  [2005] VSC 496; Re Ansett Australia (All admin apptd) and Korda (As admins)  [2002] FCA 90;

o        complex corporate group structure and intercompany loans: Lombe, Re Babcock & Brown Ltd (admins apptd)  [2009] FCA 349; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd)  [2008] QSC 272; Re of LED Builders Pty Ltd (admins apptd); LED Builders Pty Ltd (admins apptd)  [2008] NSWSC 633; Hall, Re of Australian Capital Reserve Ltd (admins apptd)  [2007] FCA 1328;

o        complex transactions entered into by the company (eg securities lending or derivatives transactions): In Re Lift Capital Partners Ltd (admins apptd)  [2008] NSWSC 446;

o        complex prospects of recovery proceedings: Worrel, Re Storm Financial Ltd (admins apptd)  [2009] FCA 70; Deputy Cmr of Taxation v Wellnora Pty Ltd  [2007] FCA 1324 ;

o        lack of access to corporate financial records: Sims, Re Destra Corporation Ltd  [2008] FCA 2002; Fincorp Group Holdings Pty Ltd  [2007] NSWSC 363;

o        the time needed to execute an orderly process of disposal of assets: Carter, Re SFM Australasia Pty Ltd (admins apptd) (No 2)  [2009] FCA 419; ABC Learning Centres Ltd, Re ABC Learning Centres Ltd; application by Walker (No 7)  [2009] FCA 454;

o        the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admins apptd)  [2009] FCA 636;

o        where the extension will allow sale of the business as a going concern: Lombe Re Australian Discount Retail Pty Ltd  [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admins apptd)  [2008] FCA 721; Uni-Aire Security Pty Ltd (admins apptd, Re of Uni-Aire Security Pty Ltd (admins apptd)  [2006] FCA 1423;

o        more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Cmr of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2)  [2009] FCA 190; Fitzgerald, Re of Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd)  [2008] FCA 1247; Ex parte Vouris; Re Marrickville Bowling and Recreation Club Ltd (under Administration) [2008] DCA 622.

22                  Austin J stated at para 14:

[14] The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category), the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator's estimate of time has a reasonable basis.

23                  His Honour concluded, at para 17, that “[i]t seems to me the degree of complexity of the administration is the key to understanding the court's current approach” and recognised that companies in administration increasingly had entered complex funding arrangements involving, inter alia, the use of managed investment schemes.

24                  In Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) [2010] FCA 30, McKerracher J at para 22 stated:

The plaintiffs submit that while it is always a matter of assessing the individual circumstances of a case, it is not unusual for extensions to be granted in the order of two and half to three months: Re Hans at [26].  Recent examples of extensions in the cases referred to above and others include Henry Walker Eltin (3 months), Hayes (just over 1 month), Re Chemeq (6 months), Re; Capital Partners Pty Ltd [2008] NSWSC 446 (3 months), Re Hans (3 months), Re Babcock and Brown (4 months), Re ABC Learning Centres Ltd (No 7) (2009) 71 ACSR 560 (6 months), Re Austcorp (4 months), Re; Riviera (1 month), Re Fincorp Holdings Pty Ltd (2007) 62 ACSR 192 (3 months) and Re Windimurra Vanadium Ltd [2009] WASC 71 (3 months).

25                  In the present case, in my view, the complexity of the administrations (involving, as they do, a number of diverse managed investment schemes which are themselves complex) and the difficulties of completing a satisfactory investigation and report and determining recommendations, justify the extension sought.  The extension may also be necessary in order to explore alternative proposals which would maximise the return to creditors.  No prejudice to any party was identified.  An extension was not opposed by any member of the committee of creditors, although the representatives of the secured creditors initially preferred a one month, and subsequently, a three month extension.  There was no evidence that a period shorter than four months would suffice to complete the necessary steps, although the secured creditors were aware of the application.

Notice to creditors

26                  Mr Krejci deposed that the cost of sending notices of the first meetings to approximately 13,400 creditors of FEA and its subsidiaries was about $60,000, the vast majority of which was attributable to FEA and FEAP.

27                  About 3000 creditors attended the first meetings of FEAP and FEA, the vast majority of whom were growers.

28                  One creditor requested electronic communication.  The administrators hold personal electronic addresses for most grower creditors.  They do not hold electronic addresses for the relatively small balance of non‑grower creditors.

29                  Compliance with the applicable regulations for giving notice of the second meetings in complex administrations involving large numbers of creditors entails administrative difficulties and potentially significant expenditure of funds, which might otherwise be conserved for the benefit of creditors.  Accordingly, courts have modified the requirements in a number of such cases.

30                  In Re Ansett Australia Ltd and Others (all admin apptd) and Mentha and Another (as admin) (2002) 40 ACSR 419 (“Ansett”),Goldberg J ordered, pursuant to s 447A, modification of the notification regime.  The Ansett administration was complex and involved many creditors.  Goldberg J ordered that the administrators were to post notices of the second meeting to known creditors notifying them of requisite meetings and that copies of the reports, statements and proxy forms would be available on websites. Notices were also to be published in a number of specified daily newspapers at least 10 days before the meeting.

31                  Goldberg J rejected the administrators’ preferred proposal only to place notices in newspapers and on websites, thus avoiding the expense of a mail‑out in order to save costs estimated at $1.8 million.  His Honour considered that the expense involved in the postal notification did not outweigh the primary consideration that creditors be notified of “the convening of the meeting, their right to attend and participate in and vote at the meeting and their right to receive the information required to be provided to them by the administrators” (at para 37).

32                  In ABC Learning Centres Ltd (Administrators Appointed) (Receivers and Managers Appointed) ACN 079 736 664 v Honey [2010] FCA 353, an administration involving over 10,000 employee creditors, Emmett J permitted electronic notification estimated to save $15,000 to $35,000.  Emmett J ordered that the report to creditors be sent to the personal electronic addresses of those creditors who had requested it, and a report by CD Rom with a paper copy notice and letter be sent to other creditors, while the notice and report was to be placed on a website at least ten days before the second meeting of creditors.

33                  In the present case, the proposal is not simply to notify creditors by website and newspaper, as proposed in Ansett, but also to notify each known creditor individually at his/hers or its known electronic address or, where that is unavailable, by post, advising, inter alia, that the report and other materials and information may be downloaded.  That process is to be backed up by a newspaper notice and a hotline.  In my opinion, the proposed notification regime is adequate.

Last minute application

34                  Finally, I note that this application has been made at the “eleventh hour”, prior to the expiry of the convening period, contrary to the caveats in relevant authorities.  Re ATG Developments Pty Ltd (1994) 13 ACSR 261; (1994) 12 ACLC 333.

35                  The extension sought is lengthy and the orders sought for electronic notification are not routine.  It must have been apparent at an earlier date that such an application would be necessary.  By reason of its last minute filing, if the application could not be immediately granted substantially in its present form, it would be necessary to dismiss it or make a holding order of some kind.

36                  Before me, the plaintiffs submitted that, because the convening period could now be extended under s 439A(7) after it had terminated, the adverse impact of last minute applications for extensions was reduced.  In my view, however, they remain undesirable for the reasons stated above and because if the convening period expires without an extension first being made, it appears that the administration would end under s 435(C)(3)(b) and would subsequently need to be restored by reliance on s 447A of the Act.  In the present case, the plaintiffs explained that uncertainty as to the incumbency of the administrators (Mr Muldoon having resigned this day), two other applications for curial relief and difficulties in obtaining access to the records and information had distracted the administrators from making a more timely application.

37                  The only persons notified of the application were the members of the committees of creditors.  In Lindholm, in the matter of Munday Group Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) (ACN 116 558 420) [2010] FCA 447, Gordon J granted orders in a form substantially similar to those sought in the present application, but ordered that each creditor receive a circular letter, by email or otherwise, informing them of the substance of the orders.  In the present case, there are over 13,000 creditors.  An order that the orders be published on the website and individually sent to certain categories of creditors (including secured creditors and “third party” lessors) within two business days, coupled with liberty to apply to discharge or vary these orders, sufficiently addresses that issue.

38                  In all the circumstances, I am satisfied that, subject to some minor amendments, the orders sought should be made.

Associate:

Dated:         12 May 2010