FEDERAL COURT OF AUSTRALIA

Lord; in the matter of Tallwood Nominees Pty Ltd (Administrators Appointed) (No 2) [2011] FCA 1401

IN THE MATTER OF TALLWOOD NOMINEES PTY LTD ACN 061 329 637 (ADMINISTRATORS APPOINTED) AND MACSEA NOMINEES PTY LTD ACN 109 522 081 (ADMINISTRATORS APPOINTED)

THE COURT ORDERS THAT:

1.    The interlocutory process filed on 25 November 2011 be returned instanter and service be dispensed with.

2.    Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (Act), the convening period for the second meeting of creditors of Tallwood Nominees Pty Ltd (administrators appointed) be extended to 1 June 2012.

3.    Pursuant to section 447A(1) of the Act, the convening period for the second meeting of creditors of MacSea Nominees Pty Ltd (administrators appointed) be extended to 1 June 2012.

4.    Further to orders 2 and 3 above, pursuant to section 447A(1) of the Act, that with respect to each company, Part 5.3A of the Act is to operate as if:

4.1    section 439A(1) also provided that the meeting of creditors required by that section may be convened and held within the convening period (including within the convening period as extended pursuant to section 447A(1));

4.2    section 439A(2) of the Act provided that the meeting must be held within five business days from being convened in accordance with subsections 439A(3) and (4), being a date not necessarily within five business days from the end of the convening period (including the convening period as extended pursuant to section 447A(1));

4.3    section 439A of the Act operated generally to permit the convening and holding of the meeting of creditors of the Company during the convening period (including the convening period as extended pursuant to section 447A(1)) provided the requirements of subsections 439A(3) and (4) are complied with.

5.    The affidavit of Brett Stephen Lord sworn 24 November 2011 (Fourth Affidavit) be placed in a sealed envelope on the Court file and that no part of the Fourth Affidavit be inspected without the leave of the Court. Further, in the event that an application for leave to inspect the Fourth Affidavit is made, the applicants are to receive at least three business days notice of any hearing in respect of such application.

6.    A redacted version of the Fourth Affidavit be maintained on the Court file.

7.    Costs of this proceeding be paid jointly and severally as a cost of the administration of the companies.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF TALLWOOD NOMINEES PTY LTD ACN 061 329 637 (ADMINISTRATORS APPOINTED) AND MACSEA NOMINEES PTY LTD ACN 109 522 081 (ADMINISTRATORS APPOINTED)

REASONS FOR JUDGMENT

1    On 30 August 2011 I granted an extension of the convening period to the administrators of Tallwood Pty Ltd and Macsea Pty Ltd for the convening of the second meeting of creditors of both companies: see Lord; in the matter of Tallwood Nominees Pty Ltd (Administrators Appointed) [2011] FCA 1118. The first extension of the convening period was granted under s 439A(6) of the Corporations Act 2001 (Cth) (“the Act”) and expires on 1 December 2011. The administrators now apply for a second extension of the convening period. They seek an extension of a further six months to 1 June 2012.

2    It is now well established that a second extension of the convening period should be ordered under s 447A(1) of the Act rather than under s 439A(6). The relevant authorities were reviewed by McKerracher J in Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) (No 2) [2010] FCA 499. In considering a second application for extension of the convening period the matters of principle which are to be taken into account are the same matters which are relevant to an initial application for an extension.

3    The present application is supported by an affidavit of Mr Brett Stephen Lord who is one of the joint administrators of Tallwood and Macsea. I described the complexity of the administration when granting the first extension of the convening period and I do not need to repeat what I said in my earlier judgment.

4    The matters which give rise to the continuing complexity of the administration are further expanded upon in Mr Lord’s affidavit of 24 November 2011. It is plain that the administration involves complex issues of funding, the legal rights of parties governed by multiple complex commercial contracts and complex planning and technical engineering issues.

5    The principal issue which is causing a delay in the ability of the administrators to consider the possibility of a deed of company arrangement is the technical question which is referred to in para 38 of Mr Lord’s affidavit. This issue is the question of whether certain groynes are capable of rectification. Mr Lord believes that until the groynes are rectified and both the Shire of Busselton (“the Shire”) and the responsible Minister of the Western Australian Government (“the Minister”) are comfortable that the rectification and solution is a viable one, the ability to sell the land in the development is limited. This issue impacts upon the negotiations relating to the development itself and the development’s progress.

6    The question of whether the groynes can be redesigned (and the feasibility of the solution that is proposed for the redesign) will affect a critical water management plan because it will affect the accumulation of seagrass in and surrounding the entry into an artificial harbour. The Minister and the Shire are working together on that issue and it is one in respect of which the administrators have only a minimal involvement.

7    The secured creditor, the St George Bank and its parent company Westpac Banking Corporation, are involved in those negotiations. Mr Lord is in contact with Mr Ramana Mahendran of Westpac and also with Mr Winchester from the Department of Transport of Western Australia about the discussions that are being held. Those discussions pertain to amendments to the development itself and the development deed. Mr Lord is informed, in particular by Mr Mahendran, that the negotiations which are being conducted between the Shire and the Minister include discussions about possible amendments to the development deed which will simplify and make more palatable the obligations of any potential income developer.

8    There are a number of other matters referred to in Mr Lord’s affidavit which go to the question of whether I ought to exercise the discretion to extend the convening period for a second time. I do not need to refer to them other than to say that Mr Lord has set them out fairly extensively in his affidavit. The affidavit sets out in some detail the discussions that have been held between the key stake holders, that is to say the State of Western Australia, the Shire of Busselton, the St George Bank and Westpac Banking Corporation as well as the Administrators themselves. These discussions deal with the negotiation and implementation of possible funding arrangements, the restructuring of the development project including amendments to the development deed and determining the continued viability of the project. Mr Lord believes that it is not in the interests of the unsecured creditors or the secured creditors of the companies for them to be placed into liquidation because:

    It will severely affect the ability of the project and the companies continuing in existence under a restructured or varied development deed because one of the liquidator’s key duties would be to collect a realised asset for the benefit of the creditors and this would be contrary to that objective.

    If the companies were to go into liquidation there may be grounds for the Minister and the shire to terminate or otherwise bring to an end the development deed.

9    Also, given that the development deed includes various unprofitable provisions imposed upon the companies it may be that Mr Lord would form the view that it would then be necessary to disclaim the development deed.

10    As Mr Henskens SC, who appears for the administrators, pointed out this morning, the only real asset of the companies is the land. The development deed is critical to the achievement of any value from the development of the land itself. Mr Lord’s affidavit deals in some detail with the question of whether there is any prejudice to creditors or others by reason of the extension. He says that in his opinion and the opinion of the administrators the only possibility of the unsecured creditors receiving a dividend from the realisation of the assets of the companies is for the creditors to resolve to enter into a deed of company arrangement.

11    It is important in considering the present application that Westpac and St George, who are the largest creditors of the company, support the extension and that the committee of creditors also provided its support to the present application. I referred on the last occasion to the significant value to the local community and to the other government bodies who have a key interest in the project. These show that there is a strong public interest in the project proceeding. That is a matter to be taken into account in the exercise of my powers to grant the extension. The companies are not trading and do not have any employees. Mr Lord does not expect to incur any further debts during the course of the voluntary administration of the kind which would ordinarily be incurred by trading the businesses during the period of the extension.

12    There will not be any prejudice to the usual classes of creditors of the companies such as continuing employees and creditors providing services if the extension is granted. If the companies were to go into liquidation the secured creditor would be likely to be the only party to obtain anything out of the winding up. I accept Mr Henskens’ submission that the only conceivable prejudice resulting from an extension is to the secured creditor who supports the extension of time. It is also relevant to take into account the fact that ASIC has been notified of the application and does not propose to intervene in the proceedings or to seek leave to appear at today’s hearing.

13    In coming to the view that I should make the orders sought, I have taken into account the principles stated in the authorities that the function of the court in an application such as this is to strike the appropriate balance between the expectation that the administration will be a relatively speedy and summary matter 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. I have also taken into account the degree of complexity of the administration. The principle which now appears to be established by the authorities is that there is no place for a predisposition against an extension of time. The matter is, as I have said, one of striking the appropriate balance, taking into account all of the facts.

14    I note that in the Griffin Coal cases, McKerracher J granted three extensions of three months, five months and a further five months duration respectively. There have been other examples of multiple extensions of time. Of course each case must depend upon its own facts. Here I am satisfied on the evidence that has been put before me that an extension of six months is warranted. Although the technical issue which is at the heart of the matter may not be resolved in a physical sense during that period, it does appear from what I have been told this morning that it is likely that it will be resolved in a technical sense so as to enable the possibility of a deed of company to be put in place.

15    Accordingly, once the technical issues are resolved the administrators hope to be in a position to have a saleable asset in their hands, that is to say, the development of the project. That seems to me to be the primary reason why I ought to grant the extension. However, having said that it is important for all concerned to bear in mind that the situation cannot be allowed to drift indefinitely and any further application for an extension would need to be very carefully considered if that situation were to arise.

16    For those reasons I will make orders in terms of the draft order handed to me this morning by Mr Henskens which I will sign and date and place with the court papers.

Associate:

Dated:    28 November 2011