FEDERAL COURT OF AUSTRALIA

Hayes (as Administrator), in the matter of Ply (ACT) Pty Ltd (Administrator Appointed) v Ply (ACT) Pty Ltd (Administrator Appointed) (No 2) [2013] FCA 503

IN THE MATTER OF PLY (ACT) PTY LTD (ADMINISTRATOR APPOINTED) ACN 114 856 647

THE COURT ORDERS THAT:

1.    Leave be granted to the plaintiff to file in Court the affidavit of Alan John Hayes sworn 22 May 2013.

2.    Leave be granted to the plaintiff to file in Court the affidavit of Alan John Hayes sworn 22 May 2013 with Exhibit AJH C – 1, marked Confidential (“Confidential Affidavit”).

3.    An Order that the Confidential Affidavit not be available for inspection and upon the conclusion of the hearing of the Interlocutory Process, the Confidential Affidavit be placed in a sealed envelope marked "Not to be Opened Without an Order of a Judge of the Court", and the sealed envelope be placed with the papers.

4.    An Order pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (“the Act”), that the period within which the Administrator of Ply (ACT) Pty Ltd (Administrator Appointed) ACN 114 856 647 must convene the second meeting of creditors under s 439A of the Act be further extended up to and including 13 June 2013.

5.    An order pursuant to section 447A(1) of the Act that the meeting of creditors of the defendant required by section 439A of the Act may be held at any time during, or within 5 business days after the end of, the convening period as extended by Order 4 above notwithstanding the provisions of section 439A(2) of the Act.

6.    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 plaintiff and the defendant.

7.    An order that the costs and expenses of this Application be costs and expenses of the Administration of the defendant.

THE COURT NOTES THAT:

8.    The plaintiff will send a circular to creditors of the defendant informing of the making of these Orders by Monday 27 May 2013.

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

IN THE MATTER OF PLY (ACT) PTY LTD (ADMINISTRATOR APPOINTED) ACN 114 856 647

REASONS FOR JUDGMENT

1    The voluntary administration of the defendant company Ply (ACT) Pty Ltd (Administrator Appointed) ACN 114 856 647 (Ply) commenced on 4 March 2013 and Mr Hayes, the plaintiff, was appointed administrator. On 5 April 2013, I made orders extending the convening period for a meeting of creditors of Ply under s 439A of the Corporations Act 2001 (Cth) (Act) (second meeting) from 10 April 2013 to 31 May 2013: Hayes (as Administrator), in the matter of Ply (ACT) Pty Ltd (Administrator Appointed) v Ply (ACT) Pty Ltd (Administrator Appointed) [2013] FCA 313. By an application dated 22 May 2013, Mr Hayes seeks to extend the convening period to 13 June 2013.

2    Mr Hayes swore two affidavits dated 22 May 2013 in support of his application. He sought leave for one of the affidavits and its exhibit (Confidential Affidavit) to be read on terms that it would not be available for inspection but rather returned or kept on the Court file in an envelope marked “not to be opened except by order of a judge”. This is on the basis that the material in the Confidential Affidavit is commercially sensitive and its disclosure at this time may prejudice the completion of negotiations to the detriment of the creditors and I am satisfied that such an order is appropriate. Both of these affidavits and Mr Hayes’ affidavit of 5 April 2013 were read in these proceedings.

3    Ply is a building contractor specialising in commercial and multi-unit residential buildings, predominantly in the Australian Capital Territory, but also in New South Wales.

4    As at 4 March 2013, Ply’s average yearly revenue was between $120 million and $160 million and its average project value was $30 million. It had creditors across Australia (other than Tasmania and the Northern Territory). The major projects and building contracts on which Ply had ongoing work requirements were: the Nishi Commercial Project (a 25,000m² commercial building), the Nishi Residential Project, the Astin Project, the Arte Project and the Rex Hotel Project, all in Canberra. Ply had 32 employees and roughly 400 subcontractors, engaged primarily in the Astin Project and the two Nishi Projects. Ply’s building works insurance in respect of its projects was due to expire on 31 May 2013.

5    There were 127 creditors and 29 observers at the first meeting of creditors on 14 March 2013. The creditors claimed debts totalling $35,739,000 and PBS Property Group Pty Limited (PBS), the secured creditor, lodged a proof of debt in excess of $6.8 million. PBS is a former owner of Ply’s business and its security interest over Ply’s assets and undertaking relates to bonds and other performance guarantees that have been issued, and certain information technology arrangements. The creditors meeting approved a Committee of Creditors comprising a representative of PBS, a representative of a subcontractor whose work had been completed and a representative of a subcontractor whose work was not yet complete. No employee nominated themselves to be a member of the Committee of Creditors, as it was unlikely that their entitlements would not be paid in full.

6    By 5 April 2013, when the order extending the convening period to 31 May 2013 was made, Mr Hayes had negotiated and signed heads of agreement for the Astin Project, with the effect that an estimated $5.2 million of creditors’ claims had been removed and creditors, primarily subcontractors, were to receive 90 cents in the dollar on outstanding claims. Negotiations concerning the Nishi Residential Project were well advanced. Mr Hayes deposed that it was his belief that it was in the best interests of the unsecured creditors that the Nishi Residential Project negotiations be finalised and a deed of company arrangement entered into.

RELEVANT PRINCIPLES

7    As this is a second application for an extension of the convening period, it has become conventional for the Court to exercise its powers under s 447A(1) of the Act rather than s 439A(6): see Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) (No 2) [2010] FCA 499 at [35]-[41] and the cases there sited. Nonetheless, the principles applicable to extending the convening period under s 439A(6) remain relevant. The Court must strike an appropriate balance between the expectation that 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 a return to shareholders: Re Diamond Press Australia Pty Limited [2001] NSWSC 313 at [10], having regard to the objections of Part 5.3A of the Act as set out in s 435A.

8    The nature of the task faced by administrators having regard to the circumstances of the company under administration is critical to whether, and for what period, the Court should exercise its discretion to extend the convening period: Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30 at [15]-[22] and Re Riviera Group Pty Ltd (admins appted) (recs and mgrs appted) (2009) 72 ACSR 352 [8]-[18]. The central task of the administrator under s 439A(4) is to provide a statement to creditors setting out his or her opinion about whether it would be in the creditors’ interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be wound up. For administrators to carry out their function properly, it is necessary that they should have sufficient time to provide sensible information and advice to creditors: see In the matter of Pan Pharmaceuticals Limited [2003] FCA 598 at [41].

CONSIDERATION

9    The proposed extension to the convening period is short, and the application for the extension has been made within the convening period.

10    Based on the evidence provided by Mr Hayes in the two affidavits filed in this application and the affidavit dated 5 April 2013 filed in relation to the first extension application, I am satisfied that Mr Hayes has been diligent and the tasks he faces are complex.

11    Since the first extension of the convening period was granted, Mr Hayes’ focus has been the resolution of contractual matters governing the building projects. This has involved numerous multi-party negotiations designed to:

    enable subcontractors and employees to return to work on sites as soon as possible;

    have subcontractor claims against Ply paid in a manner materially better than liquidation (where the return is likely to be nil);

    secure the release of claims against Ply and reduce the total claims by creditors as far as possible by negotiation, to facilitate a commensurate benefit to remaining creditors; and

    explore the possibility of formulating a deed of company arrangement, which Mr Hayes considers to be in the best interests of creditors.

12    In addition to the Astin Project, Mr Hayes has negotiated deeds of termination with respect to the Arte Project, the Rex Hotel Project and for work on a project to be undertaken for the Australian Crime Commission. The ultimate effect and benefit to Ply and to remaining creditors is that approximately $4.8 million in creditor claims have been removed and substantial liquidated damages claims avoided.

13    On 14 May 2013, Mr Hayes executed a heads of agreement with the counterparties to the Nishi Residential Project (Nishi Heads of Agreement). The Nishi Heads of Agreement oblige Mr Hayes and the counterparties to undertake further tasks within a reasonably short period. The circumstances of some of those matters are confidential and commercially sensitive, and they are the subject of the Confidential Affidavit. Mr Hayes deposes that he expects to be able to complete those tasks by 13 June 2013, or at least he will be in a sufficiently informed position about the Nishi Residential Project to be able to report to creditors appropriately in accordance with s 439A. It will also allow time and sufficient certainty for the sole director of Ply, a Nishi entity or another stakeholder to propound a deed of company arrangement.

14    On 21 May 2013, the Committee of Creditors resolved to support the proposed extension of the convening period to 13 June 2013. Nishi Residential Building Pty Limited, by a letter to Mr Hayes dated 21 May 2013, indicated its support for the application. These are factors which indicate that an extension of the convening period to 13 June 2013 would not be regarded as unduly prejudicial to those creditors.

15    In addition, the building works insurance policy has been extended from 31 May 2013 until January 2014 and Ply’s professional indemnity insurance policy has been extended to March 2014.

16    Since early April 2013, the employment of 30 employees has been terminated and their entitlements have all been paid. Mr Hayes says that the entitlements of the final employee are not at risk and therefore employees would not be prejudiced by a further short extension of the convening period.

17    Mr Hayes has deposed that he remains of the views that: resolution of the Nishi Residential Project is critical to maximising a return to creditors and is accordingly in their best interests; the winding up of Ply may result in the immediate termination of head contracts, which may trigger liquidated damages claims, offsetting clauses in contracts, calling of bank guarantees and PBS’s surety bond, thereby minimising the potential pool of funds available to creditors; and the Nishi Heads of Agreement forms a basis for resolution of the Nishi Residential Project and therefore a possible basis for a deed of company arrangement. He considers that the best interests of creditors will likely be served by Ply entering into a deed of company arrangement.

18    Mr Hayes has said that if the period to 13 June 2013 is insufficient to finalise transactions and tasks underlying the Nishi Heads of Agreement, he intends to convene the second meeting of creditors under s 439A in any event. Mr Hayes has nonetheless requested that the order extending the convening period provide that the creditors meeting may be held within 5 days after that date.

19    I am satisfied that it would further the purposes of Part 5.3A of the Act as expressed in s 435A to extend the convening period to 13 June 2013 and to make the other orders sought by Mr Hayes.

Associate:

Dated:    27 May 2013