FEDERAL COURT OF AUSTRALIA

Hancock, in the matter of Interior One Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) [2014] FCA 1199

IN THE MATTER OF INTERIOR ONE PTY LTD (ADMINISTRATOR APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 132 157 772

THE COURT ORDERS THAT:

1.    Pursuant to section 439A(6) and 439A(7) of the Corporations Act 2001 (Cth) (“the Act”), the period for convening the second meeting of creditors of Interior One Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) ACN 132 157 772 (“the company”) be extended up to and including midnight on 11 January 2015.

2.    Pursuant to section 447A(1) of the Act, Part 5.3A of the Act have effect in relation to the company such that the meeting of the creditors 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 1 above, notwithstanding the provisions of section 439A(2) of the Act.

3.    The administrator give notice of these orders by 5 pm on 10 November 2014 to the company’s creditors, by means of:

(a)    circular to be emailed to those of the company’s creditors for whom the administrator has email addresses;

(b)    publication of these orders on the ASX website for the company; and

(c)    publication on the website for the administrator’s firm, Moore Stephens.

4.    Any creditor of the company, or any other interested person, have liberty to apply to vary these orders upon 48 hours’ notice.

5.    The administrator’s costs of the application be paid pro rata as a cost in the administration.

6.    The administrator have liberty to apply on 48 hours’ notice.

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

IN THE MATTER OF PLUIM INTERIORS PTY LTD (ADMINISTRATOR APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 003 245 690

THE COURT ORDERS THAT:

1.    Pursuant to section 439A(6) and 439A(7) of the Corporations Act 2001 (Cth) (“the Act”), the period for convening the Second Meeting of Creditors of Pluim Interiors Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) (ACN 003 245 690) (“the company”) be extended up to and including midnight on 11 January 2015.

2.     Pursuant to section 447A(1) of the Act, Part 5.3A of the Act have effect in relation to the company such that the meeting of the creditors 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 1 above, notwithstanding the provisions of section 439A(2) of the Act.

3.    The administrator give notice of these orders by 5 pm on 10 November 2014 to the company’s creditors, by means of:

(a)    circular to be emailed to those of the company’s creditors for whom the administrator has email addresses;

(b)    publication of these orders on the ASX website for the company; and

(c)    publication on the website for the administrator’s firm, Moore Stephens.

4.    Any creditor of the company, or any other interested person, have liberty to apply to vary these orders upon 48 hours’ notice.

5.    The administrator’s costs of the application be paid pro rata as a cost in the administration.

6.    The administrator have liberty to apply on 48 hours’ notice.

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

IN THE MATTER OF INTERIOR ONE PTY LTD (ADMINISTRATOR APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 132 157 772

IN THE MATTER OF PLUIM INTERIORS PTY LTD (ADMINISTRATOR APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) ACN 003 245 690

REASONS FOR JUDGMENT

1    This is an application under ss 439A and 447A of the Corporations Act 2001 (Cth) (“the Act”) to extend the convening period for the second meeting of creditors of Pluim Interiors Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) (“Pluim”) and Interior One Pty Ltd (Administrator Appointed) (Receivers and Managers Appointed) (“Interior One”) (together “the companies”) to 11 January 2015 and permit the second meeting of creditors of each company to be held on any business day during or within 5 business days after the end of the convening period as extended.

2    The basis of the application is that the extension is necessary to enable the administrator to form an opinion as to what recommendation should be made to the creditors regarding the future of each company.

3    The application is made in the context of the appointment, on 3 September 2014, of Rahul Goyal and David John Winterbottom of KordaMentha (“receivers”) as receivers and managers of each of the companies pursuant to registered security interests held by the National Australia Bank (“the Bank”).

4    I was informed by Mr Rayment, counsel for the plaintiff (“the administrator”) considers that the proposed extension of the convening period is in the best interests of the creditors of each company. His evidence is that he is unaware of any creditors who would be prejudiced by the proposed extension. Having regard to s 433(3)(c) of the Act, concerning the receiver’s obligations to pay past employee entitlements in priority to the secured creditor, he does not believe that the proposed extension will adversely affect the interests of Pluim’s employees.

5    The receivers do not oppose the proposed orders.

6    At the hearing on 6 November 2014, I was informed that a meeting between the administrator and the receivers was scheduled that evening. Immediately before making the orders today, I was informed by Mr Rayment that the meeting had taken place and that the sole director and shareholder of each company, Andrew Sohler, was represented at the meeting by an insolvency practitioner. Discussions took place about a possible re-financing by which the Bank would be paid out by Mr Sohler, who would then propose a deed of company arrangement to the other creditors of each company.

Statutory framework

7    Section 439A of the Act provides relevantly:

(1)    The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6).

(2)     The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period.

(3)     The administrator must convene the meeting by:

(a)    giving written notice of the meeting to as many of the company's creditors as reasonably practicable; and

(b)     causing a notice setting out the prescribed information about the meeting to be published in the prescribed manner;

at least 5 business days before the meeting.

(4)    The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of:

(a)     a report by the administrator about the company's business, property, affairs and financial circumstances; and

(b)     a statement setting out the administrator's opinion about each of the following matters:

(i)     whether it would be in the creditors' interests for the company to execute a deed of company arrangement;

(ii)     whether it would be in the creditors' interests for the administration to end;

(iii)     whether it would be in the creditors' interests for the company to be wound up;

and also setting out:

(iv)     his or her reasons for those opinions; and

(v)     such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); and

(c)     if a deed of company arrangement is proposed--a statement setting out details of the proposed deed.

(5)     The convening period is:

… (b)     …the period of 20 business days beginning on:

(i)     the day after the administration begins; or

(ii)     if that day is not a business day--the next business day.

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

(7)     If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.

(8)     If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to:

(a)     the fact that the application was made after that period; and

(b)     any other conduct engaged in by the administrator; and

(c)     any other relevant matters.

8    By s 447A(1), the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company.

Background facts

9    Pluim operates a joinery business that designs, manufactures and installs complete fit-outs for companies of a variety of sizes. Interior One provides wholesale products, primarily furniture, to customers wishing to have fit outs undertaken. Interior One also tenders for small fit out projects. The two companies operate their respective businesses from the same premises at Lisarow, New South Wales.

10    The administrator was appointed voluntary administrator of each of the companies on 18 August 2014 pursuant to a resolution passed by the sole director under s 436A of the Act.

11    On 28 August 2014, the first meeting of creditors required by s 436E of the Act was held for each company. At that stage, the administrator was in the process of assessing the assets of the companies and their potential collectability, including obtaining a valuation of the companies’ assets.

12    Following their appointment on 3 September 2014, the receivers assumed full control over the companies’ assets and operations. The receivers are seeking to realise sufficient funds to meet the Bank’s secured debts.

13    On 8 September 2014, the administrator convened a second meeting of the creditors of each of the companies. By s 439A(5), that meeting was required to be convened by 15 September 2014.

14    The administrator prepared a report to creditors for each company. Each report included the administrator’s opinion that it was in the creditors’ interests to wind up the company should creditors not resolve to adjourn the second meeting of creditors for up to 45 business days.

15    For each company, the second meeting of creditors was commenced on 16 September 2014. By s 439A(2), the meeting was required to have been held by 22 September 2012.

16    41 of 149 identified creditors attended the second meeting of creditors of Pluim.

17    Four of 33 identified creditors attended the second meeting of creditors of Interior One.

18    The administrator’s evidence about each second meeting is as follows:

… I provided an update to the meeting and advised that the Receivers were still in control of the company and that they were currently realising assets for the benefit of the NAB, a secured creditor. I further advised the meeting that as a result, a Deed of Company Arrangement could not be proposed at this time given that the receivers remained in control. I also advised the meeting that I was unable to make any recommendations due to the fact that the Receivers had provided me with little information in respect of the status and progression of the receivership.

I then informed the creditors that there was an option available to them whereby they could resolve to adjourn the Second Meeting of Creditors for a period of up to 45 business days pursuant to s 439B(2) of the [Act]. I informed creditors that it was my view that such a course was appropriate in circumstances where the merits of continuing the administration, the prospect of any DOCA proposal or liquidation really had to abide by whatever steps the Receivers take. The Creditors then resolved to adjourn this Second Meeting of Creditors.

19    The minutes of the meetings record that the resolutions were carried on the votes.

20    There has been some correspondence between the administrator and the receivers. On 28 October 2014, the administrator received an email from the receivers which said, relevantly:

The receivership of the companies is ongoing and the receivers and managers are exploring various options with respect to the realisation of the companies’ assets, one of which is a sale of the business to a related party. At this stage, we are unable to confirm the strategy. The receivers and managers will provide the voluntary administrator’s office with a further update in due course.

Throughout this time, the operations of the companies are continuing in a limited capacity.

21    The period within which the administrator must conclude the second meetings of the companies’ creditors pursuant to s 439A of the Act ends on 19 November 2014, unless extended. Steps required to prepare for the meetings must be completed by 12 November 2014.

22    Accordingly, the administrator seeks an extension of the convening period so that the second meetings of creditors can be resumed and held within 5 business days before, or within 5 business days after, the end of the convening period, in accordance with s 439A(2).

Financial position of the companies

23    In his reports to creditors, the administrator stated that he was not in a position to provide an estimation of the return to creditors whilst the receivers remained in control of the companies.

Pluim

24    A report as to affairs for Pluim was lodged by the receivers with the Australian Securities and Investments Commission on 2 October 2014 (“Pluim RATA”). It discloses assets of $3,199,204 (including goodwill of $350,000), secured liabilities of $1,253,005, employees entitlements of $146,926 and unsecured creditors of $1,414,721

25    However, unaudited financial data obtained by the administrator indicate a current net asset deficiency of $779,763.48 based on figures that appear to disclose significantly lower secured liabilities than the figure in the Pluim RATA.

26    The administrator’s creditor listing shows:

(1)    Employee creditors of $203,882; and

(2)    Unsecured creditors of $1,867,802.

Interior One

27    A report as to affairs for Interior One was lodged by the receivers with the Australian Securities and Investments Commission on 2 October 2014. It discloses assets of $184,584 secured liabilities of $153,424 and unsecured creditors of $348,513.

28    The administrator’s creditor listing shows:

(1)    Employee superannuation entitlements of $4,167; and

(2)    Unsecured creditors of $352,741.

Reasons for proposed extensions

29    Mr Hancock’s evidence is that he has been informed by Mr Sohler that he would like to be in a position to put forward a deed proposal that would see a return to secured creditors. Mr Sohler will not be in a position to do this until the receivers have advised of the status of the receivership, and in particular what, if any, steps they may take to sell the business of Pluim.

30    Mr Hancock says that, as at 5 November 2014, he had no concrete information from the receiver as to the prospects of a sale of Pluim’s business. He had also received no further information from the receiver, other than the email dated 28 October 2014, in respect of any negotiation in respect of the sale of Pluim’s business or the progression of the receivership.

31    Mr Hancock says that the Pluim RATA provides minimal information that would allow him to make any recommendation to creditors as to the future of the company, and nor would it allow for him to advise creditors whether there is any utility in the putting forward of a deed proposal. Due to the lack of available information, Mr Hancock says that he is not in a position to make any recommendation to creditors as to the future of the company, the availability (or merits) of any deed of company arrangement proposal or whether the company should go into liquidation.

32    Mr Hancock seeks the extension of the convening period to allow him to obtain further information in order to form an opinion as to what recommendation should be made to the creditors regarding the future of the company.

Relevant principles

33    In Strawbridge, in the matter of Custom Coaches (Sales) Pty Ltd (Administrators Appointed) [2014] FCA 683, Jacobson J said:

[22] The statutory and legal framework is well-known. The principles have been stated in a number of authorities. The essential principle is that the Court attempts to strike a balance between the expectation that the administration be conducted relatively quickly and the need to ensure that the speed with which it is dealt does not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. That principle was stated by Barrett J in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] and has been cited on numerous occasions in decisions of this Court and in the Supreme Court of New South Wales.

[23] The matters which courts have tended to take into account in deciding whether to exercise the discretion under the Act have been usefully stated by Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 352 at [13]. It is unnecessary to repeat his Honour’s summation of the relevant categories which inform the exercise of the power to grant an extension of time. The principles have been referred to recently by Farrell J in Re Harrison’s Pharmacy Pty Limited [2013] FCA 458 at [11] and by me in Re CMA Corporation Ltd [2013] FCA 875 at [21]. Those authorities also make it clear that the length of the extension is one in respect of which the Court must be satisfied that the extension is reasonable and appropriate in the circumstances.

34    In Re Harrison’s Pharmacy Pty Limited [2013] FCA 458 at [13], Farrell J said:

[13] Section 439A(4) of the Act requires an administrator to provide to creditors, with the notice of the second meeting, a report about the company’s business, property, affairs and financial circumstances. The administrator must also provide a statement of 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. The statement must also provide the administrator’s reasons for that opinion and any other information which is known to the administrator and would enable the creditors to make an informed decision among those alternatives. If a deed of company arrangement is proposed, the statement must set out details of the proposed deed. In order for administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors: see [Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) [2010] FCA 30] at [16]. See also: In the matter of Pan Pharmaceuticals Limited [2003] FCA 598, in which Lindgren J concluded at [41] that the essential issue is whether the extension is necessary to enable the administrators to arrive at an opinion so as to place creditors in the position to choose between those alternatives.

35    In Re Tendiris Pty Ltd (administrator appointed) (receivers and managers appointed) [2013] NSWSC 739 at [7], Black J identified as considerations in favour of extending the convening period:

(1)    that an extension of time would increase the likelihood that the administrator’s report to creditors could convey useful information and that the administrator would be able to express a properly informed opinion for the purposes of s 439A(4) of the Act as to the options available to creditors at the second meeting; and

(2)    that an extension of time would preserve the opportunity for creditors to approve the execution of a deed of company arrangement which would otherwise be lost. “That opportunity would have some significance if, depending on the issue of valuation of the properties and potential recoveries in a liquidation, the administrator is ultimately correct in the view expressed in his affidavit that there would not be a dividend payable to unsecured creditors in a liquidation, so that a deed of company arrangement, even one which provides for a modest payment, may be more advantageous to creditors than a liquidation.”

Consideration

36    I am satisfied that the convening period should be extended for each company having regard to the following matters:

(1)    The administrator is not aware of any prejudice to creditors, and considers the proposed extension to be in their best interests;

(2)    There is no suggestion that the administrator has delayed in the exercise of his functions. Even so, primarily because of the appointment of the receivers who have taken control of the companies, he has not been in a position to provide information and advice to the creditors to enable them to reach an informed decision as to whether it would be in their interests for the administration to end, or for the company to be wound up. An extension of time will increase the likelihood that the administrator can convey useful information to the creditors and a properly informed opinion as to the options available to the creditor at the resumption of the second meetings;

(3)    There seems to be a prospect of a sale of the companies’ businesses as going concerns, based on the evidence that the receivers have continued to operate the businesses in a limited capacity and are exploring a possible sale of the businesses to a related party, or deeds of company arrangement;

(4)    An extension of time will preserve the opportunity for creditors to approve the execution of a deed of company arrangement which would otherwise be lost. Mr Sohler has said that he would like to be in a position to put forward a deed proposal that would see a return to secured creditors. Based on the submissions made orally, there is also the prospect of a deed proposal that would see returns to unsecured creditors;

(5)    If the extension were not granted, then, based on the opinion expressed in his report to creditors dated 8 September 2014, the administrator’s view would be that it is in the creditors’ interests to wind up the company;

(6)    The receivers do not oppose the extension of the convening period;

(7)    At the second meeting of creditors, the creditors resolved to adjourn the meeting following the administrator’s advice that the receivers were realising assets for the benefit of a secured creditor and, accordingly, a deed of company arrangement could not yet be proposed. That position has not changed;

(8)    The proposed orders provide for liberty to apply to any creditor or other interested party;

(9)    The proposed extension is for a reasonable period having regard to the need for the administrator to obtain further information and then to assimilate it and prepare advice for creditors.

37    I have had regard to the matter set out in s 439A(8)(a). There is no other conduct engaged in by the administrator or other relevant matters that affect the exercise of the court’s discretion, within s 439A(8)(b) and (c).

Conclusion

38    I am satisfied that it would be in the best interests of the creditors if the convening periods were extended in accordance with the application.

Associate:

Dated:    7 November 2014