FEDERAL COURT OF AUSTRALIA

Stimpson, in the matter of Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) v Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) [2016] FCA 935

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the period within which the plaintiff must convene a meeting of creditors of each of:

(a)    the first defendant, Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) ACN 003 169 391;

(b)    the second defendant, Eagle Girls Pty Ltd (Administrators Appointed) ACN 164 198 261;

(c)    the third defendant, EBA Pizza Holdings Pty Ltd (Administrators Appointed) ACN 124 251 047;

(d)    the fourth defendant, EB Pizza IP Holdings Pty Ltd (Administrators Appointed) ACN 151 537 076; and

(e)    the fifth defendant, EB Stores Pty Ltd (Administrators Appointed) ACN 100 588 985,

(Companies) under s 439A of the Act be extended up to and including 10 November 2016.

2.    Liberty is granted to the plaintiff to apply to the Court for any further extensions of the convening period referred to in Order 1 at any time prior to 10 November 2016.

3.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to have effect in relation to the Companies, such that the meetings of the creditors of the Companies required by s 439A(4) of the Act be convened together or separately, with liberty to apply.

4.    Liberty to apply is granted to the Australian Securities and Investments Commission, any creditor, or any person who can demonstrate sufficient interest to make such application to vary or discharge these orders upon three (3) clear business days’ written notice being given to the plaintiff by their solicitors on the record and to the Court.

5.    By 5.00pm on 16 August 2016, the plaintiff give written notice of these orders to each of the franchisees.

6.    The costs and expenses of this application be costs and expenses in the administration of the Companies.

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

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    This is an application for an extension of time by which the plaintiff (the Administrators) can hold the s 439A required convening meeting of creditors.

2    Section 439A(1) of the Corporations Act 2001 (Cth), read with s 439A(5)(b), requires the Administrators to convene the required meeting of creditors of the defendant companies within (in the circumstances of this case) 20 business days after the Administrators’ appointment on 14 July 2016. Since the Brisbane Royal National Agricultural Show Day is taken not to be a business day, the meeting must be convened by tomorrow, 12 August 2016. By s 439A(2) of the Corporations Act, the meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period.

3    Section 439A(6) of the Corporations Act provides a power for the Court to extend the convening period “on an application made during or after the [convening] period”. The Administrators seek a three month extension. They rely on the power of this Court to extend time and also seek associated orders under the general power to make associated orders in relation to Part 5.3 of the Corporations Act, contained in s 447A of the Corporations Act.

4    For the reasons below, the three month extension should be granted.

Legal principles in relation to an application to extend time for a convening meeting

5    I considered the legal principles that apply to an application pursuant to s 439A(6) this morning in Pleash, in the matter of Consolidated Tin Mines Limited (Administrators Appointed) [2016] FCA 931 [2]-[8]. For convenience, I repeat part of that summary below.

6    There is no express restriction upon the discretion to grant the extension of time. Prior to 31 December 2007 the convening period could only be extended by an application made during but not after the convening period: see Corporations Amendment (Insolvency) Act 2007 (Cth).

7    Although there is no express guidance upon the exercise of discretion, Lindgren J explained in Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 [18(a)] that an underlying objective is the need for speed of administration and the need for creditors to be fully informed about the company’s position as early as possible and to have an opportunity to vote on its future as soon as possible: see also Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611, 612 (Young J); Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor [2000] WASC 320 [5] (Owen J). This is a reason why the explanatory memorandum of the Corporate Law Reform Bill 1992 (Cth), at [507], expected that the power to extend the period would be exercised infrequently. This does not mean that there is any predisposition or presumption against an extension based upon speedy administration: Lord; in the matter of Tallwood Nominees Pty Ltd (Administrators Appointed) [2011] FCA 1118 [11] (Jacobson J). Rather, the need for an efficient and summary procedure is a factor to take into account; others being the desire not 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 [10] (Barrett J); see also Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77, 85 [42] (Lindgren J); Re New Horizons Corporation; ex parte De Vries [2004] NSWSC 253 [5] (Austin J).

8    Although the discretion is unconstrained by any express statutory criteria, it should also be exercised judicially. This includes a requirement for consistency with other decisions. An important matter to be considered is the obligation upon an administrator to produce a report and an opinion for creditors setting out the matters in s 439A(4) together with the notice convening the meeting under s 439A(3). If the s 439A(5) convening period is not reasonably sufficient for the preparation of this report and the formation of this opinion then this will be a powerful factor supporting the grant of an extension.

9    In In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585 [13], Austin J described a number of categories, by way of examples, where Courts had previously granted extensions. These included cases where an extension was needed due to (i) the size and scope of the business; (ii) substantial offshore activities of the business; (iii) a large number of employees with complex entitlements; (iv) complex corporate group structure and intercompany loans; (v) complex transactions entered into by the company (e.g. securities lending or derivatives transactions); (vi) complex prospects of recovery proceedings; (vii) lack of access to corporate financial records; (viii) the time needed to execute an orderly process of disposal of assets; (ix) the time needed for thorough assessment of a proposal for a deed of company arrangement; (x) where the extension would allow sale of the business as a going concern; (xi) more generally, where that additional time is likely to enhance the return for unsecured creditors. In addition, as Barrett J said in Lombre Re Australian Discount Retail Pty Ltd [2009] NSWSC 110 [21], further “time for the formulation and digestion of recommendations based on established realities will avoid the possibility of what might be a premature decision in favour of winding up as the only practically available option”.

10    The countervailing factors in the assessment of any of these matters include the inefficiency caused by delay and the consequence that while the voluntary administration continues, secured creditors, lessors and others cannot enforce their remedies: Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 [9] (Jacobson J). As I have said, another countervailing consideration will be where the Administrators can reasonably prepare and provide their report and statements to accompany the notice to creditors, including setting out their opinions as required by s 439A(4)(b) of the Corporations Act, to provide adequate advice to the creditors as required five days before the meeting: Pan Pharmaceuticals 84-85 [41] (Lindgren J); Re ABC Learning Centres Ltd (application by Walker) (No 7) [2009] FCA 454; (2009) 71 ACSR 560, 566 [28] (Emmett J).

11    As for the duration of any extension, the longer the extension that is sought the more difficult it may be to justify. Nevertheless, there will sometimes be circumstances in which a lengthy period is necessary. Where the sale process is relatively complex it is not unusual for an extension of up to three months to be granted: Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 [26] (Jacobson J). In exceptional cases, circumstances might justify a longer, even significantly longer period. For instance, in Re ABC Learning Centres Emmett J granted an extension of 10 months in most unusual circumstances which included assets which required a significant period of marketing to achieve maximum value (564 [20]).

The circumstances of the administration and the extension sought

12    On 14 July 2016 the Administrators were appointed the joint and several administrators of the following companies (together, the Companies):

(1)    the first defendant, Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) ACN 003 169 391 (Eagle Boys);

(2)    the second defendant, Eagle Girls Pty Ltd (Administrators Appointed) ACN 164 198 261 (Eagle Girls);

(3)    the third defendant, EBA Pizza Holdings Pty Ltd (Administrators Appointed) ACN 124 251 047 (EPH);

(4)    the fourth defendant, EB Pizza IP Holdings Pty Ltd (Administrators Appointed) ACN 151 537 076 (EPIH); and

(5)    the fifth defendant, EB Stores Pty Ltd (Administrators Appointed) ACN 100 588 985 (EB Stores).

13    The main business of the Companies is to act as the franchisor of the Eagle Boys pizza brand in Australia and overseas. Counsel for the Administrators succinctly summarised the Companies’ business structure as follows:

(1)    EPH was the ultimate holding company of the Eagle Boys group of companies, including the other Companies. The Eagle Boys group of companies operate the Eagle Boys franchisors in Australia, India and Fiji. In particular, EPH was the immediate holding company of Eagle Boys, Eagle Girls, EPIH and EB Pizza International Pty Ltd (EP Int), a company which is not in administration. EPH did not trade;

(2)    Eagle Boys is the Australian franchisor for a network of 112 Eagle Boys franchisee pizza stores in Australia (excluding the 13 franchisor owned stores which have been closed since the administrator’s appointment, discussed below). Eagle Boys is also the immediate holding company of EB Stores and three companies that are now in liquidation but each previously operated an Australian Eagle Boys pizza store. Eagle Boys has 12 employees;

(3)    EB Stores did not trade. Rather, it was the holding company for 10 companies which each previously operated an Eagle Boys pizza store. Those 10 companies are now all in liquidation;

(4)    Eagle Girls administers the advertising fund for the Australian franchisees of Eagle Boys and conducts the marketing for the franchise network. Eagle Girls has five employees;

(5)    EPIH owns the intellectual property for the Eagle Boys brand in Australia. It has licensed Eagle Boys to use and sublicense to its franchisees the use of that intellectual property in Australia;

(6)    EP Int does not trade but is the holding company for the companies that operate the Eagle Boys franchisors in India and Fiji. Those companies are irrelevant to the present application.

14    The Companies’ assets include franchising contracts that Eagle Boys has with each of the 112 Eagle Boys franchisee stores in Australia; Eagle Boys’ five international master franchise agreements; a fully equipped head office at Annerley, Queensland (which is rented) including an IT system; the goodwill of the franchise brand held in the intellectual property owned by EPIH and through its employees in the know how to continue to trade the business; the software to operate the business; and the supply contracts with the business’ suppliers.

15    The Administrators’ relied upon substantial evidence to submit that the return to the creditors will be maximised by sale of the Eagle Boys franchisor business as a going concern. The Administrators seek to sell the business during the period while the Companies remain under voluntary administration. The Administrators submit that a three month extension is reasonably necessary to allow an orderly marketing campaign to provide for a potential sale of the business to be completed prior to the Companies’ creditors being required to decide (i) whether to accept any proposal for a Deed of Company Arrangement as to which the directors are awaiting the results of the sale process, (ii) whether the Companies need to be liquidated, and (iii) whether the Companies should be returned to their directors.

16    An orderly marketing campaign is reasonably necessary for the proper administration of the Companies and for proper compliance with the obligation upon the Administrators to produce a report and an opinion for creditors setting out the matters in s 439A(4) of the Corporations Act. The Administrators’ attention has been focussed upon continuing to trade the business. More than 25 parties have expressed an interest in participating in the sale process which commenced with an information memorandum having been distributed. The sale of the assets as part of a going concern will substantially enhance their value. If the business were put into liquidation its sale as a going concern could be substantially impeded by the possibility of termination of leases, essential services, and other agreements.

17    I am satisfied that a three month extension is a reasonable period to ensure the orderly marketing campaign for the sale of the business as a going concern. The Company structure is relatively complex. The Companies and their subsidiaries are a corporate group of 22 companies trading in Australia and overseas and the principal assets have significant value. The Companies have significant liabilities to general and priority unsecured creditors (ie employee entitlements).

18    The timeline proposed by the Administrators also illustrates the reasonableness of the extension sought. The submission of non-binding offers by interested parties is required within the next week. Then, shortlisting of interested parties and due diligence will be completed by 31 August 2006. Final offers will be submitted by 6 September 2016. A sale contract is desired by 20 September 2016.

19    It is also relevant that this application was not opposed and that adequate notice of it was given to most interested parties. On 26 July 2016, the Administrators foreshadowed this application at the first creditors’ meeting. None of the creditors were opposed to the extension. Notice of this application was been served on (i) ASIC, (ii) the relevant secured creditor, (iii) the major creditor of the Companies, and (iv) large unsecured creditors.

20    The secured creditor of each of the Companies (except Eagle Girls) is the National Australia Bank Limited (although Eagle Boys is a secured creditor of Eagle Girls it does not require notice because it is controlled by the Administrators). The National Australia Bank does not object to this application.

21    As to the unsecured creditors, NBC Private Equity Fund and NBC Capital Pty Ltd are major unsecured creditors of the Companies. Both were given notice of this application and neither objected to the relief sought.

22    However, there are a number of persons who may not have notice of this application and who might have an interest in it. One relevant class of persons is the members of the Companies. It appears that even the most substantial members may not have been given notice. However, it is very difficult to see how the extension of the convening period can be other than in the best interests of the members. Another relevant class of persons is the franchisees who, the Administrators submit, cannot terminate their franchise agreements while the Companies remain in administration. It may be that an orderly sale is in the best interests of all franchisees. But they should have liberty to apply to vary these orders and should be informed of them. The Administrators accepted that notice of these orders could be given by posting them to the franchisees by 16 August 2016.

Conclusion

23    The convening period should be extended to 10 November 2016. For the reasons I explained in Pleash, the Administrators should have liberty to apply for any earlier notice and meeting, with the possibility of such an application being disposed of, on the papers, with only short submissions.

24    The Administrators also seek orders granting them liberty to apply to the Court for any further extensions of the convening period. The grant of such liberty removes formal impediments, such as filing fees and formal application, which might otherwise deter further applications. In some circumstances, where the extension granted appears immediately apparent on the evidence, there may not be a justification for further liberty to be granted. However, in the circumstances of the multiple steps that remain in the sale process in this case, and the uncertainty that surrounds the outcome of that process, I will make that order. It is not necessary to consider the power to grant a second extension of time under s 439A(6), or under the general power in s 447A(1). It is sufficient to observe that cases which have recognised the power of this Court to grant a subsequent extension of time under s 447A(1): see the discussion in Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 [33]-[38] (Gleeson J).

25    The usual orders for costs should be made, requiring that the costs of this application form part of the costs of the administration.

Associate:    

Dated:    11 August 2016

SCHEDULE OF PARTIES