FEDERAL COURT OF AUSTRALIA

Eagle, in the matter of Techfront Australia Pty Limited (administrators appointed) (No 2) [2020] FCA 618

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in s 439A(5)(b) of the Act in respect of the second applicant, the third applicant and the fourth applicant (the Companies) be extended until 18 June 2020.

2.    Pursuant to s 447A(1) of the Act, Part 5.3A is the Act is to operate in relation to each of the Companies such that, notwithstanding s 439A(2) of the Act, the second meeting of creditors of each of the Companies required by s 439A of the Act may be convened at any time before, or within five (5) business days after, the end of the convening period as extended by Order 1 above.

3.    The first applicants must take all reasonable steps to cause notice of these orders to be given, within two (2) business days of the making of these orders, to:

(a)    the creditors (including persons or entities claiming to be creditors) of each of the Companies, in the following manner:

(i)    Where the first applicants have an email address for a creditor, by notifying each such creditor, via email, of the making of the orders and providing a link to a website where the creditor may download the orders and the interlocutory process;

(ii)    Where the first applicants do not have an email address for a creditor but have a postal address for that creditor (or have received notification of non-delivery of a notice sent by email in accordance with (a)(i) above), by notifying each such creditor, via post, of the making of the orders and providing a link to a website where the creditor may download the orders and the interlocutory process; and

(iii)    By placing scanned, sealed copies of the interlocutory process and the orders on the website maintained by the first applicants at https://home.kpmg/au/en/home/services/advisory/deal-advisory/services/restructuring/creditors-shareholders/techfront-australia.html; and

(b)    the Australian Securities and Investments Commission.

4.    Any person who can demonstrate a sufficient interest has liberty to apply to vary or discharge any orders on two (2) business days’ written notice to the applicants and to the Court.

5.    The applicants have liberty to apply on two (2) business days' written notice to the Court in relation to any variation of these orders, including with respect to an application for a further extension of the convening period as extended by Order 1 above at any time before that period expires.

6.    The applicants' costs of the application are to be treated as costs in the administrations of each of the Companies, jointly and severally.

7.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

FARRELL J:

Introdcution

1    On 7 April 2020, Ryan Reginald Eagle and Gayle Dickerson, were appointed as joint and several voluntary administrators of Techfront Australia Pty Ltd (administrators appointed) (Tf Australia), Screencorp Pty Ltd (administrators appointed) (Screencorp) and Techfront Infrastructure Solutions Pty Ltd (administrators appointed) (Tf Infrastructure) (together the Companies).

2    By an application filed on 5 May 2020, the administrators and the Companies filed an interlocutory process seeking the following orders:

(1)    An order under ss 439A(6) of the Corporations Act 2001 (Cth) extending the convening period (as defined in s 439A(5)(b)) for the second meeting of creditors in respect of each of the Companies from 7 May 2020 until 18 June 2020. That is an extension of approximately six weeks.

(2)    An order under s 447A of the Corporations Act that Part 5.3A of the Corporations Act is to operate in relation to each of the Companies such that, notwithstanding s 439A(2), the second meeting of creditors of each of the Companies may be convened at any time before or within five business days after the end of the convening period as extended, provided that the administrators give notice of the meetings to eligible creditors of the Companies (including persons claiming to be creditors of the Companies) at least five business days before the meetings.

(3)    Related relief.

3    These are the reasons for making those orders.

4    In support of the application, the plaintiffs relied on two affidavits of Mr Eagle, the first dated 17 April 2020 and the second dated 4 May 2020 and exhibits RRE-1 and RRE-2 in the affidavit of Kassandra Suzann Adams dated 5 May 2020. None of these affidavits was sworn or affirmed, but by counsel, undertakings were provided to the court to file executed versions of the affidavits when it is possible to do so in accordance with the Court’s Special Measures Information Note (SMIN-1) which prescribes special measures which may be adopted with respect to the execution of documents taking into account the significant challenges posed by physical distancing and work from home arrangements prescribed by State and Federal Governments designed to limit the spread of the COVID-19 virus. Factual matters set out in these reasons rely on that evidence.

Background

5    On 17 April 2020, the Court made orders:

(1)    Facilitating the holding of meetings of the creditors of the Companies by electronic means.

(2)    Permitting notices to be sent to creditors by email where appropriate.

(3)    Extending the time for the administrators to make a decision on whether to cause the Companies to continue to utilise certain leased equipment

See Eagle, in the matter of Techfront Australia Pty Limited (administrators appointed) [2020] FCA 542 (Earlier Reasons).

6    The background of the Companies, including the circumstances of the appointment of the administrators, is set out in the Earlier Reasons at [2]-[3] and [12]-[22].

7    In brief summary:

(1)    Global Sports Commerce Pte. Ltd. a company domiciled in Singapore, is the global ultimate parent company of a group of companies incorporated and operating in Australia, New Zealand, Singapore and the United Arab Emirates known as the Global Sports Commerce group of companies (Group).

(2)    Each of the Companies is a proprietary company, incorporated and operating in Australia and they are part of the Group. Screencorp and Tf Infrastructure are subsidiaries of Tf Australia.

(3)    Tf Australia has other subsidiaries that are not in external administration. Those subsidiaries include Cellular Asset Management Pty Limited (which provides in-building and locations services to mobile phone operators and property owners), Visibilis Pty Ltd (Visibilis) (which primarily focuses on digital out of home advertising), and Techfront New Zealand Limited (which provides wholly integrated digital media solutions).

(4)    Tf Australia and its subsidiaries operate a business within Australia and New Zealand (the Business). The Business provides integrated digital media services (including the supply, installation and operation of physical digital media signage), with the revenue from the Business being derived from two principal sources:

(a)    the design, manufacture, installation and maintenance of large LED/LCD screens and installations at a variety of venues; and

(b)    commercialisation of LED/virtual advertising airtime during sports games, including production services at live events such as digital scoreboard operation, vision switching and camera operation at the sporting locations where the events take place.

(5)    Before or at the first meetings of creditors of the Companies (which took place concurrently on 21 April 2020):

(a)    65 creditors of Tf Australia lodged proofs of debt totalling over $90 million. Secured creditors had claims of $25,380,017, employees (as priority creditors) had claims of $348,061, and unsecured creditors had claims of $64,489,963.

(b)    11 creditors of Screencorp lodged proofs of debt for $1,675,606.

(6)    A substantial claim has been made by two Singapore-based lenders to the Group, APCO Investments Partners I (C), L.P., and APCO Investments Partners I (B), L.P. (together, Lenders). The Lenders are represented by an investment manager, BlackRock (Singapore) Limited (BlackRock), which holds an “all asset” security over the assets and undertaking of Tf Australia through a Hong Kong entity, Madison Pacific Trust Limited (being the security trustee under the arrangement) (Security Trustee). The value of the debt owing to the Lenders/Blackrock that is the subject of the security held by the Security Trustee is claimed to be USD$14,439,759.

(7)    Westpac Banking Corporation (Westpac) appears to hold an “all asset” security over the assets and undertaking of Screencorp, but the debt secured by this security interest is not clear, notwithstanding investigations made by the administrators through a letter sent to Westpac on 8 April 2020 and attempts made by employees of the administrators to contact officers of Westpac on 24 and 30 April 2020 and 1 May 2020 seeking details of the security.

8    The administrators have negotiated with real property and equipment lessors and have made arrangements for:

(1)    Certain real property leased by Screencorp but in fact occupied by Visibilis to be transferred to Visibilis.

(2)    The return to lessors of certain equipment that the administrators no longer wish to use as part of the Business.

(3)    The retention of other leased equipment.

The administrators have otherwise made efforts to ascertain the balance of other specific personal property security arrangements.

9    On 20 April 2020, the administrators entered into a Deed of Consent with the Lenders and the Security Trustee with respect to Tf Australia pursuant to which the administrators gave consent pursuant to s 440B of the Corporations Act to the Security Trustee (acting on behalf of the Lenders) effectively extending the “decision period” in which the Security Trustee is permitted to enforce its rights as secured creditor should the Security Trustee (acting on behalf of the Lenders) elect to do so. Thus far, the Security Trustee has not enforced its security interest over the assets and undertaking of Tf Australia (for example, it has not appointed a receiver and manager).

10    With respect to Screencorp, the administrators have informed Westpac of their appointment but Westpac has taken no step to enforce its security.

11    As a consequence, the position is that the administrators have been, and are likely to continue to be, in control of any recapitalisation or sale of the Companies’ assets during the administrations.

12    Since their appointment, the administrators carried on the Business subject to COVID-19 restrictions. They have also carried out other tasks in connection with the affairs of the Companies and their statutory duties more generally as described in Mr Eagle’s most recent affidavit.

13    For the purposes of this application, most importantly, the administrators have commenced a process for the recapitalisation or sale of the Business (Sales Process), which has encompassed:

(1)    Publishing advertisements in the Australian Financial Review and Merger Market on 28 April and 1 May 2020 seeking binding offers to recapitalise or acquire the assets of the Companies;

(2)    Contacting all known interested parties and potential buyers;

(3)    Commencing a short competitive campaign (including entering into non-disclosure agreements following receipt of expressions of interest);

(4)    Considering expressions of interest, of which there had been 21 as at 1 May 2020; and

(5)    Preparing an Information Memorandum and establishing a secure data room (Data Room).

14    The initial deadline for offers to be made through the Sales Process was 1 May 2020. Mr Eagle notes that both Tf Australia’s ultimate shareholders and companies in the Group which are creditors of Tf Australia have expressed the opinion that the deadline of 1 May 2020 for submission of offers was too short, even in ordinary times for a business of the size, nature and complexity of the Business. Mr Rudd (see below at [17] and [18]) has also queried whether such a short deadline would generate the best possible outcome for creditors. The administrators have extended that deadline to 8 May 2020, albeit that that date is the day after the expiry of the convening period unless it is extended by the Court in accordance with the application.

15    Since extending the deadline for indicative offers in the Sales Process to 8 May 2020, the administrators have received eight additional expressions of interest and have granted an additional three parties access to the Data Room.

16    There are now 11 parties who have requested and been provided with access to the Data Room. No offers have yet been received. Mr Eagle said that that is because the deadline for offers has not passed and, from the number of interested parties, it can be inferred that there is significant interest in the Business and the assets of the Companies.

17    On 17 February 2020, Matthew Rudd (Mr Rudd), a former employee of the Group, filed a winding up application in relation to Tf Australia in the Supreme Court of New South Wales, relying on Tf Australia’s failure to comply with a statutory demand. Counsel for the plaintiffs advised the Court that the winding up application is next before the Supreme Court on 18 May 2020 for directions. If the winding up application is listed for hearing before the end of the convening period (as extended), the administrators intend to seek an adjournment of those proceedings under s 440A of the Corporations Act.

18    Mr Rudd has also, on behalf of Harvesting Australia Pty Ltd, signed and returned a confidentiality deed on the basis of which he has received a copy of the Information Memorandum in relation to the Sale Process and he was granted access to the Data Room on 29 April 2020.

The adiminstrator’s intentions and opinions

19    During the period in which it is proposed that the convening period be extended, the administrators propose to:

(1)    Complete the Sales Process;

(2)    Enter into a binding agreement for the sale of the Business and other assets of the Companies or otherwise to negotiate with a potential purchaser for a deed of company arrangement (DOCA) proposal to be put forward involving a restructure of the Business; and

(3)    Prepare a detailed report to creditors in accordance with s 439A of the Corporations Act and r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) such that, if there is a proposal for a DOCA, that report will assess the return to creditors from the DOCA as opposed to a winding up.

20    It is the administrators’ view that it would be in the best interests of the Companies’ creditors for the convening period to be extended to 18 June 2020 for the following reasons:

(1)    If there is no extension of the convening period, the administrators would not be able to make a complete and comprehensive recommendation to creditors on the future of the Companies in accordance with their obligations under s 439A of the Corporations Act and r 75-225 of the Insolvency Practice Rules. In turn, the creditors will be unable to make an informed decision in that regard. That is because the Sale Process is ongoing and indicative binding offers are due to be submitted by 8 May 2020, after the date at which the administrators need to issue the statutory report to creditors pursuant to r 75-225 of the Insolvency Practice Rules. That report would detail the estimated likely return to creditors arising from the Sales Process as compared to a winding up.

(2)    The Companies should continue to be traded during the administration with a view to realising maximum value for the assets of the Companies by a sale of the Business as a going concern. That is likely to both maximise the return to creditors, preserve employment for as many employees as possible, and permit the Companies’ commercial relationships to continue;

(3)    An extension of the convening period will enable the Sales Process to play out and provide time for further offers to be made, in particular, by potential purchasers who have requested an extension and will also provide the time needed for the administrators to work with interested parties to ensure offers are made in binding form and then negotiations are able to take place to lead to the execution of a binding agreement;

(4)    If the second meetings of the Companies’ creditors were required to be held on or before 14 May 2020, the administrators will in all likelihood recommend that the Companies be placed into liquidation as the administrators have yet to receive a complete proposal for the purchase of the Business from any interested parties such that no DOCA could be recommended. The Companies are insolvent so the administrators could not recommend that the administration should end and the Companies be returned to the control of the directors;

(5)    Permitting the Sales Process to be completed is substantially likelier to lead to a better price for the sale of the Business than a sale through a liquidation. That is because a sale of the Business and assets of the Companies as a going concern preserves existing relationships with employees, creditors and other stakeholders of the Companies and, therefore, any goodwill of the Business. A sale during a winding up will not have the benefits of preserving those relationships and, in addition, a liquidation sale is likely to be perceived by the market as a “fire sale” of the assets of the Companies; and

(6)    An extension of the convening period for six weeks is consistent with the objects of Part 5.3A of the Corporations Act because it maximises the chances of as much of the Business as possible continuing in existence and of maximising the return to creditors of the Companies.

21    In the administrators’ opinion, an extension of the convening period to 18 June 2020 will not materially prejudice the interests of the creditors of the Companies because:

(1)    The administrators are continuing to cause Tf Australia to pay employees of the Companies in accordance with their employment terms. They have paid pre-appointment arrears of wages to maintain the trading of Business as usual. It is possible that, in a sale of business (or DOCA) scenario, the employment of the employees will be preserved, which would reduce Tf Australia's potential liability to employees (for example, for accrued leave and redundancy payments) and, consequently, reduce the size of the overall creditor pool;

(2)    The administrators are continuing to try and secure a sale of the Business (or DOCA) on a going concern basis, which will maximise the prospects of ongoing trade creditor relationships being preserved going forward;

(3)    The Security Trustee (on behalf of the Lenders) has further time to enforce its rights as secured creditors should the Security Trustee (acting on behalf of the Lenders) elect to do so and, accordingly, the proposed extension of the convening period will not affect the Security Trustee's ability to enforce its security rights. Further, the Security Trustee has indicated its consent to the extension sought; and

(4)    While the administrators have continued to use or sell the equipment and assets held by Tf Australia in the ordinary course of the Business, the proceeds from their sale during the administration period are being held to deal with any valid purchase money security interest claims. Alternatively, the administrators are proposing to enable creditors with PPSR registrations over specific goods to collect their equipment and assets if they are not required by the administrators in the course of the ongoing trading of the Business. In that way, the administrators are taking all appropriate steps to protect suppliers’ rights until these issues are resolved.

Notice to creditors

22    No creditor of the Company appeared to oppose the extension of the convening period.

23    At the first creditors’ meetings held on 21 April 2020, Mr Eagle informed the creditors present (38 creditors of Tf Australia and four creditors of Screencorp) of the possibility that an application for an extension of the convening period for each of the Companies would be made. No creditor in attendance raised any objection.

24    In the morning of 4 May 2020, Ms Adams sent copies of the interlocutory application, Mr Eagle’s affidavit in support of the application filed on 4 May 2020 and exhibit RRE-2 under cover of an email advising that the hearing had been set down for 3 pm on 5 May 2020 to:

(1)    The Australian Securities & Investments Commission;

(2)    Mr Rudd’s solicitors at All & Wilcox; and

(3)    Two officers of Westpac.

25    No response was received from either of ASIC or Westpac. Mr Rudd’s solicitor was present at the hearing of the application which had been deferred to 9 am on 6 May 2020. Mr Rudd did not raise any objection to the orders sought.

26    On 4 May 2020, a representative of BlackRock sent an email to the administrators confirming its support for an extension of the convening period by six weeks.

27    The Court notes that, as has become orthodox, the proposed orders include a requirement that a copy of the orders made by the Court be served on creditors, generally by email where addresses are held and otherwise by post, within two business days. Further the orders provide liberty to creditors who wish to apply to vary the orders.

Legal principles

28    The statutory framework and legal principles governing the grant of extensions of the convening period are well established.

29    In exercising the jurisdiction to extend time under s 439A(6) of the Corporations Act, the Court must have regard to the object of Part 5.3A of the Corporations Act as set out in s 435A. The object is to maximise the chances of a company in voluntary administration, or as much as possible of its business, continuing in existence. If that is not possible, the object is to achieve a better return for the companies' creditors and members than would result from an immediate winding-up of the company.

30    The power to extend the time for convening the second meeting is one that should not be exercised as of course. Rather, the Court must strike an appropriate balance between the expectation that administration will be a relatively speedy 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: see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 at [11] (Farrell J) and the authorities there cited.

31    Other relevant factors include:

(1)    A particular consideration against the too ready grant of an extension is the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others;

(2)    The application is to be assessed by reference to whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and, in particular, to arrive at the opinion referred to in r 75-225(3)(b) of the Insolvency Practice Rules, in order to inform creditors adequately so that they will be in a position to decide whether to terminate the administration and return the company to its directors, execute a DOCA or place the company in liquidation; and

(3)    It is often desirable that any extension be accompanied by an order under s 447A, permitting the meeting to be held at any time during the convening period as extended.

See Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18] (Lindgren J) and the cases there cited.

32    Included in that assessment is a consideration of the complexity of the business and group structure and the time needed to effect an orderly sale process: In the matter of Riviera Group Pty Ltd (admins apptd) (recs and mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 at 355 (Austin J) and the cases there cited. This approach was recently confirmed by the High Court in Mighty River International Limited v Hughes [2018] HCA 38; (2018) 92 ALJR 822 at 839-840 [73] (Nettle and Gordon JJ): see Villani, in the matter of Bounty Mining Limited (administrators appointed) (receivers and managers appointed) [2020] FCA 24 at [11] (Perram J).

33    Weight should also be given to the considered judgment of administrators on applications of this kind: see: Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26] (Logan J); In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J).

Consideration

34    The Court was satisfied that the grant of an extension of the convening period to 18 June 2020 serves the purposes of Part 5.3A of the Corporations Act as set out in s 435A. In making that finding, the Court had regard to the following matters:

(1)    This is the first extension of the convening period, and it is for a period of six weeks, a comparatively short time.

(2)    The Business is attended by complexity, including the fact that it operates both in Australia and in New Zealand.

(3)    The Sale Process is still in progress. Significant interest has been demonstrated in acquiring some or all of the Business and therefore the Sale Process appears to be viable.

(4)    In the administrators’ opinion, the Companies are insolvent. If the convening period were not to be extended, the only option open for recommendation by the administrators to creditors would be that the Companies should be wound up. Mr Eagle is an experienced administrator and in his opinion, greater value would be achieved by selling the Business, or adopting a DOCA proposal, where the Business is a going concern and a greater return is likely to be achieved if the Companies are not in liquidation. The Court accepts his opinion that this is plainly in the interests of creditors of the Companies.

(5)    It is the administrators’ opinion that an extension of the convening period for six weeks is necessary to complete the Sale Process, continue their investigation of the affairs of the Companies and allow them time to prepare the necessary report and convene the second creditors meetings. It is likely that it will be necessary for the Sale Process to be allowed to reach a timely conclusion for the creditors to be offered a real choice between returning the Companies to the control of their directors, a DOCA or liquidation.

(6)    It appears that no material prejudice will be visited on any of the creditors by reason of the extension of the convening period.

(7)    Creditors attending the first creditors’ meetings were advised of the possibility of such an application being made. Secured creditors have either supported the extension of the convening period (that is, through BlackRock) or failed to object. Mr Rudd, who has filed an application to wind up Tf Australia, was represented at the hearing and his legal representative raised no objection to the orders being made. In any event, provision will be made for creditors to be notified of the Court’s orders and for any creditor who seeks to have those orders varied to have liberty to approach the Court for that purpose.

(8)    Based on Mr Eagle’s evidence, it appears that the administrators have been diligent in the conduct of the administration, especially having regard to the difficulties imposed by measures taken by government to suppress the spread of the COVID-19 virus. The administrators have also been hampered by the lack of availability to them of complete monthly management accounting information in relation to the Companies.

Associate:

Dated:    8 May 2020

SCHEDULE OF PARTIES