Federal Court of Australia

Dixon, in the matter of Pearson Contracting Pty Ltd as Trustee for Pearson Family Trust (Administrator Appointed) [2020] FCA 1505

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act), Part 5.3A of the Act is to operate in relation to the administration of Pearson Contracting Pty Ltd ATF Pearson Family Trust (Administrators Appointed) (ACN 005 715 935) (Company) as if:

(a)    section 75-140(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Practice Rules) omitted the words “that is more than 45 business days after the first day on which the original meeting was held” and included instead of the omitted words the words “later than 21 December 2020”;

(b)    that Part allowed adjournment of the meeting convened under s 439A of the Act in relation to the Company to a day not later than 21 December 2020, despite the operation of s 75-140(3) of the Insolvency Rules; and

(c)    the requirement to hold a meeting of creditors of the Company within the convening period specified in s 439A(2) of the Act is satisfied by holding the adjourned meeting no later than 21 December 2020,

and provided that the requirements of section 75-140 of the Insolvency Practice Rules are otherwise complied with in respect of such meeting.

2.    Any person having a sufficient interest may apply to the Court for an order discharging or varying order made in paragraph 1 above.

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3.    By 22 October 2020, the plaintiff give notice of this order to the Company’s creditors by:

(a)    uploading a copy of this order onto the website https://portal.hamiltonmurphy.com.au/; and

(b)    sending a circular letter to each of the Company’s creditors (by email in respect of those creditors who have informed the plaintiff that their email is their preferred method of communication, and by post in respect of all other known creditors) informing them of the substance of this order.

4.    The plaintiff’s costs of the application are costs in the administration of the Company.

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

REASONS FOR JUDGMENT

O’BRYAN J

Introduction

1    On 21 July 2020, the plaintiff was appointed administrator of Pearson Contracting Pty Ltd ATF Pearson Family Trust (Company) pursuant to s 436A of the Corporations Act 2001 (Cth) (Act).

2    By application filed on 16 October 2020, the plaintiff applied to extend the convening period for the second meeting of creditors of the Company to midnight on 21 December 2020, pursuant to ss 439A(6) and 447A(1) of the Act and section 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Practice Rules). The application was supported by an affidavit sworn by the plaintiff on 15 October 2020 and written submissions from the plaintiff’s solicitors and supplementary submissions from counsel.

3    The plaintiff has already convened the second meeting of creditors under s 439A of the Act within the time required by s 439A(1), and held that meeting within the time required by s 439A(2), but has adjourned rather than closed that meeting. In those circumstances, and for the reasons explained below, I consider that the more appropriate relief to be granted to the plaintiff is to extend the period of adjournment of the second meeting of creditors for a period longer than permitted by s 75-140(3) of the Insolvency Practice Rules. I have concluded that the Court has power to grant that relief and that it is appropriate to do so in this case. The plaintiff informed the Court that he had no objection to that form of relief.

Background

4    On 21 July 2020, the director of the Company, Mrs Jeanette Pearson, resolved pursuant to s 436A of the Act to appoint the plaintiff as the administrator of the Company.

5    The Company was involved in the business of designing and building pressure vessel tanks and providing general steel fabrication and welding works and ceased trading in or around January 2020. The Company ceased trading as a result of the Company being unable to meet its cash flow requirements to settle its liabilities. The Company’s three employees at the time were made redundant following the cessation of its operations.

6    The plaintiff deposed that he has been unable to obtain all books and records of the Company from Mrs Pearson due to the current stage 4 COVID-19 restrictions in Victoria. While Mrs Pearson has disclosed that the three former employees, including herself, are owed employee entitlements, the plaintiff has to date been unable to ascertain the value of those entitlements.

7    The plaintiff deposed that the secured creditor claims total approximately $39,290 and the unsecured creditors have potential claims of approximately $737,153 comprising the following amounts:

(a)    Australian Taxation Office - $257,701;

(b)    two related party creditors - $394,542; and

(c)    28 trade creditors and suppliers - $84,910.

8    There are a number of security interests over the Company and the Pearson Family Trust.

9    On 31 July 2020 a virtual first meeting of creditors of the Company was conducted via teleconference facilities (First Meeting).

10    On 1 August 2020, the plaintiff arranged for an advertisement to be placed in the Australian Financial Review (AFR) inviting expressions of interest for the sale of the Company’s business and assets. The timeline for the sale process was prepared prior to the implementation of the Stage 4 COVID-19 restrictions in Victoria, which subsequently came into effect on 3 August 2020. The restrictions imposed by the Stage 4 COVID-19 lockdowns in Victoria prevented prospective purchasers from attending the Company’s premises to undertake an inspection of the assets. The expression of interest concluded on 21 August 2020. The plaintiff did not receive any submission of written offers, but received six expressions of interest, two of which were formally withdrawn. Two prospective purchasers continue to express interest for the purchase of assets, however they have been unable to inspect the assets as a result of the Stage 4 COVID-19 lockdowns.

11    On 17 August 2020, the plaintiff circulated a notice to the creditors of the Company for the purpose of advising creditors as to, among other things:

(a)    the Report about the Company’s business, property, affairs and financial circumstances;

(b)    the administrator’s remuneration;

and convening the second meeting of creditors.

12    On 25 August 2020, a virtual second meeting of creditors of the Company was conducted via teleconference facilities (Second Meeting). The following creditors were in attendance, via teleconference and via proxy: the Australian Taxation Office; Economy Bolt Co; Mrs Pearson; and Prestige Gaskets & Packings. The plaintiff determined that a quorum was present and accordingly declared the Second Meeting of the Company convened. The plaintiff adjourned the Second Meeting in accordance with s 75-140(1)(b) of the Insolvency Practice Rules in order to provide additional time to source a buyer for the Company’s business and assets.

13    The plaintiff deposed that, unless extended, the convening period for the Second Meeting will expire on 19 October 2020. I infer that what the plaintiff means is that the period of adjournment of the Second Meeting permitted by s 75-140(3) of the Insolvency Practice Rules, being 45 business days, will expire on 19 October 2020.

14    The plaintiff deposed that he seeks an extension of time to:

(a)    enable sufficient time to advertise the business and assets for sale;

(b)    conduct a marketing sales process for the sale of the business;

(c)    allow the Stage 4 COVID-19 restrictions to pass to enable the plaintiff’s staff to attend onsite and allow potential purchasers to attend and inspect the assets in person; and

(d)    enable the sale proceeds to form part of the Mrs Pearson’s contribution under a deed proposal which is intended to be proposed to creditors at the resumed Second Meeting.

15    The plaintiff deposed that, in his opinion, an orderly sale of the business and assets is likely to result in a far better return for the Company’s creditors than the immediate winding up of the Company.

Power to extend the period of adjournment of the Second Meeting

16    Section 439A of the Act provides as follows:

(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.

(5)    The convening period is:

(a)    if the day after the administration begins is in December, or is less than 25 business days before Good Friday the period of 25 business days beginning on:

(i)    that day; or

(ii)    if that day is not a business day the next business day; or

(b)    otherwise 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.

17    Section 439C provides that, at a meeting convened under s 439A, the creditors may resolve that the company execute a deed of company arrangement, that the administration should end, or that the company be wound up.

18    As noted above, the Second Meeting of the Company was convened on 17 August 2020. That was in compliance with s 439A(1) of the Act which required the meeting to be convened on or before 19 August 2020 (being 20 business days after the administration began on 21 July 2020). Further, the Second Meeting was initially held on 25 August 2020. That was in compliance with s 439A(2) which required the meeting to be held within 5 business days after the end of the convening period. However, the Second Meeting was then adjourned under s 75-140(1)(b) of the Insolvency Practice Rules.

19    Section 75-140 of the Insolvency Practice Rules provides as follows:

(1)     A meeting may be adjourned from time to time and from place to place:

(a)     by resolution; or

(b)     by the person presiding at the meeting.

(2)     The meeting must not be adjourned to a day that is more than 15 business days after the first day on which the original meeting was held.

(3)     Despite subsection (2), a meeting convened under section 439A of the Act must not be adjourned to a day that is more than 45 business days after the first day on which the original meeting was held.

(4)     Unless otherwise provided by the resolution by which it is adjourned, the adjourned meeting must be held at the same place as the original meeting.

(5)     The convenor of the meeting or a person nominated by the convenor must, by the end of the next business day, give notice of the adjournment to the persons to whom notice of the meeting must be given under section 75‑10.

(6)     If a meeting is adjourned to a day more than 6 business days after the passing of the resolution by which it is adjourned, the company must cause notice of the day, time and place of the resumption of the meeting to be lodged in accordance with subregulation 5.6.75(4) of the regulations at least 5 business days before that day.

(7)     A resolution passed at a meeting resumed after an adjournment is passed on the day it was passed.

20    Thus, by s 75-140(3), the adjournment of the Second Meeting cannot continue beyond 27 October 2020 (being 45 business days after the first day on which the Second Meeting was held).

21    As noted earlier, the plaintiffs application sought an order under s 439A(6) extending the convening period for the second meeting of creditors. In the present circumstances, it is not clear to me that s 439A(6) has any operation. That is because the Second Meeting has already been convened within time, but has been adjourned.

22    However, s 447A(1) of the Act provides that the Court may make such order as it thinks appropriate regarding how Pt 5.3A will operate in relation to a particular company. The nature and scope of that power was discussed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. In Georges, in the matter of Vical N.S.W. Pty Ltd (Administrators Appointed) [2018] FCA 1974, Yates J concluded that s 447A gives the Court power to extend the period of adjournment permitted under s 75-140(3). His Honour reasoned as follows (at [25]-[28]):

25. Section 447A provides that the Court may make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. The extension that is sought is specifically with respect to the period referred to in r 75–140(3) of the Rules which, of course, is not found in Pt 5.3A of the Act. Nevertheless, I am satisfied that I have the power to make the orders that are sought.

26. A similar question arose in Re Porter as joint administrators of Priceright Construction Pty Ltd (admin apptd) (2006) 57 ASCR 206; NSWSC 324. The question in that case was whether s 447A of the Act could be invoked to provide that Pt 5.3A of the Act was to operate in respect of a particular company on the basis that reg 5.6.18(2) of the Corporations Regulations 2001 (Cth) did not apply. Barrett J reasoned that such an order could be made in reliance on s 447A because, even though the time limit was one prescribed by the particular regulation, the orders sought were still about how Pt 5.3A of the Act was to operate in relation to the company concerned. See also Re Keystone Group Holdings Pty Ltd (Receivers & Managers Appointed) (Administrators Appointed) [2017] NSWSC 454, especially at [14]–[15].

27. The same reasoning applies in the present case. Although r 75–140(3) mandates that the period of adjournment in respect of a meeting convened under s 439A of the Act must not be more than 45 business days after the first day on which the original meeting was held, an order invoking the facility provided by s 447A of the Act, and which has the effect of modifying the stipulated maximum period, is still an order about how Pt 5.3 is to operate, particularly in relation to a meeting that is required to be held under s 439A of the Act.

28. Further, making these orders that are now sought will be consistent with the object of Pt 5.3 of the Act, and Sch 2 to the Act (Insolvency Practice Schedule (Corporations)) to the extent that it relates to Pt 5.3A, which is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up.

23    His Honour followed that approach in Holzman, Re Aus Confec Pty Ltd (Administrators Appointed) [2020] FCA 181. I respectfully agree with his Honour’s reasoning.

24    In Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846, Besanko J determined that there is nothing in Part 5.3A which indicates that the period stipulated in s 75-140(3) of the Insolvency Practice Rules with respect to an adjournment is the maximum permissible adjournment (at [1239]). I respectfully agree with that conclusion. His Honour also considered that the circumstances in the present case might be addressed by extending the convening period for the second meeting by making an order under s 439A(6) or under s 447A(1) (at [1237]-[1241]). For the reasons already explained, it is not clear to me that s 439A(6) provides a source of power to extend the period of adjournment of a second meeting. However, I respectfully agree with his Honour that power is given by s 447A(1). Further, in my view an order can be made under s 447A(1) stipulating that Part 5.3A of the Act is to operate in relation to a particular company as if:

(a)    section 75-140(3) of the Insolvency Practice Rules provided for a longer period of adjournment of the second meeting;

(b)    Part 5.3A allowed adjournment of the second meeting for that longer period; and

(c)    the requirement to hold the second meeting within the convening period specified in s 439A(2) of the Act is satisfied by holding the adjourned meeting within the longer period.

25    It also seems to me that the considerations relevant to the exercise of the power to extend the convening period under s 439A(6), including those stated in s 439A(7) and (8), will be relevant to the exercise of the power under s 447A to extend the period of adjournment permitted under s 75-140(3) of the Insolvency Practice Rules.

26    In Algeri; Re Colorado Group Limited [2011] VSC 260 (Algeri), Judd J stated (at [24]):

When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension.

27    In Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352; [2009] NSWSC 585, Austin J noted (at [13]) that extensions had been granted in cases for a range of reasons, including (relevantly for present purposes):

•     lack of access to corporate financial records: Re Sims: Destra Corp Ltd [2008] FCA 2002; Re Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363;

•     the time needed to execute an orderly process of disposal of assets: Re Carter, SFM Australasia Pty Ltd (admin apptd) (ACN 105 317 333) (No 2) [2009] FCA 419; Re ABC Learning Centres Ltd; Application by Walker (No 7) (2009) 71 ACSR 560; [2009] FCA 454;

•     the time needed for thorough assessment of a proposal for a deed of company arrangement: Silvia, Re Austcorp Group Ltd (admin apptd) [2009] FCA 636;

•     where the extension will allow sale of the business as a going concern: Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, Re Kleins Franchising Pty Ltd (admin apptd) [2008] FCA 721; Re Uni-Aire Security Pty Ltd (admin apptd) [2006] FCA 1423;

•     more generally, that additional time is likely to enhance the return for unsecured creditors: Deputy Commissioner of Taxation v Scottsdale Homes No Pty Ltd (No 2) [2009] FCA 190; Re Fitzgerald; Primebroker Securities Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1247; Re Vouris; Marrickville Bowling and Recreation Club Ltd [2008] FCA 622.

Disposition of application

28    I am satisfied on the evidence before me that it is appropriate to make an order extending the period of adjournment of the Second Meeting otherwise permitted under s 75-140(3) of the Insolvency Practice Rules. In that respect, I take judicial notice of the extraordinary circumstances that have been created by the COVID-19 pandemic, particularly in Victoria since July this year, and I accept that the Stage 4 COVID-19 restrictions that have been in place in Victoria since early August 2020 have prevented the usual operation of business and commerce.

29    In the circumstances explained in the plaintiff’s affidavit, in my view it is clear that it would be in the best interests of the creditors if the plaintiff were allowed more time to attempt to finalise an orderly sale of the business and assets of the Company. Having regard to the uncertainty about the extent of the COVID-19 restrictions that will be in place in Victoria in the coming weeks, I consider that an extension of time until 21 December 2020 is appropriate.

30    As set out above, s 75-140 of the Insolvency Practice Rules contains a number of stipulations concerning an adjourned meeting. It is appropriate to include an order that the plaintiff will comply with those requirements. Given the length of the extension of time, I will also make an order that the plaintiff notifies creditors of the orders I will make.

Associate:

Dated:    16 October 2020