Federal Court of Australia

Purchas, in the matter of Waratah on Alstonville Pty Ltd (administrators appointed) [2021] FCA 953

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 Waratah on Alstonville Pty Ltd (administrators appointed) (the Company) be extended up to midnight on Thursday, 16 September 2021.

2.    Pursuant to s 447A(1) of the Act, Part 5.3A of the Act is to have effect in relation to the Company such that the meeting of creditors required by s 439A of the Act may be held at any time during the period up to, or within five business days after, Thursday, 16 September 2021, notwithstanding the provisions of s 439A(2) of the Act.

3.    The first plaintiffs’ costs of and incidental to this application be costs and expenses of the administration and be paid out of the assets of the Company.

4.    Liberty be granted to the first plaintiffs to apply to the Court in relation to any further extension of the convening period or any other matter arising in the administration of the Company generally.

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

REASONS FOR JUDGMENT

FARRELL J:

1    These are reasons for orders made on 22 July 2021 extending the convening period for the second meeting of creditors of Waratah on Alstonville Pty Ltd (administrators appointed) (the Company) until 16 September 2021 and permitting the meeting to be held at any time prior to five business days after 16 September 2021. Had the Court not made those orders extending the convening period prescribed by s 439A(5) of the Corporations Act 2001 (Cth) (Act), the administrators would have been required to convene the second meeting of the Company’s creditors by 23 July 2021.

Introduction

2    The Company was incorporated for the purpose of purchasing and developing land at 195-209 Ballina Road, Alstonville in the State of New South Wales (Property) to be known as the Waratah Eco-Development Project. Development was to be in two stages.

3    In about February 2020, AGS Commercial Pty Ltd entered into a construction contract with the Company pursuant to which it would build 14 units on the Property (Stage 1). In about October 2020, AGS entered into a further construction contract with the Company for the construction of a slab and six villas on the Property (Stage 2).

4    On 25 June 2021, the first plaintiffs, Ian James Purchas and James Lloyd Porter of SV Partners (NSW) Pty Ltd were appointed as joint and several administrators of the Company (which is the second plaintiff) pursuant to a resolution of its sole director, George Henry Bennett (George Bennett), under s 436A of the Act.

5    The three largest proofs of debt lodged with the administrators are as follows:

(a)    Kurrajong Developments Pty Limited as trustee for the Paul Peterson Long Term Investment Trust claims $5,498,813.64 as vendor finance in relation to the Company’s purchase of the Property from Kurrajong in November 2019;

(b)    Dromore Finance Pty Ltd as trustee for the Bennett Family Trust claims $5,325,099.99. Mr Purchas understands this claim to relate to funding Dromore provided to the Company in connection with construction of Stages 1 and 2. There is no ASIC search in evidence in relation to Dromore, but David Bennett, George Bennett’s son, has executed correspondence with the administrators with the title “director”. Mr Booth suggests that both David and George Bennett are directors of Dromore; and

(c)    AGS claims $1,837,021.61 in respect of progress payments under building contracts relating to the construction of Stage 1 and Stage 2 on the Property.

Application

6    By an originating process filed on 20 July 2021, the administrators sought orders under ss 439A(6) and 447A of the Act extending the convening period for the second meeting of creditors until 30 September 2021 and permitting the meeting to be held any time up to five business days after 30 September 2021. The application was supported by an affidavit sworn by Mr Purchas on 19 July 2021 on which the plaintiffs relied together with Exhibit IJP-1.

7    AGS sought and was granted leave to be heard under r 2.13(1)(a) of the Federal Court (Corporations) Rules 2000 (Cth). AGS opposed the extension of the convening period and relied on an affidavit sworn on 21 July 2021 by Simon Booth, the director of AGS.

Background

8    The following background derives from the affidavits read on the application.

9    By a transfer dated 19 August 2019, the Property was transferred by persons called Prendergast to Kurrajong for consideration of $1 million.

10    The Company was registered on 29 August 2019. Its directors at that time were George Bennett and Peter Douglas Woodhead. David Bennett was appointed a director on 14 October 2020. Mr Woodhead and David Bennett both resigned as directors on 4 June 2021. George Bennett holds the only issued share in the Company. George Bennett is approaching 91 years of age.

11    Mr Purchas gave evidence that the Company is the trustee of the Waratah on Alstonville Trust and that its role as trustee is not affected by the appointment of the administrators. The trust deed is not in evidence.

12    A registered transfer dated 27 November 2019 records the transfer of the Property from Kurrajong to the Company for a consideration of $4,541,324. A certificate of title dated 28 November 2019 records the Company as the registered proprietor of the Property.

13    In evidence is a deed dated 27 November 2019 between Kurrajong as trustee of the Paul Peterson Long Term Investment Trust and the Company and signed by Paul Peterson on behalf of Kurrajong and by Mr Woodhead on behalf of the Company (Kurrajong deed). It provides as follows (as written):

WHEREAS:

A    Kurrajong has sold to Waratah land at 209 Ballina Road Alstonville NSW 2477 for $4,675,000, inclusive of GST.

B    In consideration of Waratah purchasing the land, Waratah has agreed to provide security by way of a charge over the land at 209 Ballina Road Alstonville to Kurrajong.

NOW THIS DEED WITNESSES and it is agreed as follows:

1    The loan will be for the period of the development.

2    Interest is 7.5 % calculated monthly and payable at the end of the project or on if requested.

3    Security, being by way of a registered charge of the land and buildings, if required.

14    On the basis of the Kurrajong deed, Kurrajong claims to be a creditor of the Company. Mr Purchas says that he is investigating the discrepancy between the purchase price stated on the transfer of the Property to the Company, the purchase price stated in the Kurrajong deed and the debt now claimed by Kurrajong.

15    As noted above, in about February and October 2020, AGS entered into building contracts with the Company in relation to the construction of Stages 1 and 2.

16    Mr Purchas understands that, prior to the administrators’ appointment, the Company had paid AGS $7,273,623.71 (plus GST) in respect of Stage 1 and $1,872,274.59 (plus GST) in respect of Stage 2. Mr Purchas understands that Dromore provided funding to the Company to allow payments to be made to AGS. Dromore claims that the Company owes it $5,325,099.99.

17    On or about 23 April 2021, pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act), AGS served on the Company Payment Claim 19 (related to Stage 1) in the amount of $660,049.39 and Payment Claim 20 (related to Stage 2) for $919,831.87 (an aggregate amount of $1,579,881.26).

18    On 3 May 2021, AGS issued notices of practical completion in relation to both Stages 1 and 2.

19    On 7 May 2021, the Company issued payment schedules in relation to Claims 19 and 20 indicating that the amount payable was nil and that the Claims were defective and invalid under the SOP Act.

20    On 21 May 2021, AGS submitted adjudication applications in respect of Claims 19 and 20 to Adjudicate Today. The Company submitted responses to Claim 20 (on 27 May 2021) and Claim 19 (on 31 May 2021).

21    On 31 May 2021, the Company and AGS were requested by the appointed adjudicator in relation to Claim 20 to provide various submissions in relation to issues raised in the adjudication application for that Claim.

22    On 11 June 2021, the appointed adjudicator determined that the amount payable by the Company in relation to Claim 20 was $919,831.87 (that is, the full amount originally claimed). On 14 June 2021, a different appointed adjudicator determined that the amount payable by the Company in relation to Claim 19 was $563,521.79 (less than the amount originally claimed). They will each be referred to as a “determination”.

23    On 22 June 2021, the Company filed proceedings in the Supreme Court of New South Wales (proceedings 2021/179439) in the Equity – Technology and Construction List seeking (among other things):

(a)    Declarations that the determinations made by the adjudicators of Claims 19 and 20 are void and orders quashing the determinations; and

(b)    An injunction restraining AGS from requesting Adjudicate Today to provide certificates under s 24(1)(a) of the SOP Act in relation to the determinations or otherwise effecting recognition of those determinations as judgments of a Court.

24    On that day, in proceedings 2021/179439, Hammerschlag J made orders restraining AGS in the terms sought by the Company and ordered the Company to pay $1,483,353.66 into court by close of business on Friday, 25 June 2021.

25    On 22 and 23 June 2021, PPSR registrations were made by the Paul Peterson Long Term Investment Trust (of which Kurrajong is the trustee) in respect of all present and after-acquired property of the Company. The stated address for service is Mr Woodhead of Woodheads Advisory Pty Ltd.

26    On 23 June 2021, PPSR registrations were made by the trustee of the Bennett Family Trust (Dromore) in respect of all present and after acquired property of the Company. The stated address for service was David Bennett.

27    Correspondence between the solicitors for Dromore and Kurrajong and the administrators’ solicitors included a number of documents which appear to be in support of the PPSI registrations as follows:

(a)    A Facility Agreement and a Security Agreement (charging all of the Company’s assets) between the Company and Dromore dated 23 June 2021;

(b)    A Mortgage Agreement between the Company and Dromore in respect of units 8 and 12-20 in Stage 1 (charged properties);

(c)    A Facility Agreement and a Security Agreement (charging all of the Company’s assets) between the Company and Kurrajong dated 23 June 2021; and

(d)    A Mortgage Agreement between the Company and Kurrajong in respect of the charged properties.

Title searches of the charged properties reveal that Dromore and Kurrajong lodged caveats against those properties.

28    Mr Purchas says that his solicitors are currently reviewing those documents and if the Company were to be placed in liquidation, the liquidator may have claims with respect to the provision of security to Dromore and Kurrajong under ss 588FA, 588FB, 588FDA and/or 588FDB of the Act.

29    The orders made by the Supreme Court on 22 June 2021 (see [24] above) were amended by consent on 24 June 2021. The injunction was extended until 5 pm on 25 June 2021 and the order requiring payment of $1,483,353.66 into Court was vacated. The Court ordered that, by 5 pm on 25 June 2021, the Company pay into Court $1,552,469.97, comprised of:

(a)    in respect of the adjudication determination made on or about 11 June 2021 (in relation to Claim 20), the adjudicated amount of $919,831.87, interest of $17,388.60 calculated to 22 June 2021 and adjudication fees of $16,645.10; and

(b)    in respect of the adjudication determination made on or about 14 June 2021 (in relation to Claim 19), the adjudicated amount of $563,521.79, interest of $12,737.14 calculated to 22 June 2021 and adjudication fees of $22,345.47.

30    In his affidavit, to which the plaintiffs made no objection, Mr Booth noted matters said not to have been drawn to the Supreme Court’s attention, including:

(a)    The security interests granted to Kurrajong and Dromore;

(b)    The fact that a settlement offer made by the Company to AGS on 23 June 2021 included a balance sheet which indicated that it had total assets of $8,816,894.61 and total liabilities of $12,678,142.60 and that AGS was a creditor in the amount of $1,483,353.66; and

(c)    The impending appointment of the administrators.

31    On 25 June 2021, George Bennett as the director of the Company, signed a Board resolution appointing the administrators.

32    No moneys were paid into the Supreme Court by 5 pm on 25 June 2021. Mr Booth says the injunction then lapsed.

33    Mr Purchas says that the Company disputes AGS’ claims and believes that AGS is a debtor of the Company in an amount of $268,440. It is his understanding that the Company’s application in proceedings 2021/179439 is listed for hearing on 16 August 2021. Mr Booth’s evidence is that AGS had not been provided with any information or correspondence supporting any contention that AGS owes the Company any money and AGS denies that it is a debtor of the Company.

34    On 29 June 2021, the administrators issued an initial notice to creditors advising of their appointment and giving notice of the first meeting of creditors to be held on 7 July 2021.

35    By a Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) dated 29 June 2021 (which accompanied the notice of the first meeting of creditors) the administrators advised the Company’s creditors:

The Company was referred to us by Mr Peter Woodhead of Woodheads Advisory, the Company’s external accountant. Mr Woodhead is a former director of the Company, having resigned as a director on 4 June 2021.

We believe that this referral does not result in a conflict of interest for the following reasons:

•    we have in the past been referred to other clients of Mr Woodhead (at a time when he was a principal at another firm) and consider this as an ongoing commercial relationship;

•    referrals from solicitors, business advisors and accountants are commonplace and do not impact on our independence in carrying out our duties in the Administration;

•    the value of the work referred to SVP by Mr Woodhead and/or Woodheads Advisory results in less than 10% of the total amount of professional fees generated by SVP annually and therefore, we do not believe Mr Woodhead will have any undue influence over our conduct of this Voluntary Administration;

•    no commissions, inducements or benefits have been provided to obtain the appointment; and

•    there is no expectation, agreement or understanding between us and Mr Woodhead regarding the conduct of the Administration and we are free to act independently and in accordance with the law and applicable professional standards.

The DIRRI dated 29 June 2021 also disclosed that:

(a)    Mr Purchas had a number of discussions between 19 June and 25 June 2021 with Mr Woodhead, David Bennett (described as “a former director and a son of Mr George Bennett (“the Director”)”) and “Glenn Bower, a commercial agent acting for the Company”.

(b)    Mr Woodhead was previously the auditor of a self-managed superannuation fund of which Mr Purchas is a member, stating that “We do not believe the relationship has the potential to impact our independence as that role is not ongoing, not a material business relationship, has no bearing on the Company and does not conflict with our duties to investigate the Company’s affairs”.

(c)    George Bennett had provided a limited indemnity for $75,000 of which $10,000 was paid as an up-front payment. The purpose of the indemnity and the up-front payment was to meet the costs, in part, associated with the administration of the Company and there are no conditions on the conduct or outcome of the administration attached to the provision of the funds.

36    On 30 June 2021, AGS procured the issue of adjudication certificates in its favour with respect to the determinations for an aggregate amount of $1,557,520.82.

37    On 1 July 2021, the adjudication certificate relating to Stage 2 was registered with the Supreme Court and the adjudication certificate relating to Stage 1 was registered with the District Court of New South Wales. On that day, AGS obtained registered judgments from those Courts against the Company in an aggregate amount of $1,557,520.82.

38    On 5 July 2021, AGS filed caveats against lots 6-14 in SP99963 and lots 16-21 in SP102924.

39    Prior to the first meeting of creditors on 7 July 2021, Mr Purchas received:

(a)    A letter from HWL Ebsworth dated 7 July 2021, solicitors for AGS, signed by Grant Whatley (partner) and Gavin Francis (senior associate). The letter noted: the roles that Messrs George and David Bennett and Mr Woodhead had played in the Company; the lodgement of notices of PPSR interests by the Paul Peterson Long Term Investment Trust and the trustee of the Bennett Family Trust on 22 and 23 June 2021; the lodgement of caveats on the Property by Kurrajong and Dromore on or about 23 and 24 June 2021; the appointment of the administrators on 25 June 2021 and the disclosures in the DIRRI dated 29 June 2021. It also noted that “it is understood that Mr Purchas was the [sic] previously involved with the administration of Garvin Pty Limited, of which Paul Petersen [sic] was a director”. The letter expressed concerns about Mr Purchas’ independence and the registration of security interests by companies associated with current and former directors “days prior to the appointment of voluntary administrators”. It noted that John McInerney and Said Jahani of Grant Thornton were prepared to act as alternative administrators;

(b)    A letter to similar effect from McBurney Law dated 7 July 2021 on behalf of KJ Contracting Pty Ltd and Reggid Hire Pty Ltd; and

(c)    An email from Mr McInerney attaching a DIRRI and an initial remuneration notice from Grant Thornton dated 7 July 2021.

40    The first meeting of the Company’s creditors took place on 7 July 2021 in accordance with s 436E of the Act. The minutes of the meeting reveal that:

(a)    A resolution to replace the administrators with Messrs McInerney and Jahani was defeated;

(b)    A committee of inspection (COI) was appointed comprising David Bennett, Mr Woodhead (representing Woodheads Advisory), Mr Whatley representing AGS and Mr Bower representing RECOUP Debt Recovery Pty Ltd.

(c)    In relation to the matters raised in HWL Ebsworth’s letter dated 7 July 2021:

The Presiding Person [Mr Purchas] addressed issues raised in the HWL letter of 7 July 2021 (and noted Mr Parker would address the related party debts and purported securities) as follows:

a.    each of the matters raised at points 2(a) to 2(f) and 2(h) were either disclosed in the Administrators’ DIRRI or are publicly available by way of searches of the ASIC database or property title;

b.    2(g), regarding Mr Paul Peterson; the Presiding Person advised it was his understanding that Mr Peterson was retained as a project manager for the development. Mr Whatley [of HWL Ebsworth] noted he had affidavit evidence supporting AGS’ view that Mr Peterson had a controlling influence in relation to Waratah. The Presiding Person advised he would investigate and report on same in his report to creditors;

c.    2(i), regarding the Administrators appointment; the Presiding Person noted that matter was well documented;

d.    2(j), regarding the Presiding Person and Mr Woodhead’s previous involvement; the Presiding Person referred to the DIRRI and noted that he had not spoken to Mr Woodhead for some 10 years; and

e.    2(k), regarding the Presiding Person’s involvement in the administration of “Garvin Pty Limited, of which Mr Peterson was a director”; the Presiding Person advised he was involved in the receivership of Girvan Pty. Limited (Deregistered) (“Girvan”) and was unaware that Mr Petersen [sic] (as noted at (b) above) was the same Mr Peterson who was the director of Girvan. The Presiding Person advised he became aware of same on about 1 July 2021. The Presiding Person further noted that he was a junior practitioner at the time (1990) with Coopers & Lybrand.

41    A further DIRRI dated 7 July 2021 indicated that:

(a)    Following their appointment the administrators considered that, if necessary, it may be appropriate to instruct Mr Woodhead to provide accounting services with respect to the preparation of pre-appointment accounts (for the period 1 July 2020 to 24 June 2020) and to prepare and lodge the Company’s pre-appointment Business Activity Statement for the June 2021 quarter; and

(b)    In correction of the DIRRI dated 29 June 2021, George Bennett had provided the indemnity and David Bennett had provided the $10,000 then held in the administrators’ bank account.

42    A meeting of the COI was held on 16 July 2021. The minutes of the meeting indicate that:

(a)    The purpose of the meeting was to consider the administrators making an application for an extension of the convening period;

(b)    The purpose of the proposed extension of the convening period was to allow the administrators to investigate more fully the security claims made by the Paul Peterson Long Term Investment Trust and the Bennett Family Trust, the “debt of AGS”, other creditors’ claims and the sale of the Company’s assets;

(c)    The meeting was advised that the administrators had received documentation in relation to the purported security claims, they were investigating the purchase of the Property by Kurrajong and its subsequent sale to the Company including the development application made and various works undertaken on the Property and that will necessitate substantial work;

(d)    The meeting was advised that AGS’ proof of debt varied significantly from the Company’s position which led the administrators to the view that a review of the claim should be undertaken by a quantity surveyor. Mr Purchas had (at that time) spoken to two quantity surveyors who had indicated that the “likely timeframe” to complete a report was six to eight weeks and that would exceed the existing convening period;

(e)    Duplication between claims made by KJ Contracting and Reggid Hire required investigation;

(f)    The Company was trading in terms of marketing and selling units in the development;

(g)    A title search undertaken on 15 July 2021 indicated that AGS had placed a caveat on unit 12 and other units, but the administrators were unsure about how the caveats came about; and

(h)    Against the opposition of AGS, a resolution was passed authorising the administrators to make an application to extend the convening period. Set out below are comments made by Mr Whatley which were reflected in submissions made by AGS at the hearing and responses from Mr Parker (of Bridges Lawyers, solicitors for the administrators) as follows:

Mr Whatley enquired as to whether a deed of company arrangement (“DOCA”) had been proposed and advised that AGS is of the view that the reasons put for an extension of the convening period are not valid. Mr Parker advised that there had been discussions in relation to a DOCA proposal, however the progression of same had been hampered primarily by the uncertainty surrounding the AGS claim and the securities claimed by Dromore and Kurrajong and now the purported secured claim of AGS. Mr Parker noted the Administrators will obtain the QS report to assess the AGS claim and following determination of the purported secured creditors claims thereafter be able to advise creditors what dividend they may receive on liquidation and whether the DOCA proposed is a better return for the creditors.

Mr Whatley noted that AGS is of the view that it would be appropriate for further investigations to be undertaken by a liquidator given there is no concrete DOCA proposal. Mr Parker advised that that a DOCA proposal cannot be put until a view on the AGS claim is determined. Mr Whatley responded that AGS is of the view that the costs to apply for an extension of the convening period were unnecessary as a liquidator will be able to complete the investigations and will have the powers to take all necessary steps. Mr Parker advised that position cut out a DOCA being proposed and the option of placing the company into liquidation, then back into voluntary administration to put up a DOCA was much more expensive than an extension of the convening period, particularly when the same work will need to be undertaken in adjudicating creditor claims. Therefore creditors should have the option to vote on a DOCA following the Administrators issuing a report following their investigations in relation to the outstanding issues. Mr Whatley advised the position of AGS is that evidence must be provided to the Court that there is a sale process on foot in the absence of a DOCA proposal. Mr Whatley noted AGS is concerned that there would be a further six to eight weeks in the Administration where ultimately no DOCA proposal will be put forward. Mr Parker reiterated his earlier comments.

Mr Whatley noted that a DOCA could be proposed during the convening period. Mr Parker advised that one benefit of the convening period being extended would be that the Administrators will be able to provide better information to creditors in their report to creditors.

Mr Parker advised that there are a number of reasons in support of the extension of the convening period, specifically noting that the dispute between AGS and the Company was not a simple matter. Further, it is important that the numerous purported securities be investigated. Mr Parker reiterated that ideally the outstanding issues are attended to before a DOCA could be proposed. Mr Whatley expressed his view that those issues are matters relevant to a dividend to creditors, rather than a matter of assessing a potential DOCA against a liquidation. Mr Parker disagreed.

Mr Whatley advised AGS would not support the extension of the convening period.

43    On 21 July 2021, the Company filed in the Supreme Court an application under s 440D of the Act (seeking declarations that the registered judgments were obtained in contravention of s 440D, that they are void and seeking orders under s 74MA of the Real Property Act 1900 (NSW) requiring AGS to withdraw caveats which it lodged over lots 6-11, 13-14 of SP99963 and 16-21 of SP102924).

44    Certificates of occupancy have been issued in relation to Stage 1 but not Stage 2. Five units in Stage 1 were sold before the administrators were appointed, and a further sale was to be completed on the day of the hearing with the consent of Kurrajong, Dromore and AGS. Mr Purchas says that a purchaser of a further unit has been identified and he expected contracts to be exchanged in the week commencing 19 July 2021.

45    Kurrajong and Dromore have each provided an irrevocable authority to the administrators in relation to the sale of units of the Property during the administration period under which, subject to AGS withdrawing or removing its caveats:

(a)    Relevant caveats they lodged on the titles to the Property will be released to ensure a settlement of the sale of units 12, 13 and 14 and any further sale which may be entered into/finalised during that period; and

(b)    Net sale proceeds from the sale of the units (after payment of legal costs, agent’s commission and costs associated with the relevant sale and any necessary adjustments) will be paid directly to the Company’s bank account as advised by the administrators on settlement.

46    While the six villas in Stage 2 are complete, they cannot presently be sold because completion certificates have not been issued for the villas. AGS has indicated it will not issue installation certificates, which would allow occupation certificates to be obtained, until the Company’s debts to it have been paid. Counsel for the administrators submitted that it may take some weeks to get occupancy certificates without AGS’ co-operation. The administrators say that a similar approach to that taken with respect to the sale of units can be taken with the six villas if they are able to get certificates of occupancy and AGS agrees to remove its caveat to permit the sales or the registered judgments are set aside under s 440D of the Act.

47    Mr Purchas has considered whether the business of the Company could be sold as opposed to proceeding with the sale of units and villas individually. He has formed the view that it is unlikely that a third party would wish to buy the Company’s business because of the existence of the securities and caveats claimed by Dromore, Kurrajong and AGS. In his view, selling the units and villas will likely result in a greater distribution to creditors than selling the business.

Principles

48    The following exposition of the principles by Markovic J in Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [18]-[20] is uncontroversial:

18    In exercising the jurisdiction to extend time under s 439A(6) the Court must have regard to the objects of Pt 5.3A of the Act as set out in s 435A. Those objects are to maximise the chances of the company or as much as possible of its business continuing in existence or, if that is not possible, to result in a better return for the companies’ creditors and members than would result from an immediate winding-up of the company.

19    The approach taken by the Court in applications of this type is well settled. 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 (Harrisons Pharmacy) (per Farrell J) at [11] and the authorities referred to therein).

20    Other relevant factors, particularly in the circumstances of this case, are:

(1)    whether the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: see Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363 (Fincorp) at [18];

(2)    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, a factor which may militate against the too ready grant of an extension: see Fincorp at [4]; and

(3)    whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and to arrive at the opinion required by s 439A(4), in order to inform creditors adequately so that they, in turn, will be in a position to decide whether to terminate the administration, execute a DOCA or place the company in liquidation: see Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (McGrath and Honey as joint liquidators) (2003) 46 ACSR 77; [2003] FCA 598 at [41]).

49    Section 439A(4) of the Act has been repealed. Section 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IP Rules) now relevantly provides as follows:

75-225 Companies under administration—how certain meetings are convened

(1)    The administrator of a company under administration must convene a meeting under:

(a)    section 439A of the Act (meeting to decide future of company under administration); or

  (b)    …;

by written notice given to as many of the company’s creditors as reasonably practicable.

Note: Notice of the meeting must be lodged with ASIC—see section 75-40.

(2)    The notice must:

(a)    be given at least 5 business days before the meeting; and

(b)    contain the following information:

...

(3)    If the meeting is convened under section 439A of the Act, the notice must also be accompanied by:

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

   (b)    a statement setting out the following:

(i)    whether, in the administrator’s opinion, it would be in the creditors’ interests for the company to execute a deed of company arrangement;

(ii)    whether, in the administrator’s opinion, it would be in the creditors’ interests for the administration to end;

(iii)    whether, in the administrator’s opinion, it would be in the creditors’ interests for the company to be wound up;

(iv)    the reasons for the opinions referred to in subparagraphs (i) to (iii);

(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);

(vi)    whether there are any transactions that appear to the administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part 5.7B of the Act;

(vii)    if a deed of company arrangement is proposed—details of the proposed deed.

(4)    A copy of the following must be lodged with ASIC within 2 business days of the notice being sent to creditors:

(a)    the notice;

(b)    if subsection (3) applies—the report and the statement.

Submissions

The administrators’ submissions

50    Mr Purchas submitted that administrators are not presently in a position to form a meaningful opinion for the purposes of s 438A(b) of the Act as to which outcome might be in the best interests of creditors or to provide the Company’s creditors with meaningful information in accordance with s 75-225(3)(b) of the IP Rules. He submitted that the Court should extend the convening period so that the administrators can investigate the Company’s affairs and formulate the necessary opinions so as to place creditors in a position to choose between available alternatives: see In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 at [13] (Farrell J) and the cases there cited.

51    The administrators also relied on Re Riviera Group Pty Ltd (administrators appointed)(receivers and managers appointed) [2009] NSWSC 585; (2009) 72 ACSR 352 at [13] and [14] (Austin J):

13    The reasons given for an extension in subsequent cases can be grouped into the following broad categories:

•    the size and scope of the business: Re Lombe; Babcock & Brown Ltd (admins apptd) [2009] FCA 349 (Re Lombe); Re Worrell; Storm Financial Ltd (recs and mgrs apptd) (2009) 69 ACSR 584; [2009] FCA 70 (Re Worrell); Re ABC Learning Centres Ltd; Application by Walker (No 5) [2008] FCA 1947;

•    substantial offshore activities: Re Lehman Bros Australia Ltd [2008] NSWSC 1132;

•    large number of employees with complex entitlements: Re S & D International Pty Ltd (in liq); Malhotra v Tiwari [2005] VSC 496; Re Ansett Australia Ltd and Korda; sub nom Ansett Australia Ltd (No 3) (FCR) (2002) 115 FCR 409; 40 ACSR 433; [2002] FCA 90;

•    complex corporate group structure and intercompany loans: Re Lombe; Re Octaviar Ltd (admins apptd) (recs and mgrs apptd) (ACN 107 863 436) [2008] QSC 272; Re LED Builders Pty Ltd (admin apptd) [2008] NSWSC 633; Hall; Re Australian Capital Reserve Ltd (admins apptd) [2007] FCA 1328;

•    complex transactions entered into by the company (for example securities lending or derivatives transactions): In Re Lift Capital Partners Pty Ltd (admin apptd) [2008] NSWSC 446 (Re Lift Capital);

•    complex prospects of recovery proceedings: Re Worrell; Coal Developments (German Creek) Pty Ltd v Cmr of Taxation (2007) 241 ALR 667; [2007] FCA 1324;

•    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.

14    The cases show that where a substantial issue in any of these categories is established (and a fortiori, where the facts fit into more than one category), the court tends to grant an extension, and the extension tends to be for the time sought by the administrator provided that the evidentiary case has been properly prepared, there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and the court is satisfied that the administrator’s estimate of time has a reasonable basis.

52    Counsel for the administrators submitted that this case fell within the third last and last dot point of Re Riviera at [13] and therefore the principle in Re Riviera at [14] applied. They say that, based on Kurrajong and Dromore (and presumably AGS) permitting funds from the sale of units to flow to the Company, an extension would be in the best interests of the creditors because it may allow greater returns to the creditors of the Company (through a DOCA) compared to a liquidation. Liquidation is likely what Mr Purchas would recommend if the convening period were not extended.

53    The proposed extension of two months was based on the time it will take a quantity surveyor to prepare a report discussed below. Counsel submitted that the application to set aside the registered judgments filed on 21 July 2021 in the Supreme Court’s Commercial List might also be significantly progressed in that time. The administrators are not in a position to say that it would be sufficient time for a DOCA to be proposed but if the registered judgments were to be set aside and AGS thereby became an unsecured creditor, that would assist the administrators in forming an opinion concerning the position of unsecured creditors in a liquidation which may also assist in the formulation of the DOCA.

54    It is Mr Purchas’ evidence that, following their appointment, George Bennett and Dromore indicated their intention to put forward a DOCA proposal. He says, however, that they are unable to formulate a proposal that would be better than a liquidation scenario until the administrators are able to estimate the return to creditors in a liquidation. In order for the administrators to do that:

(a)    Mr Purchas will need to form a view in relation to AGS’ claims. To do that, Mr Purchas says he will need to have the assistance of a quantity surveyor having regard to the “substantial submissions” made in the adjudication process and the amounts the Company has already paid to AGS pursuant to earlier claims. Mr Purchas’ evidence was that he had spoken to three quantity surveyors about how long it would take them to undertake an analysis of the costs to construct the units and villas and prepare a report: they said it would take six to eight weeks;

(b)    He needs to undertake further investigations about the amounts claimed to be owing by the Company to Kurrajong (the claimed vendor finance) and Dromore (in funding payments to AGS); and

(c)    He will need to determine (including by taking legal advice concerning proceedings 2021/179439 commenced by the Company on 22 June 2021 and pursuing the Company’s claim against AGS commenced on 21 July 2021 in relation to the registered judgments) whether any of the parties that are claiming security have valid securities, as that impacts on the amount that would be available to unsecured creditors in a liquidation.

55    Counsel submitted that putting the Company into liquidation immediately would remove any prospect of a DOCA. Counsel acknowledged that there was “no clear prospect [of a DOCA]. It’s merely [a] possibility” but submitted that that was enough, relying on Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [20]-[21] where Lindgren J noted that it was currently unknown whether a DOCA would be proposed but the administrator submitted that, pending the proposal of a DOCA, it would be in the interests of all creditors to allow time for the administrators to attempt to deal with or realise individual properties. That is the only case that Austin J relied on for the proposition in the third last dot point of Re Riviera at [13] and there was no DOCA “on the table” in that case. It is the possibility of a better return to creditors which Part 5.3A addresses.

56    In relation to the last dot point of Re Riviera at [13], counsel for the administrators relied on Fitzgerald, In the Matter of Primebroker Securities Limited (Administrators Appointed) (Receivers and Managers Appointed) [2008] FCA 1247 at [5]-[7]. In that case, Finkelstein J found that the following were legitimate reasons to delay a second meeting of creditors:

(a)    To allow the administrator to investigate whether a security given to a bank was vulnerable to attack because, if the security stood, there would be nothing left for unsecured creditors; and

(b)    Allow directors to raise funds so that a DOCA could be put to creditors but the administrators did not know how likely it was that a DOCA would be proposed.

57    Counsel submitted that if the securities relied on by any of Kurrajong, Dromore or AGS were found to be invalid and if a DOCA were proposed by George Bennett (to contribute money) or Dromore (to subordinate security) that would improve the outcome for unsecured creditors. Counsel accepted that it is the DOCA that matters, since securities could be invalidated in the context of liquidation. Counsel submitted that before George Bennett and Dromore put forward a DOCA proposal, what they really needed to know was the position with respect to AGS so that what they propose will be better than what unsecured creditors can obtain in a liquidation of the Company.

58    Counsel submitted that where the proposal of a DOCA is possible and there is no prejudice to creditors in the meantime, there is no need to rush the Company into liquidation and remove the option of a DOCA which may be to the benefit of creditors.

59    It is Mr Purchas’ evidence that he is not aware of any prejudice creditors would suffer by reason of an extension to 30 September 2021. Counsel for Mr Purchas submitted that there was no practical prejudice to AGS from the continuation of the administration because:

(a)    On Mr Booth’s evidence, the remaining units and villas are worth, conservatively, $10 million while AGS’ debt is in the order of $1.5 million. If AGS is right and it is the only secured creditor, it is entitled to have its security with respect to the registered judgments and accruing interest and that would be the same result in liquidation. Two months is not going to be the difference between AGS being paid and not being paid;

(b)    The administrators are actively selling units and their capacity to do that rests in AGS’ hands in light of AGS’ caveat and the authority given to the administrators by Kurrajong and Dromore to release their caveats to permit the sale of units;

(c)    AGS has not demonstrated any practical prejudice to it. For AGS to enforce its claimed security, it would be necessary for it to obtain orders for sale, but proceedings for those orders are likely to be opposed by Kurrajong or Dromore who also claim security over the units and villas. Any such orders might also be opposed by a liquidator if the liquidator was not satisfied of the validity of AGS’ claims to hold security. So AGS’ capacity to enforce its claimed security in the timeframe is “very questionable”; and

(d)    There is no suggestion that AGS would be able to sell the units or villas any more quickly than the administrators.

60    Counsel submitted that the proposed extension will allow the administrators to sell further units which is to the benefit of all creditors. Upon the sale of the seventh unit (six having been sold at the time of the hearing and a further possible purchaser identified) counsel submitted that the “initial period” under the Strata Schemes Management Act 2015 (NSW) would expire. Once the initial period expires (among other things) a strata committee can be formed and, at the first annual general meeting, it can decide the amount of contributions required to be made to the administrative and capital works funds, a maintenance schedule and building defects and rectification can be identified. Until that time, the Company remains responsible for maintenance and costs associated with the Property.

61    The administrators submit that other relevant factors which weigh in favour of extending the convening period are:

(a)    The majority of creditors support the extension: see Re South Burnett Wines Limited (Administrators Appointed) [2004] NSWSC 1239; (2004) 52 ACSR 298 at [14] (Campbell J). In this regard, I take the administrators to be relying on the outcome of the resolution put to the COI (see [42] above);

(b)    There are no employees: see Re AFG Insurances Ltd [2002] NSWSC 803 at [11]. I note that at [11], Barrett J stated that he was influenced (among other reasons) to make orders extending the convening period because there were “no employees and others” who would suffer unduly from continuation of a statutory moratorium;

(c)    Where the company under administration was involved in pending litigation the outcome of which may have a substantial effect on the funds which might have been available to creditors: see Re Old Papa’s Holdings Ltd; ex parte Wallman [2001] WASC 188; (2001) 24 WAR 229 at [13] (Owen J).

AGS’ submissions

62    AGS placed particular emphasis on Crawford at [20(2)]. It claims that it will suffer prejudice arising from the moratorium on enforcing secured creditors’ remedies. It says it is a secured creditor and entitled to lodge caveats over the remaining strata units by reason of the registered judgments obtained on 1 July 2021 and clause 28 of its contracts with the Company which provide:

Upon an order or judgement by a Court or Tribunal for money due under this contract, the Owner agrees to charge the parcel of land on which or on part of which the works are to be or were erected to secure the payment of that order or judgement.

63    Contrary to the administrators’ submissions, the registration of the adjudication certificates did not constitute bringing a proceeding in a Court: see Nelson v Cyran [2015] QCA 226 at [54.5] (Morrison JA). Therefore, the registration of the adjudication certificates did not contravene the prohibition in s 440D of the Act. However, and without prejudice to AGS’ rights to contend otherwise, the moratorium imposed by s 440B of the Act may prevent the security interests from being enforced by AGS while the administration continues; there is no such embargo if the Company is wound up (see s 471C of the Act).

64    AGS points out that “unduly long” extensions of the convening period are inconsistent with the objects of Part 5.3A and relies on my decision in Clubb, in the matter of DS Opco Pty Ltd (administrators appointed) (receivers and managers appointed) [2019] FCA 2206; (2019) 141 ACSR 497 at [48].

65    AGS submitted that, in the context of this administration, a period of “more than two months” is unduly long as:

(a)    The Company’s activities are limited to a single development therefore its affairs are relatively straightforward and “far from complex” and its business does not actively trade. Relying on Mr Purchas’ affidavit at [17] and [76]-[78], AGS points out that the Company has no employees and there is no prospect of a sale of its business;

(b)    What needs to be done is the realisation of assets by the sale of the remaining strata lots and the assessment of the claims of creditors so that the Company’s assets may be used to meet those claims, classically, matters to be done in a winding up. The sooner the Company is put into liquidation, the earlier the “egregious conduct” identified below may be investigated;

(c)    The circumstances of the Company have few, if any, of the features that have been described as warranting an extension of a convening period identified by Austin J in Re Riviera at [13]. Of note:

(i)    The Company is not part of a complex corporate group structure with numerous or complicated assets and intercompany loans;

(ii)    The Company does not have a large number of employees;

(iii)    The Company has not entered into complex transactions;

(iv)    The administrators are not seeking to progress a sale of business as a going concern;

(v)    There is no DOCA proposed that requires thorough assessment; or

(vi)    More generally, additional time is not likely to enhance the return to creditors.

(d)    There was “highly questionable and suspect activity” in the conduct of the Company’s affairs before the administrators were appointed, all of which warrants early investigation in the context of a winding up and, in due course, action by the Company’s liquidator to set transactions aside. The “egregious conduct” includes:

(i)    Kurrajong acquiring the Property for $1 million in August 2019 and, within three months and without change in the status of the land, selling the Property to the Company in November 2019 for more than quadruple that amount;

(ii)    The asserted “vendor finance” provided by Kurrajong to the Company which is the basis of Kurrajong’s claim to be a creditor of the Company;

(iii)    The Company’s failure to pay the determinations in AGS’ favour;

(iv)    The Company’s procurement of an injunction before AGS could be issued adjudication certificates capable of being registered as judgments on the basis that the Company would pay money into Court which it did not pay;

(v)    The Company’s use of the three day period after the injunction was obtained to grant security over its assets in favour of two related parties;

(vi)    The appointment of the administrators on the day the Company was due to pay money into Court in circumstances where there were discussions in place between Mr Purchas, Mr Woodhead, Mr Bower and David Bennett in the week preceding the appointment;

(vii)    None of the foregoing matters being drawn to the attention of the Supreme Court when the injunction was obtained.

66    Insofar as Mr Purchas’ evidence suggests that an extension of the convening period is required so that a DOCA may be formulated:

(a)    On Mr Purchas’ evidence, that is dependent on determination of AGS’ claim against the Company, but that is a matter that may remain in dispute regardless of the administrators’ assessment;

(b)    There is presently no DOCA proposal, not even something inchoate or embryonic. There is no present alternative to winding up; and

(c)    In response to the administrators’ submissions, counsel for AGS submitted that the decision to extend the convening period in Silvia needs to be considered in its whole context, which involved a group of 37 active and 123 dormant companies, the group owned 17 investment or development properties, there were extensive cross-collateralised securities and obligations and 10 secured lenders were owed $550 million. The same can be said of the decision in Fitzgerald where there would not be anything left for unsecured creditors if the bank’s security was valid. The existence in this case of three claimed security holders does not justify the extension sought by the administrators as the issues around those securities can be addressed in the Company’s liquidation.

67    Counsel submitted that there is no advantage in having AGS’ claims assessed in an administration rather than while the Company is being wound up because:

(a)    AGS’ claims have already been assessed through the adjudication process on the basis of hundreds of pages of evidence. One claim was fully upheld and the other was substantially upheld such that the Company was required to pay the costs of the adjudication process; and

(b)    The administrators’ assessment on the basis of a quantity surveyor’s report will not be a formal adjudication of AGS’ proof of debt. Similarly, the administrators’ assessment of the claims of Kurrajong and Dromore are not determinative. That will have to await a DOCA or liquidation. Accordingly, the administrators’ submissions and reasoning that a DOCA proposal must await any of those assessments is based on a false premise.

68    Counsel further submitted that the Court should not accept the submission that the extension is required so as not to frustrate the possibility of a DOCA being proposed because:

(a)    There is not even an embryonic DOCA proposal;

(b)    Liquidation does not preclude a DOCA or make its proposal more difficult: see s 436B of the Act;

(c)    It is unlikely that the required degree of certainty as to the status of amounts owed and security held by Kurrajong, Dromore and AGS can be attained and a DOCA put forward within the two month timeframe proposed by the administrators is not necessary to achieve this.

69    Counsel submitted that if, contrary to AGS’ submissions, the Court was minded to grant an extension, it should be for a very short period. The suggested period to produce a quantity surveyor’s report was six to eight weeks, but the administrators seek a 10 or 11 week extension.

The administrators’ submissions in reply

70    Counsel for the administrators submitted that:

(a)    This application is made on the basis that a DOCA may be proposed, which is consistent with the objects of Part 5.3A, including the potential for an outcome better than liquidation.

(b)    It is not necessary that the Company be placed in liquidation to determine the validity of security held by Kurrajong and Dromore because they can elect to vote on a DOCA and be bound by it should they “see the writing on the wall” concerning the validity of security given only two days before the administrators were appointed.

(c)    Of course there will not be a formal adjudication of AGS’ proof of debt by the administrators based on a quantity surveyor’s report. However, what the quantity surveyor’s report can do is assist the administrators in forming a recommendation to creditors and that is a purpose of seeking the extension.

(d)    The Court should not accept the suggestion that, because s 436B of the Act permits a company to go back into administration and then agree a DOCA, this is an efficient way of proceeding. It is not workable or appropriate in the circumstances of this case where there is no prejudice to anyone in an extension of the convening period for two months. It is more orderly to allow a “short extension” of two months and address any DOCA proposal in that context.

(e)    As AGS’ claimed security is an equitable charge over real property, it is going to have to bring proceedings in the Supreme Court for judicial sale orders. That proceeding will not be determined in two months where there are two other creditors who claim security over the same property and a liquidator would need to be satisfied.

(f)    The decisions in Silvia and Fitzgerald are authorities for the fact that the Court can extend a convening period even if there is no DOCA proposal and it is a mere possibility. Complexity is not a necessary ingredient. The Court will take into account possible prejudice to creditors in extending the convening period and after that, the Court may find that the mere prospect of a DOCA is a sufficient reason for extending the convening period. It is not a question of whether unsecured creditors get something or nothing, it is a question of whether there is a prospect of a better outcome for creditors. Here, there is no prejudice to creditors and the administrators are liquidating the Company’s assets.

71    After being pressed on the timeframe for the work required to be undertaken by a quantity surveyor and taking instructions, counsel for the administrators stated that a Newcastle based quantity surveyor had indicated that his report would take six weeks (including a visit to the Property) so that the administrators were in a position to shorten the proposed extension by two weeks.

Disposition

72    The power to extend the time for convening the second meeting is one that should not be exercised as of course.

73    AGS submitted that investigation of the amounts and security claimed by Kurrajong, Dromore and AGS could be conducted as effectively by liquidators as by the administrators and that liquidators would be in a position to take action invalidating security claimed by Kurrajong and Dromore while the administrators cannot. Liquidators would also be in a position to make determinations in relation to proofs of debt. AGS says, if necessary or desirable, it would be possible for an administrator to be appointed and a DOCA approved before the liquidation process is complete. Those submissions had some force given that the Company is a special purpose company and its affairs are relatively simple, although there is also force to the view that it may be that a proponent would be less likely to propose a DOCA after liquidation and that process might involve unnecessary cost.

74    Ultimately, in this case, I found that the 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 marginally favoured granting an extension until 16 September 2021. That decision was made taking into account the following factors.

75    The decision whether to make orders extending the convening period under s 439A(6) is a discretionary one. If, as here, the application is made before the end of the convening period set out in s 439A(5), there is no express guidance in s 439A as to matters which must be taken into account. However, it is well established that such discretions must be exercised judicially and having regard to the objects of Part 5.3A set out in s 435A of the Act.

76    In exercising the discretion, and without derogating from the authority of Re Riviera at [14], some care should be taken in over-reliance on a factor which has been relevant in an otherwise different factual matrix of another case. I have given some weight to the distinguishing factors from the case of Silvia observed by AGS; the scale and complexity of the operations of the group of companies involved in Silvia were important in persuading Lindgren J to make orders extending the convening period notwithstanding that no DOCA had yet been and might never have been formulated.

77    Nonetheless, Mr Purchas is an experienced administrator, with over 35 years’ experience in corporate insolvency. He has said that he is not in a position to formulate a recommendation to creditors without the assistance of a report from a quantity surveyor, relevant to his assessment of AGS’ claims and the position that the Company has taken that AGS owes it money. While, as submitted by AGS, it is true that Claims 19 and 20 have been the subject of individual assessment by appointed adjudicators, I note that the exercise that the quantity surveyor is being asked to undertake is broader than those claims.

78    The quantity surveyor’s report will assist Mr Purchas in forming a recommendation to creditors required by s 75-225 of the IP Rules. It may also be of assistance in informing the development of a DOCA by George Bennett and Dromore and to the administrators in negotiating and assessing any DOCA proposed. It may also be relevant to other creditors in adjusting their expectations. Those things may be of benefit to the outcome for established creditors which would be consistent with the objectives set out in s 435A. While George Bennett and Dromore have not formulated a DOCA to date, it is not mere speculation on the administrators’ part that they might be interested in doing so; it is Mr Purchas’ evidence that they have indicated their intention to do so.

79    I was also influenced by the facts that:

(a)    The grant of security to Kurrajong and Dromore two to three days before the appointment of the administrators raises obvious questions about the validity of that security;

(b)    Proceedings 2021/179439 are extant; those proceedings seek orders setting aside the determinations. The next listing in that matter is on 16 August 2021. The administrators have not yet decided whether to proceed with that action. It is therefore not clear when those proceedings may be determined;

(c)    AGS obtained the registered judgments (which are the basis for AGS’ claimed security under clause 28 of its contracts with the Company) after the administrators’ appointment without the written consent of the administrators or leave of the Court under s 440D. It is possible, but may be unlikely, that the Company’s application to the Supreme Court filed on 21 July 2021 will determine whether s 440D applies and whether the registered judgments should be set aside before the end of the extended convening period. Although AGS relies on the decision in Nelson v Cyran to establish the proposition that a judgment obtained by registration does not contravene s 440D, Nelson v Cyran was not decided in the context of s 440D and the validity of AGS’ claimed security is not clear.

80    It was not necessary for me to form a view of the merit of any attack on the amount or security claimed by Kurrajong, Dromore or AGS or the extant litigation between the Company and AGS; it is clear that they are matters which require investigation by the administrators to enable them to form opinions necessary to the formulation of a recommendation to creditors as to the alternative they should adopt at the second creditors’ meeting: see Fitzgerald at [5].

81    Further, while AGS’ consternation at the steps taken by the Company between 22 and 25 June 2021 is understandable, it is not relevant to whether the Court should grant an extension of the convening period even if, as asserted by AGS, the Company failed in its obligation of disclosure to Hammerschlag J on 22 or 24 June 2021 (which is not to say that such conduct would be condoned). AGS’ submissions note the fact that the administrators had conversations with Messrs David Bennett, Woodhead and Bower during that period, but that is not evidence that the administrators were aware of any failure by the Company to draw the Supreme Court’s attention to its financial condition or of the security granted by the Company to Kurrajong or Dromore on 22 and 23 June 2021 when the Company made the usual undertaking as to damages in relation to the grant of the interim injunction.

82    What is relevant is whether or not any creditor will be unfairly prejudiced by the statutory moratorium on the exercise of their rights during the administration. The Company has no employees and its major creditors (other than AGS) do not oppose an extension of the convening period to 30 September 2021.

83    I am satisfied that AGS is not unfairly prejudiced by an extension of the convening period to 16 September 2021 since, as a practical reality, it is unlikely that it will be in a position to prosecute any claim to security until proceedings 2021/179439 and the proceedings which were commenced on 21 July 2021 have been determined and during that time the administrators will be in a position to continue the sale of units and villas if AGS cooperates. There is nothing to indicate that the administrators will do anything other than seek to achieve the best outcome for creditors in effecting those sales.

84    Whether or not the administrators’ view as to the security held or amount claimed by Kurrajong, Dromore or AGS is sufficient to allow George Bennett and Dromore or any other person to propose a DOCA is a matter for them. I am satisfied that the administrators should be given the opportunity to obtain a report from a quantity surveyor within six weeks and advice concerning the validity of securities claimed so that they may formulate their recommendations by 16 September 2021.

85    For completeness, I note that in the course of submissions counsel for the administrators referred to the proposed extension of the convening period of two months as being a “short extension”. While it is true that over the past ten years this Court and State Courts have made orders for much longer extensions of convening periods, that has usually been in the context of large corporate groups with complex operations and financial structures and where the extensions are justified by a sale process which needs to accommodate a timeframe for a campaign to elicit expressions of interest, shortlisting of possible buyers, a due diligence process, negotiation of agreements with buyers and financiers and completion of the sale contract. This is not such a case, albeit that there are three creditors who each claim amounts and security which are problematic in different ways.

86    In making an order for extension to 16 September 2021, not 30 September 2021, I have taken into account the administrators’ revised evidence concerning the availability of a surveyor in Newcastle who can produce a report in six weeks and the legislative purpose that administrations should generally be speedy. I have adhered to the views I expressed in Harrisons Pharmacy at [46]-[47] which are relevantly as follows:

46.    While it is true that the discretion to be exercised by the Court should not have a predisposition in favour of speedy administration that would skew the balancing process, the issue of the extent to which the Court should maintain a supervisory role remains relevant to the period for which any extension requires consideration. This is so notwithstanding that there are a slowly growing number of precedents for extensions in the order of 6 months. An alternative approach was used in Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935 in which the Court granted an extension of one month with leave for reconsideration of a further period.

47    The Court should consider the appropriateness of the length of the extension sought, having regard to the availability under s 447A of the Act of further extensions in appropriate cases, so that the Court is in a position to monitor the manner in which the administration and any associated receivership is being conducted. Relevant considerations might include:

(a)    The extension should be for no longer than is required for a diligent exercise of the powers of the administrators and where relevant, as here, the receivers and managers. While successive applications to the Court involve cost, there are also fees incurred by administrators, receivers and managers which mount up over time and these are unnecessary expenses if the administrators or receivers and managers are not diligent. While it is true that, as here, it is possible for creditors to approach the Court during the period of the extension, the occasion of an application for an extension provides a forum for the creditors to have their voices heard, for example, in the subsequent applications in the case of ABC Learning: see Re ABC Learning Centres (No 8) (2009) 73 ACSR 478.

(b)    It is undesirable for claims which are subject to a moratorium to be extant any longer than necessary.

(c)    ...

(d)    Unnecessary delay in prosecuting an administration exposes the assets of the company to market risk.

(e)    The longer the administration and the receivership, the greater potential there is for the interests of the secured creditor and the unsecured creditors to diverge, to the detriment of the unsecured creditors.

(f)    It was the intention of the legislature that administrations be conducted expeditiously: Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) at [507], as mentioned by Austin J in Re Riviera Group Pty Ltd at [9].

87    Any quantity surveyor’s report received by the administrators and any resulting progress made towards a DOCA proposal by 16 September 2021, as well as any determinations made in the extant litigation by that date, may be influential in whether or not the administrators decide to seek a further extension of the convening period under s 447A, the assessment of likely prejudice to AGS by the continued moratorium during any further extension of the convening period and whether or not the Court should exercise its discretion to grant any further relief. The impact of the current pandemic on the capacity of the administrators to receive the surveyor’s report or otherwise in the administration may also assume relevance.

Associate:

Dated:    11 August 2021