Federal Court of Australia

Dickerson, in the matter of Disability Services Australia Limited (administrators appointed) (No 2) [2021] FCA 1133

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 439A(6) and 447A(1) of the Corporations Act 2001 (Cth) (the Act) and/or cl 90-15 of the Insolvency Practice Schedule (Corporations) (the IPSC), being Schedule 2 to the Act, s 439A of the Act operate as if the convening periods for the meetings of creditors of Disability Services Australia Limited (administrators appointed) and each of the other companies listed in the schedule (companies) required to be held pursuant to s 439A of the Act (second meetings) be extended to 27 December 2021.

2.    Pursuant to s 447A(1) of the Act and/or s 90-15 of the IPSC, Pt 5.3A of the Act operate such that the second meeting of creditors of each of the companies may be held at any time during, or within five business days after the end of, the convening period as extended by Order 1, notwithstanding the provisions of s 439A(2) of the Act.

3.    The first plaintiffs, within seven business days after the making of Orders 1 and 2, take all reasonable steps to give notice of these orders to the companies’ creditors (including any persons claiming to be creditors) in accordance with Order 4 of the Court’s orders made 1 September 2021.

4.    Any person who can demonstrate sufficient interest (including any creditor of the companies) for the purpose of modifying or discharging Orders 1 and 2 has liberty to apply on giving to the first plaintiffs and the Court not less than three business days’ written notice.

5.    The first plaintiffs have liberty to apply in respect of these orders on giving all interested parties not less than three business days’ written notice, including (without limitation) for the purpose of seeking any further extension of the convening periods as extended by Order 1.

6.    The first plaintiffs’ costs of and incidental to this application be costs and expenses in the administration of each of the companies and be paid out of the assets of the companies.

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

REASONS FOR JUDGMENT

YATES J:

1    The first plaintiffs (the administrators) are the joint and several administrators of the second plaintiff, Disability Services Australia Ltd (administrators appointed) (DSA), the third plaintiff, Macquarie Employment Training Services Ltd (administrators appointed) (Macquarie), and the fourth plaintiff, DSA Mentoring Services Ltd (administrators appointed) (Mentoring) – collectively the companies.

2    The administrators seek orders under ss 439A(6) and 447A(1) of the Corporations Act 2001 (Cth) (the Act) and cl 90 – 15 of the Insolvency Practice Schedule (Corporations) (Sch 2 to the Act) extending the convening periods for the second meeting of creditors of DSA, Macquarie, and Mentoring, respectively. Unless extended, the convening periods will expire on 22 September 2021. The administrators seek to extend the convening periods to 27 December 2021, an extension of 90 days.

3    The companies provide important services to people with a disability (known as participants). DSA is a not-for-profit organisation which is registered with the Australian Charities and Not-for-Profits Commission. It is a longstanding provider of disability support services in New South Wales. Macquarie is a registered training organisation that conducts funded and “for fee” traineeships as part of a program called Employment Solutions. This program provides tailored support to enable participants to gain and maintain sustainable employment. Mentoring was established to facilitate the transition of certain participants, in the program called Supported Independent Living, from the New South Wales government to DSA, in 2018 and 2019.

4    Macquarie and Mentoring are wholly-owned subsidiaries of DSA. Predominantly, all the companies’ assets and liabilities sit with DSA. The companies employ approximately 1,700 people across various regions in New South Wales, including Sydney. They operate 81 sites. Of these, 74 are leased from 27 separate landlords.

5    The administrators were appointed as administrators of DSA, Macquarie, and Mentoring on 25 August 2021 pursuant to s 436A of the Act. Through affidavits made by one of the administrators, Ms Dickerson, on 1 September 2021 and 15 September 2021, they have given an account of the steps they have undertaken in the administrations. It is not necessary for me to summarise those activities for the purpose of the present application, other than to note the following matters.

6    First, the first meeting of creditors of DSA and Macquarie were held, concurrently, by conference call on 6 September 2021. A meeting of Mentoring’s creditors was not held because a quorum could not be achieved. At the meeting on 6 September 2021, DSA’s creditors resolved to appoint a committee of inspection.

7    Secondly, the administrators have formed a working group of key stakeholders. The working group was formed before DSA’s committee of inspection was appointed. Members of the committee of inspection have been invited to join the meetings of the working group, which are held weekly.

8    Thirdly, and importantly to the present application, the administrators have commenced an expressions of interest (EOI) process for the recapitalisation or transfer of all or part(s) of the companies’ business by share sale, deed of company arrangement (DOCA), or transfer of assets. It is the administrators’ desire that they have a full opportunity to exploit this process. This stands as the most important reason for them seeking extensions of the convening periods, as I will now explain.

9    On 31 August 2021, the administrators issued an EOI flyer to 138 parties. To date, they have received a significant number of calls from interested providers in the disabilities sector. Interest has been expressed about acquiring the whole of the companies’ business.

10    The administrators have prepared a data room with business information which has been made available to verified, interested parties once those parties have executed a confidentiality agreement. They are also engaging with the National Disability Insurance Agency (NDIA) and the National Disability Services Insurance Scheme (NDIS) Quality Safeguards Commission to develop a transition plan for participants as part of the EOI process.

11    Ms Dickerson has expressed the opinion that, if the EOI process is reasonably straightforward, and there is a potential buyer who is interested in acquiring the whole of the companies’ business and assets, then a period of 8 to 10 weeks would be reasonable for the process to reach a stage where an unconditional offer is received in a form that is sufficiently detailed for consideration, and the proposal can be evaluated and then presented and recommended to creditors before the second meetings.

12    Ms Dickerson has outlined the main steps involved in achieving those outcomes. She has nevertheless cautioned that unexpected delays can occur and that running an EOI process too quickly might result in the business or assets being realised for less than optimal value.

13    Ms Dickerson has also drawn attention to the fact that the EOI process is complicated by the ongoing requirement to provide continuity of supports to participants. In this regard, her evidence is:

… Any transaction will need to ensure as a central consideration continuity of supports and services, and parties such as the NDIA and the NDIS Quality and Safeguards Commission will need to be consulted to facilitate a transfer of participants to the successful bidder. Given the complexity of supports provided to participants, and the sensitivity of the individuals involved, this process could take additional time. For example, if a DOCA or recapitalisation of the [c]ompanies was ultimately not viable and assets had to be transferred to various providers, this process may take several months as the [a]dministrators would have to facilitate the transfer of each participant to a new provider.

14    The marketing materials for the EOI process provide a nominal completion date of October 2021. Based on the complexity and size of the potential transactions, and the due diligence that interested parties will need to undertake, Ms Dickerson expects that the process will take longer to complete.

15    Ms Dickerson has deposed that, if the administrators do not have sufficient time to properly test the market by completing the EOI process, there will be a material risk that they will not secure a competitive offer for the sale of the companies’ business and assets or that any offer, albeit competitive, will be significantly lower in value than otherwise achievable.

16    Of course, Ms Dickerson cannot say whether a sale of the companies’ business and assets will be achieved. She has deposed that, if not achieved, the companies will need to proceed to liquidation. If this were to happen, the companies’ ability to continue to provide disability services to participants in the short term will be jeopardised.

17    Ms Dickerson says that a 90 day extension of the convening periods will allow sufficient time for the EOI process to run its course and for any viable offers to be put forward for consideration. Although the EOI process may conclude sooner, a 90 day extension will allow for delays which, in her experience, frequently occur in this context. She has deposed that a shorter time frame will pose a risk that the administrators will run out of time to complete the EOI process properly, possibly necessitating a second application to further extend the convening periods.

18    Ms Dickerson has deposed that she and her fellow administrators are not aware of any specific or material prejudice that would be suffered by any creditor or group of creditors if the convening periods were to be extended to 27 December 2021. She has expressed her belief, based on her review of the companies’ books and records, that the companies have sufficient cash to (a) meet the wages that will become payable to employees during the extended convening periods (other than those employees who have been placed on leave without pay because they have not complied with the Public Health (COVID-19 Additional Restrictions for Delta Outbreak) Order (No 2) 2021 in relation to vaccination or holding a medical contraindication certificate); and (b) the rent that will become payable to the landlords during that period.

19    Further, Ms Dickerson has said that if the EOI process is successful it may achieve the transfer of some of the employees to a new employer, and some of the leases to a new tenant. If some of the employees are able to be transferred, then it is possible that those employees’ accrued employment entitlements will be transferred with them. If this occurs, those outstanding employment entitlements would not need to be met by the companies’ estates or under the Fair Entitlement Guarantee Scheme should the companies’ estates be insufficient to meet those entitlements in full.

20    A further consideration supporting an extension of the convening periods is the administrators’ obligation to report to the creditors under r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth), including by expressing an opinion as to whether it would be in the creditors’ interests to execute a DOCA, to bring the administrations to an end, or to wind up the companies. Ms Dickerson has deposed that, without knowing the outcomes of the EOI process, she does not consider that she or her fellow administrators can make a properly reasoned recommendation to creditors.

21    The evidence before me shows that notice of the administrators’ intention to seek a 90 day extension of the convening periods has been given to interested parties, including creditors, over the period 6-14 September 2021, and that, as at the date of hearing this application, no interested person has voiced objection to the extensions being granted.

22    The principles which apply to the exercise of the discretion to extend the convening period for the second meeting of creditors of a company under s 439A of the Act are rehearsed in a number of cases. There is no need for me to add to what is an uncontroversial body of company law. In their written outline of submissions, the administrators have conveniently drawn attention to a recent summary of the principles in Tracy, in the matter of In2Food Australia Pty Ltd [2021] FCA 1104 at [4]-[6] with reference to Farnsworth v About Life Pty Limited (Administrators Appointed), in the matter of About Life Pty Limited (Administrator Appointed) [2019] FCA 11 at [3]-[6]. I am mindful of those principles.

23    Counsel for the administrators advanced five reasons why the extensions sought by the administrators should be granted. First, allowing time for the orderly process to which Ms Dickerson has referred is a well-recognised basis for exercising the extension power. Counsel drew attention to the prospect that a properly conducted EOI process may lead to better outcomes for employees, for landlords, and for the companies’ general body of creditors, for the reasons I have touched on above. Secondly, if an extension is not granted, there will be an appreciable risk that the companies will proceed directly into liquidation which, as I have noted, may prejudice their ability to provide disability services to participants in the short term. Thirdly, the administrators are not yet in a position to prepare a report to creditors or to make recommendations because of the need to complete the EOI process. Fourthly, the administrators are not aware of any specific or material prejudice that would be suffered by any creditor or group of creditors should the extensions be granted. Fifthly, the administrators’ opinion that it is in the best interests of creditors that the extensions be granted should be afforded some weight.

24    I accept these submissions. On the evidence before me, I am satisfied that a properly conducted EOI process is necessary in order to achieve the best outcome for the companies’ creditors as a whole, and that its complexity is such as to warrant a 90 day extension. Orders will be made accordingly.

Associate:

Dated:    17 September 2021

SCHEDULE OF PARTIES