Federal Court of Australia

Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 234

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in section 439A(5)(b) of the Act in respect of the second to nineteenth plaintiffs set out in the schedule (companies) is extended until 24 June 2022.

2.    Pursuant to section 447A(1) of the Act, Part 5.3A is to operate in relation to each of the companies such that, notwithstanding section 439A(2), the second meeting of the creditors of any of the companies required under section 439A may be convened at any time during, or within five business days after the end of, the convening period, as extended by paragraph 1 above, provided that the first plaintiffs (administrators) give notice of the meeting to eligible creditors of that or those companies as the case may be (including the persons claiming to be creditors of the said companies) at least five business days before the second meeting.

3.    Subject to paragraphs 4 and 5 below, pursuant to sections 80-55(5) and 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), leave be granted to the members of the committees of inspection (committees) formed in respect of:

(a)    Probuild Constructions (Aust) Pty Ltd (administrators appointed) (Probuild);

(b)    WBHO Infrastructure Pty Ltd (administrators appointed) (WBHO Infrastructure)

to derive a profit or advantage from the external administration of each of those companies (COI companies).

4.    No leave be granted for the members of the committees to receive any gift or remuneration from the external administration of either of the COI companies by reason of their position as a member of the relevant committee.

5.    Pursuant to section 447A of the Act and section 90-15 of the IPS, the Administrators are to:

(a)    keep a schedule noting each agreement entered into by the administrators on behalf of any of the COI companies with a member of the committees or any related entity of a member (COI agreements); and

(b)    provide an update to the committees, at each meeting of the committees, as to each of the COI agreements that the administrators have entered into on behalf of any of the COI companies.

6.    The administrators take all reasonable steps to cause notice of the Court’s orders to be given, within two (2) business days of the making of the orders, to:

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

(i)    where the creditor is a registered user on the Halo Platform (as defined in the affidavit of David Michael Orr sworn 28 February 2022) (Halo Platform) by publishing a notice on the Halo Platform;

(ii)    where the creditor is not a registered user on the Halo Platform but the administrators have an email address for the creditor, by notifying each such creditor, via email, of the making of the orders and providing a link to a website where the creditor may download the orders and the interlocutory process; and

(iii)    by placing scanned, sealed copies of the interlocutory process (as may be amended) and the orders on the website maintained by the administrators at https://www2.deloitte.com/au/en/pages/finance/artic les/wbho-australia-ptyltd.html; and

(b)    the Australian Securities and Investments Commission.

7.    The administrators have liberty to apply in relation to any further extension of the convening period referred to in paragraph 1 above at any time prior to 24 June 2022.

8.    The plaintiffs’ costs of and incidental to this application be costs in the administration of each of the companies, jointly and severally.

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

REASONS FOR JUDGMENT

BEACH J:

1    Before me is a second application made by the administrators concerning the administration of the Probuild group of companies. I previously made orders in respect of the first application (Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169); those reasons set out relevant background and explain various defined terms some of which I will continue to use.

2    The administrators of the companies now seek orders with respect to two matters. First, they seek to extend the convening period for the second meeting of creditors under s 439A(5)(b) of the Corporations Act 2001 (Cth) in respect of each of the companies until 24 June 2022. Second, they seek an order granting members of the committees of inspection for two of the companies leave to derive a profit or advantage from the administrations.

3    Let me deal first with the extension of the convening period. The convening period for the second meeting of creditors for each of the companies pursuant to s 439A(5) will, unless extended, expire on 24 March 2022, requiring the second meeting to be held for each company before 31 March 2022.

4    To date, the administrators’ efforts have concentrated on identifying the companies’ assets and liabilities, trading the businesses, dealing with stakeholders and commencing a sale process for each of the businesses of Probuild Constructions (Aust) Pty Ltd (administrators appointed), Monaco Hickey Pty Ltd (administrators appointed) and WBHO Infrastructure Pty Ltd (administrators appointed), being the sixth, eighteenth and third plaintiffs respectively.

5    And this is all in the broader context where the administration of the companies is complex, which complexity arises out of:

(a)    the number of companies in administration and the scale and nature of their affairs;

(b)    the fact that the businesses of Probuild Constructions, Monaco Hickey and WBHO Infrastructure are continuing to trade including in respect of up to 19 ongoing construction projects and seven active earthworks and civil construction contracts;

(c)    the number of disparate groups whose interests need to be considered including employees, union representatives, bondholders, lessors and financiers, trade creditors, government and overseas creditors;

(d)    the degree to which the assets, liabilities and interests of the companies interact; and

(e)    the guarantee obligations given by some of the companies in respect of the obligations of other companies in the Probuild group.

6    A sale process in respect of each of the Probuild Constructions, Monaco Hickey and WBHO Infrastructure businesses has commenced and is ongoing. The administrators have received expressions of interest concerning the Probuild Constructions and Monaco Hickey businesses. Moreover, on 7 March 2022 the administrators announced an in principle agreement to sell most of the Victorian assets of Probuild Constructions and Monaco Hickey to Roberts Co (Vic) Pty Limited which is subject to two weeks’ due diligence (Probuild heads of agreement) that is ongoing. Further, the administrators have received expressions of interest concerning the WBHO Infrastructure business and granted potential buyers access to a secure data room; further, final offers were requested to be received by 11 March 2022. I note that on 14 March 2022, a sale implementation deed was executed between WBHO Infrastructure and SRG Global Ltd concerning the former’s Western Australian businesses. Further, proposals may be received in respect of the remaining businesses. But the administrators presently do not anticipate that the sale process for each of the Probuild Constructions, Monaco Hickey and WBHO Infrastructure businesses will conclude until after 24 March 2022.

7    Further, the administrators presently do not have sufficient information to form a view as to the likely recommended outcome of the administration in respect of any of the companies. And in that context, and as required by s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR), at the second meeting the companies’ creditors would expect to consider a report prepared by the administrators about the companies’ business, property, affairs and financial circumstances, including a statement with reasons as to whether it would be in the creditors’ interests for the companies to execute a DOCA, including details of the proposed DOCA, or whether the administration should end and control of the companies be returned to the directors, or whether the companies should be wound up.

8    The administrators are of the opinion, which in my view is well justified, that it would be in the best interests of the companies’ creditors for the convening period to be extended by a period of three months for the following reasons. First, the additional time would enable an orderly process for the sale of some or all of the Probuild Constructions, Monaco Hickey and WBHO Infrastructure businesses as going concerns to be carried out and completed. If the sale process is successful, it would likely preserve existing relationships with employees, creditors and other stakeholders of the companies, and increase the likelihood that employees will retain their jobs. Specifically, the additional time will enable due diligence in respect of the Probuild heads of agreement to be carried out and negotiations with Roberts Co to be progressed. Second, the administrators require time for an assessment of any proposal to recapitalise aspects of any of the businesses by way of a DOCA. There is a prospect that a DOCA may be proposed. If such a proposal is made in respect of any of the other companies, and it is considered to be in the best interests of creditors, time will be required for the deed to be negotiated, considered and then presented to the creditors for their approval at the second meeting. Third, the administrators presently have insufficient information to prepare a report that would comply with section 75-225(3) of the IPR for all of the companies.

9    If the convening period is not extended and the second meeting is held, the administrators would likely have to recommend that the meeting be adjourned until such matters could be completed. This would result in there effectively having to be two meetings rather than one, with the result that substantial expenditure would be incurred and ultimately wasted in convening the meeting only for it to be adjourned to a further meeting. In any case, under s 75-140(3) of the IPR, the maximum period for which a meeting of creditors can be adjourned once convened is 45 business days, which adjournment is unlikely to allow the administrators sufficient time to complete the tasks required, such that a further application to the Court to extend the period of the adjournment would become necessary.

10    Further, due to the size and complexity of the companies and the administration, the administrators are still in the process of obtaining and reviewing the companies’ books and records, ascertaining the existence and the value of all potential claims, continuing to trade each of the Probuild Constructions, Monaco Hickey and WBHO Infrastructure businesses, and negotiating with relevant stakeholders for each of the active projects for the Probuild Constructions and Monaco Hickey projects and the active contracts for the WBHO Infrastructure business. The outcomes of these negotiations could materially impact the size of the creditor pool by crystallising contingent claims. This will impact the administrators’ assessment of the likely return to creditors in liquidation or any proposed DOCA. Further, the administrators are still determining the location of the companies’ assets, including those against which there are registered security interests.

11    In my view, an extension of the convening period to 24 June 2022 is likely to allow the administrators sufficient time within which to complete these outstanding tasks, and then report to creditors in a meaningful way.

12    Further, given the scale and complexity of the administration, and notwithstanding the statutory moratorium provided by Part 5.3A and its impact on the ability of creditors to enforce their rights, the proposed extension of the convening period is not likely to unduly prejudice the companies’ creditors. Indeed, there have been no objections from creditors. During the first meeting of creditors of the companies held on 4 March 2022, the administrators advised those present that they intended to approach the Court to apply for an extension of the convening period. There were no objections to that foreshadowed extension. Further, on 9 March 2022, a meeting of the committee of inspection formed in respect of WBHO Infrastructure was convened, and on 11 March 2022 a meeting of the committee of inspection formed in respect of Probuild Constructions was convened. At each of these meetings, the administrators advised those present that they intended to approach the Court to apply for an extension of the convening period. Again, no objection was raised by members of the committees of inspection.

13    Further, in any event it would seem that no specific prejudice will be suffered by creditors of the companies if the extension is granted. The administrators are continuing to cause many of the companies’ employees to remain in their roles and be paid in accordance with their employment terms. Further, the administrators do not believe that immediate liquidation, as opposed to an extension of the convening period, would produce a better outcome, including the ability of the companies to pay employee entitlements that have not yet crystallised. Further, it is likely that in a sale of the businesses whether directly or through a DOCA proposal, the employment of some employees will be preserved. This will enhance continuity of employment for those employees and reduce the companies’ potential liability to employees for accrued leave and redundancy payments and, consequently, reduce the size of the overall creditor pool. Further, in respect of specific projects which may not be the subject of any sale process, the administrators may transfer project specific subcontracts and employees to the principals of those projects, with the assumption by those principals of accrued employee entitlements.

14    Further, any limited prejudice that might be caused to particular creditors by an extension of the convening period is likely to be outweighed by the benefits to creditors as a whole conferred by the additional time available to carry out the steps that I have touched on earlier.

15    Let me now say something about the relevant principles that are not in doubt.

16    As I observed in Parbery, in the matter of NewSat Limited (Administrators Appointed) (Receivers and Managers Appointed) [2015] FCA 435 and in Secatore, in the matter of In-Fusion Management Pty Ltd (Administrators Appointed) [2016] FCA 1072, the Court has power to extend the convening period under ss 439A(6) and 447A, but in exercising this power the Court must have regard to the objects set out in s 435A, which seek to maximise the chance of the particular company under administration or as much as possible of its business continuing in existence, or if that is not possible, to achieve a better return for the company’s creditors than would result from an immediate liquidation. A central question is whether additional time is likely to enhance the return to creditors, particularly unsecured creditors. But the power to extend the time should not be exercised lightly, let alone as a matter of course. But Pt 5.3A should be given a commercial construction and application which reflects the reality of the setting in which both the relevant company under administration and the administrator find themselves. The Court must balance the expectation that administration will be a relatively speedy and summary matter against the consideration that undue speed should not be allowed to prejudice constructive commercial actions directed to maximising the return for creditors. The perspective from which Pt 5.3A should be applied should not be narrow, and its application should not be refracted through the pessimistic lens of an insolvency technician. And in that context, generally there is usually greater upside than downside in granting an extension for a reasonable period, where the reasonableness of the duration of the extension is contextualised by the particular circumstances.

17    Now as to the well accepted factors that may justify an extension, these were set out by Austin J in Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 at [13] and by Edelman J in Stimpson, in the matter of Eagle Boys Dial-A-Pizza Australia Pty Ltd (Administrators Appointed) [2016] FCA 935 at [8] to [10]. I do not need to repeat them.

18    In my view, applying such factors to the evidence before me, the extension sought is readily justified. Further, I will also make a Daisytek order under s 447A to deal with the operation of s 439A(2) (see Re Daisytek Australia Pty Ltd (Administrators Appointed) (2003) 45 ACSR 446 at [10] to [14] per Lindgren J). Such an order allows the administrators to hold the second meeting of creditors for each of the companies at any time during the extended convening period or within five days of its conclusion. This allows for the possibility that if the relevant steps can be completed earlier than anticipated in respect of one or more of the companies, then the administrators could hold the second meetings of creditors more promptly in a particular case.

19    Let me now turn to the leave question concerning members of the two committees of inspection formed in respect of Probuild Constructions and WBHO Infrastructure. Such members represent some substantial creditors of the companies, including subcontractors, clients and employees.

20    Now pursuant to s 80-55(1) of the Insolvency Practice Schedule (Corporations) (IPS), members of the committees of inspection must not directly or indirectly derive any profit or advantage from the external administration of any of the companies, subject to the leave of the Court. Section 80-55 operates broadly and the words “profit or advantage” capture a transaction “for or on account of” the company (s 80-55(2)). The section also creates an offence of strict liability (s 80-55(7)). In the present case the administrators seek an order under ss 80-55(5) and 90-15 that leave be granted to the members of the two committees of inspection so as to derogate from the prohibition on derivation.

21    Now prior to the enactment of the IPS, the relevant predecessor provision imposed prescriptive obligations on members of committees of inspection consistent with the principle that they were occupying fiduciary positions relative to the creditors, such that the relevant provision was directed to avoiding a conflict of interest and duty. But s 80-55 has altered the practical operation of the provision by extending the obligations to companies in an “external administration”, which includes the present context. And in that context, and as identified by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) (2020) 144 ACSR 347 (at [181] and [182]):

In an administration, the business of a company may continue to be traded; whereas, in a winding up, a company’s business comes to an end as part of the realisation of all its assets. Thus, in the case of a winding up, there would not be the potential for ongoing dealings between the company and its creditors. But the position is often different in the case of an administration, where the business is continuing to trade.

In those circumstances, unless the Court grants leave, the effect of the section may curtail the ability of the Administrators to trade the business of the Virgin Companies by preventing the Virgin Companies, without leave of the Court or the creditors, from continuing to contract with any counterparty who is a member of the Committee of Inspection.

22    As I have said, the administrators are undertaking a sale process as well as conducting negotiations with counterparties in relation to ongoing projects, subcontracts, leases and other agreements affecting the companies. And in that context some of the members of the committees of inspection, in their relevant capacities, may be counterparties or be associated with counterparties as part of negotiations during the administration of the companies in respect of the continuation of project works during the administration and, in respect of certain projects, the handover of project works to a new builder. So, in the absence of an order giving leave to the members of the committees of inspection to derive any profit or advantage from the administrations, the negotiation of ongoing arrangements with creditors and potential purchasers of the businesses may be hampered.

23    I am satisfied on the evidence that there is a valid purpose for leave to be granted under ss 80- 55(5) and 90-15. But my orders will ensure that the leave will operate on a limited and regulated basis. In particular, I have included orders that provide that no leave is granted for members of the committees to receive any gift or remuneration from the external administration of either of the two companies, that require the administrators to keep a schedule of each agreement entered into by the administrators on behalf of either of the two companies with a member of the committees or any related entity of a member, and that require the administrators to update the committees as to such agreements that the administrators have entered into on behalf of either of the companies. I should also say for completeness that I raised with counsel the scope of the phrase “related entity” and also whether members of the committees should make broader disclosure of their associated interests. But I do not propose to take such matters further at the present time.

24    For the foregoing reasons, I made the necessary orders this morning.

Associate:

Dated:    16 March 2022

SCHEDULE OF PARTIES