Federal Court of Australia

Goyal, in the matter of Soda Shades Pty Ltd (Administrators appointed) v Imatta Company Limited [2022] FCA 587

ORDERS

THE COURT ORDERS THAT:

1.    The Interlocutory Process dated 17 May 2022 (Interlocutory Process) is returnable at 4:00 pm on 19 May 2022.

2.    Pursuant to rule 1.34 of the Federal Court Rules, 2011 (Cth), service of the Interlocutory Process is dispensed with.

3.    Pursuant to section 439A(6) of the Corporations Act, 2001 (Cth) (Act), the date of the convening period as defined by section 439A(5) of the Act, for the second meeting (Second Meeting) of creditors of the Second Plaintff (Company) required by section 439A of the Act is extended up to and including 1 September 2022.

4.    Pursuant to section 447A of the Act, Part 5.3A of the Act is to operate in relation to the Company as if the Second Meeting may be convened and held at any time during the period as extended by the order in paragraph 3 above, or within five (5) business days thereafter, notwithstanding the provisions of 439A(2) of the Act.

5.    The Plaintiffs have leave to apply for any further extension of the convening period referred to in the order in paragraph 3 above, or any other matter arising in the administration of the Company generally.

6.    Pursuant to section 447A(1) of the Act and/or section 90-15 of the Schedule 2 – Insolvency Practice Schedule (Corporations) of the Act (Schedule), Part 5.3A of the Act is to operate in relation to the Company such that the requirements on the First Plaintiffs to issue notices under rules 75-15 and 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Rules) are modified such that notice of the Second Meeting will be validly given to the creditors of the Company (including the persons claiming to be creditors) by, not less than 5 business days prior to the date of the proposed meeting:

(a)    sending such notice electronically to the email address of the creditors of the Company for whom the First Plaintiffs have an email address;

(b)    sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act, the Schedule or the Rules to any creditors of the Company not being a creditor referred to in sub-paragraph 6 (a) above; and

(c)    causing such notice to be published in the Insolvency Notices website located at: https://insolvencynotices.asic.gov.au/.

7.    Pursuant to section 447A(1) of the Act and/or section 90-15 of the Schedule, Part 5.3A of the Act is to operate in relation to the Company such that any notice (other than a notice referred to in the order in paragraph 6 above), report and communication that the First Plaintiffs must or may give or send to creditors of the Company (including the persons claiming to be creditors) may be given or sent as follows:

(a)    sending such notice, report or communication electronically to the email address of the creditors of the Company for whom the First Plaintiffs have an email address;

(b)    sending such notice, report or communication to the postal address or facsimile number, or otherwise as provided for by the Act, the Schedule or the Rules to any creditor of the Company not being a creditor referred to in sub-paragraph 7(a) above;

(c)    providing a creditor of the Company, upon receipt of a written request, with a copy of any such notice, report or communication; and

(d)    permitting a creditor of the Company, upon receipt of a written request, to inspect a copy of any such notice, report or communication.

8.    The First Plaintiffs give notice of the orders made by the Court to the creditors of the Company by:

(a)    placing a copy of the orders made by the Court on the website maintained by the First Plaintiffs at www.kordamentha.com; and

(b)    sending a copy of the orders made by the Court by:

(i)    email to any creditor of the Company for whom or which the First Plaintiffs have an email address; and

(ii)    mail to all other creditors of the Company for whom or which the First Plaintiffs do not have an email address.

9.    Liberty to apply is granted to any person who can demonstrate sufficient interest to discharge or vary these orders on the giving of reasonable notice to the Plaintiffs.

10.    The Plaintiffs’ costs of and incidental to this application are costs and expenses in the administration of the Company, and are to be paid out of the assets of the Company.

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

REASONS FOR JUDGMENT

GOODMAN J

INTRODUCTION

1    By Interlocutory Process filed on 17 May 2022, the first plaintiffs, Mr Rahul Goyal and Ms Catherine Conneely, in their capacity as Voluntary Administrators of the second plaintiff (Soda Shades Pty Ltd (Administrators Appointed)) sought orders pursuant to s 439A(6) of the Corporations Act 2001 (Cth) extending the convening period for the second meeting of creditors, together with ancillary orders.

2    The evidence on the application comprised affidavits of Mr Goyal affirmed on 26 April 2022 (together with Exhibit RG-1 and Confidential Exhibit RG-2 to that affidavit), 17 May 2022 (together with Exhibit RG-3 to that affidavit) and 19 May 2022.

3    On 19 May 2022, I made the orders sought by the Administrators. These are my reasons for doing so.

BACKGROUND

4    The salient features of Mr Goyal’s evidence are set out below.

5    Soda was incorporated on 28 September 2017. The directors and shareholders of Soda are Ms Georgie Saggers and Mr Luke Young. Soda’s business involves designing sunglasses; arranging for their manufacture overseas; and the sale of those sunglasses through its own website and through third-party websites.

6    In about August 2021, Ms Saggers and Mr Young commenced negotiations with Mr Joshua Matta concerning loan funds and a subscription for shares in Soda. Mr Matta is the sole director of Imatta Company Limited and Imatta International Pty Ltd. Those negotiations continued into 2022.

7    On 11 April 2022, Imatta Company, issued a demand to Soda for the payment of $1.34 million.

8    On 12 April 2022, Ms Saggers and Mr Young met as directors of Soda and resolved that the Administrators be appointed under s 436A of the Act on the basis that Soda was “insolvent or likely to become insolvent …”.

9    On 27 April 2022, the plaintiffs filed an Originating Process which named Imatta Company and Imatta International as defendants. The orders sought include orders concerning approximately 95,000 pairs of sunglasses which are in the possession or control of Mr Matta. At issue is the ownership of those sunglasses, including the effect, if any, of security interests purportedly registered by the defendants under the Personal Property Securities Act 2009 (Cth) over Soda (Stock Claim).

10    Later on 27 April 2022, the Administrators held the first meeting of the creditors of Soda. No committee of creditors was appointed and no other resolution was advanced.

11    On 3 May 2022, the Originating Process was returnable before Markovic J. Her Honour made orders for the parties to file and serve their evidence concerning the Stock Claim; and listed the proceeding for a case management hearing on 24 May 2022.

12    On 17 May 2022, the Administrators formally notified Soda’s creditors of the present application. Given the very short notice period, the orders sought by the Administrators and made on 19 May 2022 included a grant of liberty to any interested person to apply to vary the orders made by the Court.

13    Mr Goyal’s evidence includes the following:

(1)    the Administrators consider that the sale of Soda’s business as a ‘going concern’ is likely to produce the best return for creditors;

(2)    the Administrators intend to commence a sale process for the sale of Soda’s business;

(3)    such a sale cannot proceed until the Court determines the Stock Claim;

(4)    in order to properly investigate the affairs of Soda and to report the results of their investigations and their views to Soda’s creditors in accordance with s 438A of the Act and r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth), the Administrators must properly investigate the financial affairs of Soda and this, in turn, is dependant on the Court’s determination of the Stock Claim;

(5)    if an extension were granted, the meeting will be convened as early as is possible; and

(6)    an extension is likely to maximise the creditors’ chances of Soda or its business continuing to exist or, if that is not possible, to result in a better return for Soda’s creditors.

Legal Framework

14    Section 435A of the Act sets out the object of Part 5.3A of the Act:

435A  Object of Part

The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a)      maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)      if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

15    Section 439A of the Act, which is within Part 5.3A, provides:

439A      Administrator to convene meeting and inform creditors

(1)      The administrator of a company under administration must convene a meeting of the company’s creditors within the convening period as fixed by subsection (5) or extended under subsection (6).

(2)      The meeting must be held within 5 business days before, or within 5 business days after, the end of the convening period.

(5)      The convening period is:

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

(i)      that day; or

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

(b)      otherwise—the period of 20 business days beginning on:

(i)      the day after the administration begins; or

(ii)      if that day is not a business day—the next business day.

(6)      The Court may extend the convening period on an application made during or after the period referred to in paragraph (5)(a) or (b), as the case requires.

(7)      If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.

(8)      If an application is made under subsection (6) after the period referred to in paragraph (5)(a) or (b), as the case may be, then, in making an order about the costs of the application, the Court must have regard to:

(a)      the fact that the application was made after that period; and

(b)      any other conduct engaged in by the administrator; and

(c)      any other relevant matters.

16    Section 447A of the Act, which is also within Part 5.3A, provides in so far as is presently relevant:

447A      General power to make orders

(1)      The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

…

(3)      An order may be made subject to conditions.

(4)      An order may be made on the application of:

…

(c)      in the case of a company under administration—the administrator of the company; or

17    The Administrators were appointed on 12 April 2022. As the following day was fewer than 25 days before Good Friday (15 April 2022), the convening period is as prescribed in s 439A(5)(a), namely the period of 25 business days from 13 April 2022 (i.e. 13 April 2022 to 20 May 2022). As the application was made during the convening period, s 439A(7) and (8) do not apply.

18    The principles relevant to applications for an extension of a convening period are well settled.

19    In Algeri, in the matter of BHO Australia Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 234, Beach J said at [15] – [17]:

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.

20    The well accepted factors set out by Austin J in Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 at [13], include (relevantly to the present application):

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

…

•    the time needed to execute an orderly process of disposal of assets: Carter, in the matter of SFM Australasia Pty Ltd (Administrators Appointed) ACN 105 317 333 (No 2) [2009] FCA 419; ABC Learning Centres Ltd, in the matter of ABC Learning Centres Ltd; application by Walker (No 7) [2009] FCA 454;

…

•    where the extension will allow sale of the business as a going concern: Lombe Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; Stewart, in the matter of Kleins Franchising Pty Ltd (Administrators Appointed) (ACN 007 348 236) [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, in the matter of Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619 [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 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, in the matter of Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; in the matter of Marrickville Bowling and Recreation Club Ltd (under Administration) [2008] DCA 622.

21    The Administrators also rely upon:

(1)    Re Australian Discount Retail Pty Ltd [2009] NSWSC 110; (2009) 27 ACLC 115, where Barrett J said at [21]:

The second meeting of creditors is best held at a time when it is possible to give creditors fairly definitive financial information that will assist them in this decision making. In the present case, information about the financial consequences of a sale of the business is crucial, assuming such a sale eventuates. In addition, creditors' decision-making will be much more difficult and more complicated if they are compelled to make a decision about the company's future based on speculation about the possibility of a going-concern sale. Further time for the formulation and digestion of recommendations based on established realities will avoid the possibility of what might be a premature decision in favour of winding up as the only practically available option.; and

(2)    the statements by Logan J in Re Owen; RiverCity Motorway Pty Ltd (admins apptd) (recs & mgrs apptd) v Madden (No 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26], and by Black J in Re Pinnacle Drilling Pty Ltd (Admin Apptd) [2015] NSWSC 1051 at [8], that the Court should give weight to the considered judgment of administrators.

Consideration

22    I was satisfied that it was appropriate to make the orders sought by the Administrators for the following reasons.

23    First, the Stock Claim is an issue central to the administration. Its resolution will provide clarity for the purposes of a sale of Soda’s business as a going concern and enable the Administrators to report meaningfully to the creditors ahead of the second meeting.

24    Secondly, the extension of time allows for that resolution to occur. In this regard, I note that the orders made by Markovic J on 3 May 2022 contemplate the finalisation of affidavit evidence by 23 May 2022 and a case management hearing the following day. I also note the Administrators’ evidence that if an extension were granted the meeting would be convened as early as possible.

25    Thirdly, if the Stock Claim were to be resolved in favour of Soda this would likely increase the return to creditors.

26    Fourthly, the above matters are consistent with the purpose of Part 5.3A as set out in s 435A and are based on evidence as to the considered judgment of the Administrators as set out in Mr Goyal’s comprehensive affidavit evidence.

27    Finally, to the extent that any person wishes to assert that the orders made cause them prejudice, they may exercise the liberty provided in Order 9 to apply to vary or discharge those orders.

Associate:

Dated:    20 May 2022