Federal Court of Australia

Longley, in the matter of Dixon Advisory & Superannuation Services Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 950

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Corporations Act) the period within which the plaintiffs must convene the second meeting of the creditors of Dixon Advisory & Superannuation Services Pty Ltd (Administrators Appointed) (ACN 103 071 665) (the Company) be extended up to and including 30 November 2022.

2.    Pursuant to s 447A(1) of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to the Company as if the second meeting of the creditors of the Company required by s 439A of the Corporations Act be held at any time during, or within 5 business days after the end of, the convening period as extended by the order at paragraph 1 above, notwithstanding the provisions of s 439A(2) of the Corporations Act.

3.    Within 3 business days of the making of these orders, the plaintiffs cause notice of these orders to be given to creditors of the Company in accordance with the requirements specified in paragraph 3 of the orders made on 16 February 2022 in this proceeding.

4.    Liberty be granted to any person who can demonstrate sufficient interest to modify or discharge the orders made pursuant to this application on not less than 48 hours’ notice to the plaintiffs.

5.    The plaintiffs’ costs of the application are costs in the administration of the Company.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The plaintiffs (the Administrators) are the administrators of Dixon Advisory & Superannuation Services Pty Ltd (Administrators Appointed) (ACN 103 071 665) (the Company).

2    On 16 February 2022, Anastassiou J made orders under ss 439A(6) and 447A of the Corporations Act 2001 (Cth) extending the convening period for the second meeting of the creditors of the Company (which period was otherwise scheduled to end on 17 February 2022) (the First Extension): Longley, in the matter of Dixon Advisory & Superannuation Services Pty Ltd (Administrators appointed) [2022] FCA 471. The effect of the First Extension was to extend the convening period to 17 August 2022.

3    The Administrators now seek a further extension of the convening period to 30 November 2022 (the Proposed Further Extension).

4    The Committee of Inspection appointed by the Company’s creditors has resolved in favour of the Proposed Further Extension. The Australian Securities and Investments Commission (ASIC) has been advised of, and does not oppose, the Proposed Further Extension.

5    The Proposed Further Extension will permit the Administrators to continue their work in securing a deed of company arrangement proposal (the DOCA Proposal) for creditors’ consideration, such that they can report to creditors, and make an informed recommendation, in advance of the creditors’ meeting that will determine the fate of the Company.

6    For the reasons that follow, which are substantially based on the plaintiffs’ outline of submissions, I consider it appropriate to make the orders sought.

Background

7    The circumstances giving rise to the application are set out in the affidavits of Stephen Graham Longley (one of the Administrators) dated 14 February 2022 (the First Longley Affidavit) and 11 August 2022 (the Second Longley Affidavit).

8    On 19 January 2022, the Administrators were appointed to the Company. The Company, a subsidiary of an ASX-listed entity (E&P Financial Group Ltd (EP1)), held an Australian financial services licence and, prior to entering administration, provided investment and financial advice and related services to its clients.

9    As at the date of the Administrators’ appointment, the Company had approximately 4,000 active clients and an estimated 2,000 former clients, each of whom is a potential creditor of the Company.

10    The complexity of the administration is compounded by the fact that the Company is subject to at least four court proceedings, including a proceeding by ASIC seeking civil penalties against the Company and two representative proceedings.

Applicable principles

11    Sections 439A(6) and 447A appear in Pt 5.3A of the Corporations Act (Administration of a company’s affairs with a view to executing a deed of company arrangement). The overall object of Pt 5.3A of the Corporations Act (as stated in s 435A) is to maximise the chances of the company involved or its business continuing in existence or achieving a better return for the company’s creditors and members than would otherwise be achieved by an immediate winding up.

12    Section 439A(1) of the Corporations Act requires the administrator of a company under administration to convene a meeting of creditors within the convening period as fixed by s 439A(5), unless extended by the Court under s 439A(6). The meeting must be held within five business days before, or within five business days after, the end of the convening period: s 439A(2).

13    The purpose of the second meeting of creditors required by s 439A is to consider the company’s future. At the meeting convened under s 439A, the creditors may resolve that either: the company execute a deed of company arrangement; the administration end; or the company be wound up: s 439C. Rule 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRC) requires an administrator to provide a report to creditors about the company’s business, property, affairs and financial circumstances to assist the creditors with making their decision at the meeting convened under s 439A.

14    The principles relevant to an application for a further extension of a convening period were discussed by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 7) [2020] FCA 1182 at [12]-[14]:

12    The Court has power to make orders under s 447A(1) of the Corporations Act to extend, on a subsequent occasion, the convening period for the second meeting of creditors of a company: Lombe re Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [32]; Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 (‘South Wagga Sports and Bowling Club’); ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 8) [2009] FCA 994 at [53].

13    There are many occasions in which Courts have granted further extensions of the convening period (that is, after an initial extension): eg, Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (No 2) [2010] FCA 499 at [36]; In the matter of Harrisons Pharmacy Pty Limited (Administrators Appointed) (Recs and Mngrs Apptd) [2013] FCA 1102; Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 5) [2013] FCA 1443; Gothard, in the matter of Sherwin Iron Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2015] FCA 401 at [33]; In the matter of Acquire Learning Pty Ltd (ACN 168 523 279) (administrators appointed), Acquire Learning & Careers Pty Ltd (ACN 159 509 323) (administrators appointed) and Acquire Retail Pty Ltd (ACN 167 927 693) (administrators appointed) [2017] VSC 572 (‘Acquire Learning’); Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 4) [2020] FCA 671 (‘CBCH Group’); Billingsley (Administrator), in the matter of B K Chemists Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1059.

14    The principles that apply when considering a further extension are the same as those that apply for any extension of the convening period: South Wagga Sports and Bowling Club at [9]; Acquire Learning at [12]; Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 at [19]; CBCH Group at [25]. These principles are summarised in Virgin No 2 at [64]-[68].

15    As referred to in the above passage (at [14]), the principles and authorities governing an application to extend the convening period were set out in another of the judgments of Middleton J pertaining to the administration of the Virgin Australia companies, namely Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347, as follows:

64.    The circumstances in which the Court will extend a convening period are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611 (Young J); Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10] (Barrett J).

65    The approach to be adopted was recently set out by Thawley J in Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Limited [2019] FCA 11 at [3]-[8], where his Honour endorsed the comments of Austin J in In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs. apptd) [2009] NSWSC 585 (‘Re Riviera’) at [13] as to the categories of cases in which an extension is granted including, relevantly:

(1)    where the size and scope of the business in administration is substantial (citing Lombe, in the matter of Babcock & Brown Limited (Administrators Appointed) [2009] FCA 349; Worrell; In the matter of Storm Financial Ltd (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70; and ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947);

(2)    where the extension will allow sale of the business as a going concern, citing 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; and

(3)    more generally, where 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 & Recreation Club Ltd (under Administration) [2008] FCA 622.

66    An extension of the administration period to facilitate either (or both) of: (a) the sale of the business of the company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 (Jacobson J); Re Riviera (Austin J); Silvia, in the matter of Austcorp Group Ltd (Administrators Appointed) [2009] FCA 636 (Lindgren J) (‘Re Austcorp’); and In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 (Black J).

67    In Mighty River International Ltd v Hughes (as deed administrators of Mesa Minerals Ltd) (2018) 359 ALR 181 at 201-202, [73], Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases including Re Riviera and concluded:

… Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator’s estimate of time has had a reasonable basis, the courts have tended to grant extensions for the periods sought by administrators. …

68    Finally, the administrator’s own opinion as to the need for an extension will be given weight in an application of this kind: Owen and Others in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (ACN 116 665 304) (admins apptd) (recs and mgrs. Apptd) v Madden (No 4) (2012) 92 ACSR 255 at [26] (Logan J); In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J).

Application of principles to the present case

16    The factors relevant to the exercise of the discretion to further extend the convening period in this case are considered below.

More time is needed by the Administrators to report to creditors so that creditors can make an informed decision

17    The principal consideration is that further time is required for the DOCA Proposal to be negotiated and assessed, in advance of a report being provided to creditors in accordance with r 75-225(3) of the IPRC.

18    At the time of the Company entering administration, EP1 stated that it aimed to propose a deed of company arrangement “which provides for the comprehensive settlement of all DASS [Dixon Advisory and Superannuation Services Pty Ltd] and related claims (including the representative proceedings) in a manner which provides for equitable treatment of all DASS clients/creditors”. Despite this indication, no DOCA proposal was received by the Administrators until 9 August 2022, and then only in an embryonic form. This delay has been attributed, in part, to the uncertainty regarding the availability of insurance proceeds to form part of any deed fund available for creditors.

19    In relation to the Proposed Further Extension, Mr Longley has stated that the Administrators have not had (and will not have had, by 17 August 2022) sufficient time to negotiate the terms of the DOCA Proposal and any related settlement deed, to consult with the Committee of Inspection regarding the DOCA Proposal, and to report to creditors regarding the merits of the DOCA Proposal (relative to the winding up of the Company). The necessary tasks to be completed in that regard, which are detailed at paragraph 80 of the Second Longley Affidavit, are expected to take in the order of four to six weeks after the determination of an interlocutory application made in one of the representative proceedings against the Company (which application is scheduled to be heard on 7 September 2022). Mr Longley’s evidence is that the Administrators anticipate finalising a DOCA Proposal around the end of October 2022 or early November 2022, at the earliest.

20    In the absence of a further extension, the Administrators would recommend that creditors place the Company into liquidation (an outcome adjudged to be adverse for creditors). Mr Longley has also explained the prospect of an adjournment of any creditors’ meeting convened within the existing convening period, which will be productive of material cost and potential confusion for creditors.

21    I note that, in the Administrators’ opinion, the Proposed Further Extension is in the best interests of the creditors of the Company.

Creditors’ attitude to extension

22    On 10 August 2022, the Committee of Inspection, having been appointed by creditors of the Company at the first meeting of creditors to represent creditors’ interests, formally resolved in favour of the Proposed Further Extension. For reasons deposed to by Mr Longley, creditors of the Company more generally have not been notified of the application. However, all creditors will be notified of the outcome of this application and will be provided with an update regarding the steps to be taken in advance of convening the second meeting of creditors. The Administrators’ assessment is that prolongation of the administration is in creditors’ interests and the Administrators are not aware of any party that would suffer specific prejudice by reason of the Proposed Further Extension.

The period of the Proposed Further Extension is appropriate

23    The authorities indicate that courts are generally willing to tailor the timeframe in Pt 5.3A to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Pt 5.3A. In this instance, the time required, prior to convening the second meeting of the Company’s creditors, exceeds the time that is typically needed in less complex administrations.

24    While the effect of the Proposed Further Extension will be a total extension of more than nine months, the evidence serves to establish that such an extension is appropriate in all the circumstances. In particular, there is unlikely to be any prejudice to creditors from a continuation of the administration for the period sought. Classes of creditors that may be adversely affected by the extension of a voluntary administration (such as landlords and employees) do not form part of the Company’s creditors.

25    In light of the matters that remain to be attended to by the Administrators (as deposed to by Mr Longley), the length of the proposed extension is designed to ensure that the creditors’ exercise of their right to determine the future of the Company will occur at a time when creditors are apprised of all relevant information (most pertinently, the details of the finalised DOCA Proposal).

26    As occurred with the First Extension, the Administrators seek a ‘Daisytek’ order (Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446) pursuant to s 447A of the Corporations Act, which will provide flexibility as to the date on which the meeting of creditors is convened, by providing that the meeting may be held at any time within the (extended) convening period and the period of five business days thereafter.

Conclusion

27    For the above reasons, I am satisfied that the Proposed Further Extension will produce an outcome that is consistent with the overall object and purpose of Pt 5.3A of the Corporations Act. That assessment reflects the Administrators’ considered opinion and is supported by the endorsement of the Proposed Further Extension (including its duration) by the Committee of Inspection.

Associate:

Dated:    16 August 2022