FEDERAL COURT OF AUSTRALIA

Rathner, in the matter of Citius Property Pty Ltd (Administrator Appointed) [2023] FCA 26

ORDERS

THE COURT ORDERS THAT:

Convening Period

1.    Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (the Act), the period within which the first plaintiff must convene the second meeting of the creditors of Citius Property Pty Ltd (administrator appointed) ACN 102 392 923 (the Company) is extended to and includes 3 February 2024.

2.    Pursuant to s 447A(1) of the Act, that Part 5.3A of the 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 Act be held at any time during, or within 5 business days after the end of, the convening period as extended by order 1 above, notwithstanding the provisions of s 439A(2) of the Act.

Notices to creditors to be provided electronically

3.    Pursuant to s 447A(1) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Act) (the IPSC) that if, pursuant to any provision in any of Part 5.3A of the Act, the IPSC, or the Insolvency Practice Rules 2016 (Cth) (the IPR), the first plaintiff is required to provide any other notification to creditors during the administration of the Company, the applicable notice requirements will be satisfied if the first plaintiff gives such notice by taking the following steps:

Ancillary Orders

4.    Within 2 business days of these orders, the plaintiffs cause notice of this originating process, and the orders made, to be given to creditors of the Company in accordance with order 3 above.

5.    Liberty to apply is granted to any person who can demonstrate sufficient interest to modify or discharge any or all of orders 1 to 3 above on not less than 48 hours’ written notice to the plaintiffs.

6.    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

O’BRYAN J

Introduction

1    On 29 December 2022, the first plaintiff, Mr Gideon Rathner (the Administrator), was appointed as administrator of the second plaintiff, Citius Property Pty Ltd (Citius), pursuant to s 436A of the Corporations Act 2001 (Cth) (Act).

2    By originating process filed on 20 January 2023, the Administrator applied to extend the convening period for the second meeting of creditors of Citius up to and including 3 February 2024, pursuant to s 439A(6) of the Act. The Administrator also sought an order under s 447A(1) that Part 5.3A operate in relation to Citius such that the second meeting of creditors of Citius required by s 439A of the Act be held at any time during, or within five business days after the end of, the convening period as extended by the Court. This type of order is colloquially known as a “Daisytek” order named after the decision in In the matter of Daisytek Australia Pty Ltd (administrators appointed) [2003] FCA 575; 45 ACSR 446.

3    The Administrator also sought orders pursuant to s 451E(3)(a) of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Act) (IPSC) to the effect that, if the administration of Citius ends because of a resolution or order for Citius to be wound up, the stay on the enforcement of certain contractual rights described in s 451E(1) of the Act continues to operate until the winding up of Citius is complete, and that the Administrator is justified and acting reasonably in proceeding on that basis.

4    The Administrator also sought various ancillary orders, including orders concerning the form in which notice of certain matters in relation to the administration of Citius is to be given to Citius’s creditors, the time by which notice is to be given, and the plaintiffs’ costs of the application.

5    The application was supported by affidavits sworn by the Administrator on 19 January 2023 (First Rathner Affidavit) and 23 January 2023 (Second Rathner Affidavit), written submissions dated 20 January 2023 and supplementary submissions of counsel advanced at the hearing.

6    The application was heard on 24 January 2023. It was not opposed. At the hearing, I made the orders sought by the Administrator extending the convening period for the second meeting of creditors of Citius up to and including 3 February 2024, the accompanying “Daisytek” order, and the other ancillary orders sought. I declined to make the orders sought by the Administrator regarding the operation of s 451E(1) in relation to Citius. These are my reasons for making those orders.

Background

7    Citius was incorporated on 1 December 2002. At all times since incorporation, Mr Simon Tobin has been the sole shareholder, director and secretary. Citius provides consultancy and project management services in connection with the development of industrial properties.

8    On 28 December 2022, following the delivery of an adverse judgment and the making of adverse costs orders in proceedings that Citius had pursued in the Supreme Court of Victoria, Mr Tobin resolved to appoint the Administrator as the administrator of Citius. Mr Tobin had determined that Citius would be unable to meet its liability for costs in that proceeding and that it was likely to become insolvent. On 29 December 2022, notice of the Administrator’s appointment as administrator of Citius was provided to ASIC.

9    The Administrator deposed that Citius had two employees, Mr Graham Rushton and Mr Scriven Chand. Mr Chand’s employment was terminated by Citius shortly prior to the Administrator’s appointment. Mr Rushton’s employment was terminated by Citius upon the Administrator’s appointment. Together, Mr Rushton and Mr Chand, as priority creditors, have claims totalling $57,498.

10    The Administrator deposed that the secured creditor claims totalled $1,614,971.01 as at 30 December 2022, comprising $1,549,497.04 owed to Westpac Banking Corporation and $65,473.97 owed to Ventura Capital Private Pty Ltd. The Company’s currently known unsecured creditor claims are estimated to total $1,744,734.87.

11    The Company does not own any real property. It leased office premises in the Melbourne central business district. However, the Administrator deposed that he gave notice of disclaimer of those premises to the landlord on 10 January 2023 pursuant to s 443B(3) of the Act.

12    The Company’s principal asset is an agreement dated 19 December 2018 between Citius and DWPL Nominees Pty Ltd and Dexus Wholesale Management Limited (Dexus Parties) for the provision of project management services by Citius in connection with a commercial property development project located in Ravenhall, Victoria (Dexus Agreement). The Administrator deposed that the Dexus Agreement remains on foot and that Citius continues to perform its obligations under that agreement.

13    The relevant terms of the Dexus Agreement are as follows.

(a)    The Dexus Parties appointed Citius to perform the Services (as defined) during the Term, and Citius accepted that appointment, on the terms and conditions of the agreement (cl 3.1).

(b)    The Term commenced on the date of the agreement (19 December 2018) and will continue until the End Date, meaning the date which is the first to occur of: 5 years from the date of the agreement (i.e. 19 December 2023); the completion of the project; or the sale of the property by the Dexus Parties to a third party (cl 1.1). The Administrator deposed that the Dexus Agreement is currently scheduled to expire on 19 December 2023.

(c)    In consideration of Citius duly and properly providing the Services in accordance with the Dexus Agreement, Citius will be paid the Fee and the Expenses (cl 9(a)).

(d)    The Fee includes the Fee for Staged Property Subdivision Works, which is fixed at $1,500,000 over the Term and will be paid in fixed monthly instalments of $25,000 per month (Annexure B, cl 2.2(a) and (b)).

(e)    The Fee also includes a Performance Fee of $250,000, which is pro-rated over the Stages of the Project and which Citius will be entitled to receive where a Stage reaches Completion by the Date for Completion of that Stage as stated in the Agreed Program. The Dexus Parties will pay Citius the Performance Fee within 10 Business Days of Completion of the relevant Stage (Annexure B, cl 2.3(a), (b) and (c)).

(f)    The Dexus Parties may immediately terminate the agreement by written notice to Citius upon the occurrence of any of the events specified in cl 16.1, which relevantly include:

(i)    the cessation of the Key Person (as defined in cl 1.1 to mean Mr Tobin and Mr Rushton) as a Key Person without the Dexus Parties’ written consent (cl 16.1(b)); and

(ii)    an Insolvency Event occurring in respect of Citius (cl 16.1(d)), where the term “Insolvency Event” is defined to include “tak[ing] any step to obtain protection or is granted protection from its creditors, under any applicable legislation or an administrator is appointed” (cl 1.1, para (i)).

14    Clause 16.1(d) of the Dexus Agreement is known as an “ipso facto” clause. It confers on the Dexus Parties a contractual right to terminate the agreement upon Citius entering administration, irrespective of Citius’s continued performance of its obligations under that agreement. The Administrator deposed that, as at 19 January 2023, the Dexus Parties had not given notice exercising their right to terminate the Dexus Agreement by reason of the appointment of an administrator to Citius pursuant to cl 16.1(d) of the Dexus Agreement.

15    On 10 January 2023, the first meeting of creditors of Citius was held. At that meeting, a resolution was passed to form a Committee of Inspection, the members of which are Damian Neylon, representing Neylon Legal Pty Ltd (the firm of solicitors acting for Citius in the Supreme Court proceeding and a creditor of Citius), Claire Davis, representing CD Consulting (a trade creditor) and Graham Rushton (a former employee of Citius and a priority creditor).

16    On 18 January 2023, a notice of the meeting of the Committee of Inspection was issued to each member. The notice stated that the Administrator proposed to make an application for the relief sought in the originating process in this proceeding. Drafts of the originating process and the First Rathner Affidavit were enclosed with the notice.

17    On 19 January 2023, a meeting of the Committee of Inspection was held. At that meeting, the Committee of Inspection unanimously resolved to support the Administrator’s proposed application for the relief set out in the originating process, including the proposed application to extend the convening period for a period of 12 months.

18    The same day, 19 January 2023, the originating process, together with the First Rathner Affidavit, were filed in this Court.

19    The Administrator deposed that he has notified all creditors of Citius of whom he is aware, including priority, secured and unsecured creditors, the Dexus Parties, and Mr Tobin, in relation to the application on two occasions. On 20 January 2023, the Administrator informed those persons by email that the application had been filed, and provided copies of the originating process dated 19 January 2023 and the First Rathner Affidavit. On 23 January 2023, the Administrator informed those same persons of the date and time when the application was to be heard. The Administrator further deposed that, as at 23 January 2023, he had received no communication from or on behalf of any interested party concerning the application.

Extension of convening period pursuant to s 439A(6) of the Act

Submissions of the Administrator

20    The primary order sought by the Administrator was an order extending the convening period for the second meeting of creditors of Citius up to and including 3 February 2024, pursuant to s 439A(6) of the Act. Without an extension, the convening period was to end on 3 February 2023 in accordance with s 439A(5) of the Act. Accordingly, the extension sought by the Administrator is 12 months in duration.

21    The Administrator submitted that an extension of the convening period to 3 February 2024 should be granted because it is in the best interests of creditors and stakeholders, and is consistent with the objects of Part 5.3A of the Act. The Administrator advanced four arguments in support of that submission.

22    First, Citius will benefit from the continued operation of the statutory stay on the exercise by the Dexus Parties of its right to terminate the Dexus Agreement under cl 16.1(d) for the reason that Citius has entered into administration. The stay, which operates pursuant to s 451E(1), endures for the duration of the administration and, if the administration ends because Citius enters into liquidation, until the winding up is complete. The Company can therefore continue to perform its obligations under the Dexus Agreement and to earn the balance of the fee revenue that it is capable of earning under that agreement.

23    The Administrator deposed that Citius expects to receive approximately $383,000 (excluding GST) in gross revenue over the balance of the Dexus Agreement, which will expire on 19 December 2023. That amount comprises $300,000 in 12 monthly instalments of the Fee, and the balance of the Performance Fee. Of the gross expected revenue, $144,000 will be paid to Mr Tobin and Mr Rushton for the provision of consulting services to the Dexus Parties on behalf of Citius. The Administrator deposed that the provision of these services is necessary for Citius to perform the Dexus Agreement, and that he considers the proposed fees payable to Mr Tobin and Mr Rushton to be reasonable. Mr Tobin and Mr Rushton are also nominated as Key Persons under the Dexus Agreement. Should they cease to be “Key Persons” (which would occur if they did not provide consulting services on behalf of Citius), the Dexus Parties would be entitled to immediately terminate the agreement. In addition to the consultancy fees, the Administrator deposed that Citius will also incur expenses in relation to utilities and professional indemnity insurance totalling around $58,000 in order to generate revenue under the Dexus Agreement. The Administrator deposed that he considers these expenses to be reasonable.

24    If the Dexus Agreement is fully performed and remains on foot until 19 December 2023, Citius expects to generate net revenue of around $180,000 (excluding GST). The Administrator estimates that approximately $90,000 will be payable in legal and administrator fees, with the result that an estimated $90,000 will be available for distribution to creditors. The claims of priority creditors will be discharged in full, and the claim of the first-ranking secured creditor will be paid in part.

25    The Administrator deposed that, if the extension sought was not granted, and a second meeting of creditors were held, he would recommend that the meeting be adjourned for 45 business days (being the maximum period of adjournment pursuant to rule 75-140(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRC)) until in or around April 2023. Even if Citius continued to perform the Dexus Agreement until that time with the benefit of the stay under s 451E(1), having regard to the limited fees capable of being earned during that period, there would be no funds available for distribution to creditors.

26    Second, the Administrator submitted that an extension is necessary for Mr Tobin to consider whether he wishes to propound a deed of company arrangement (DOCA), which may produce a better return for creditors than a winding up. The Administrator deposed that Mr Tobin requires up to six months to address his personal exposure to claims made by Citius’s creditors, following which he will be in a position to consider whether he wishes to put forward a DOCA.

27    Third, the Administrator submitted that more time is needed to allow the Administrator to conclude his investigations into Citius’s business, property, affairs and financial circumstances, to prepare a report to creditors (as required by r 75-225 of the IPRC) and to provide a meaningful recommendation to creditors.

28    Fourth, the Administrator submitted that the proposed extension would not prejudice creditors. None of Citius’s creditors had expressed opposition to the extension sought, and the Committee of Inspection unanimously resolved to support the extension.

29    In relation to the “Daisytek” order sought, the Administrator submitted that such an order will enable him to convene the second meeting of creditors earlier than obliged, if he is in a position to do so, and therefore to avoid unduly prolonging the administration.

Power to extend the convening period

30    Section 439A of the Act relevantly provides as follows:

(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).

Note:    For body corporate representatives’ powers at a meeting of the company’s creditors, see section 250D.     

(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.

31    Section 439C provides that, at a meeting convened under s 439A, the creditors may resolve that the company execute a deed of company arrangement, that the administration should end, or that the company be wound up.

32    The object of Part 5.3A of the Act, in which s 439A is situated, is set out in s 435A. That section provides as follows.

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.

Note:     Schedule 2 contains additional rules about companies under external administration.

33    The principles relevant to an application to extend the convening period were summarised by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 437 (Virgin Australia (No 2)) at [64]-[65]:

[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 Ltd (Administrator Appointed), Re About Life Pty Ltd [2019] FCA 11 at [3]–[8], where his Honour endorsed the comments of Austin J in Re 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, Re Kleins Franchising Pty Ltd (administrators appointed) (ACN 007 348 236) [2008] FCA 721; Uni-Aire Security Pty Ltd (Administrators Appointed) ACN 085 430 619, Re 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 Cmr of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) [2009] FCA 190; Fitzgerald, Re Primebroker Securities Limited (Administrator Appointed) (Receivers and Managers Appointed) [2008] FCA 1247; Ex parte Vouris; Re Marrickville Bowling & Recreation Club Ltd (under Administration) [2008] FCA 622.

34    In Mighty River International Ltd v Hughes (2018) 265 CLR 480, Kiefel CJ, Edelman and Gageler JJ, referring to Re Riviera Group Pty Ltd (administrators appointed) (receivers & managers appointed) [2009] NSWSC 585, observed at [73]:

… 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 …

35    The opinion of the administrator as to the need for an extension will be given weight in an application of this kind: see, e.g, Owen and Others in their capacity as joint and several administrators of Rivercity Motorway Pty Ltd (administrators appointed) (receivers and managers appointed) v Madden (No 4) [2012] FCA 1491; 92 ACSR 255 (Rivercity Motorway (No 4)) at [26] per Logan J; Bumbak, in the matter of Duro Felguera Australia Pty Limited (administrators appointed) [2020] FCA 422 at [32] per Gleeson J; Virgin Australia (No 2) at [68] per Middleton J.

36    Similarly, the views of a committee of creditors is relevant to the question of an extension: In the matter of Lift Capital Partners Pty Ltd (administrators appointed) [2008] NSWSC 446 (Lift Capital Partners) at [34] per Austin J.

37    It will also be relevant to consider the impact of the extension sought on creditors and interested parties, including employees of the company and the company’s contractual counterparties: see In the matter of Sirius Corporation Limited (administrators appointed) [2013] NSWSC 2003 per Black J; In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 per Black J; Walker, in the matter of ABC Learning Centres Ltd (administrators appointed) (receivers and managers appointed) (No 8) [2009] FCA 994; 73 ACSR 478 per Emmett J.

38    Lengthy extensions to the convening period have been granted in a number of cases. For example, in Mentha, in the matter of Arrium Ltd (administrators appointed) [2016] FCA 487; 113 ACSR 302 (Arrium), Davies J granted a nine-month extension. In Algeri, in the matter of Colorado Group Ltd (administrators appointed) (receivers and managers appointed) [2011] VSC 260 (Colorado Group), Judd J extended the convening period by nine months. In both cases, an extension was necessary to enable the administrators to prepare a meaningful report to creditors having regard to the size and complexity of the businesses in question and, in the case of Colorado Group, having regard to the progress of a sale process commenced by the company’s receivers which would require up to nine months to complete. In the administration of Rivercity Motorway Pty Ltd, Logan J granted an initial extension for 21 months to allow the receivers to engage in a process that would facilitate the sale of a tunnel business operated by the company: Owen, in the matter of Rivercity Motorway Pty Limited (administrators appointed) (receivers and managers appointed) v Madden [2011] FCA 295. His Honour subsequently granted a further extension of 12 months: Rivercity Motorway (No 4).

Consideration

39    This is an unusual application, by reason of both the length of the extension sought in this case, and the primary purpose for which it is sought. It is apparent from the evidence advanced in support of the application that the principal (although not exclusive) purpose of the 12-month extension sought is to allow Citius to continue trading, to extract the maximum possible revenue that can be earned under the Dexus Agreement, and therefore to maximise the funds available for distribution to creditors.

40    The length of the extension sought is not without precedent. However, in contrast to Colorado Group, Arrium or Rivercity Motorway (No 4), in the present case there appears to be little prospect of any sale of Citius’s business. There is the possibility of a restructure: Mr Tobin may put forward a deed of company arrangement for the creditors’ consideration. However, he requires additional time to formulate a proposal, and it is not certain that he will do so. Further, neither Citius’s size nor the complexity of its affairs seem to necessitate an extension of time of the kind contemplated.

41    Nonetheless, for the reasons that follow, I am satisfied that granting the extension sought by the Administrator is an appropriate exercise of the power afforded under s 439A(6) and that it is consistent with the object of Part 5.3A as expressed in s 435A.

42    The object of Part 5.3A, as expressed in s 435A of the Act, is expressed in the alternative: to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company or its business continuing in existence or, if that is not possible, results in a better return for the company’s creditors and members than would result from an immediate winding up. Thus, the purpose of the regime in Part 5.3A is not limited to providing insolvent companies with an opportunity to restructure in order to continue in existence. If it is not possible for the company to continue in existence, the purpose of the regime is to provide for the affairs of the company to be administered in a manner that results in a better return for the company’s creditors and members than would result from an immediate winding up. The statutory purpose makes plain that Part 5.3A is intended to operate as a flexible regime for insolvent companies to achieve a better outcome for creditors and members. As observed by Sundberg J in Dallinger v Halcha Holdings Pty Ltd (administrator appointed) (1995) 60 FCR 594 at 601, the provisions of Part 5.3A should be given a beneficial construction.

43    The material before the Court demonstrates that, if the extension sought is granted and Citius is able to generate the balance of the fee revenue available under the Dexus Agreement, there will likely be a surplus of funds available for distribution to creditors. In that event, the claims of priority creditors will likely be discharged in full, and the first-ranking secured creditor will receive a distribution in partial payment of its claim. By contrast, if no extension is granted, there is unlikely to be any funds available for distribution to creditors, whether priority, secured, or unsecured. The likely outcome in relation to the secured and unsecured creditors is that they will not recover in respect of their claims.

44    No creditor has expressed opposition to the Administrator’s application for an extension. In the event that any prejudice arises in the future, the orders contemplate that any affected creditor with a sufficient interest will have liberty to apply to vary the orders made. Furthermore, Citius’s Committee of Inspection has unanimously approved the extension sought. While the Committee’s view is not determinative, it is a factor in favour of granting the extension sought: see Lift Capital Partners at [34].

45    Although the extension will enable Citius to generate additional funds for distribution to creditors, it is also necessary to consider whether any creditor or other person might be adversely affected by the extension. In the present case, it is necessary to consider the position of the former employees, Mr Chand and Mr Rushton, as well as the Dexus Parties.

46    As noted earlier, the former employees of Citius are priority creditors. The evidence discloses that, if no extension were granted and Citius were placed into liquidation, Mr Chand and Mr Rushton would not receive any distributions from Citius. However, they may be able to recover part of the amounts claimed under the Fair Entitlements Guarantee (FEG) scheme, governed by the Fair Entitlements Guarantee Act 2012 (Cth). The extension sought by the Administrator would delay Citius’s entry into liquidation and the time at which Mr Rushton and Mr Chand can lodge claims under the FEG scheme, should they wish to do so. The impact of this delay on Mr Chand and Mr Rushton is an important factor in the balancing exercise that the Court must undertake in determining whether to grant the extension sought. However, the significance of this factor is lessened by the fact that the FEG enables recovery of unpaid salary and leave entitlements, but not employer superannuation contributions. Therefore, if Citius were placed into liquidation, Mr Chand and Mr Rushton would be eligible to recover only part of their total priority claims against Citius. In respect of Mr Chand, the Administrator submitted during the hearing that $18,779 of the total amount claimed by Mr Chand comprises salary and annual leave entitlements and $15,068 comprises superannuation contributions. Accordingly, Mr Chand would be unable to recover almost half of his claimed entitlements if an extension were not granted and Citius was unable to earn the balance of the revenue payable under the Dexus Agreement. Conversely, if the extension is granted and Citius is able to generate the balance of the fee revenue capable of being earned under the Dexus Agreement, the Administrator expects to discharge Mr Rushton’s and Mr Chand’s claims in August or September 2023, before the end of the extended convening period.

47    Any prejudicial impact upon Mr Rushton is also ameliorated by the fact that, if the extension is granted and Citius is able to perform its obligations under the Dexus Agreement, Mr Rushton stands to earn additional consultancy fees for services provided by him on behalf of Citius (which Mr Rushton has agreed to provide). It should also be noted that Mr Rushton is a member of the Committee of Inspection, which voted unanimously in favour of the application for the extension at the meeting on 19 January 2023.

48    On balance, and taking into account all of the relevant circumstances, I am satisfied that Mr Chand and Mr Rushton are unlikely to be worse off by reason of the extension. Further, and as noted above, the orders allow either of them to apply to the Court should they consider that they are adversely affected by the making of the orders.

49    With respect to the Dexus Parties, the effect of the extension is to continue the operation of the stay under s 451E(1) of the Act on the Dexus Parties’ right to terminate the Dexus Agreement by reason of Citius’s entry into administration. The Dexus Parties will therefore remain parties to an ongoing contractual relationship with Citius during the period of the extension. It can be accepted that s 451E(1) expressly contemplates that counterparties will be restrained from exercising their rights to terminate a contractual relationship with a company by reason of its entry into administration, and that they will be required to continue in that relationship (in the absence of any other basis for termination). Nevertheless, the length of the extension of the convening period, and therefore the duration of the stay on the right to terminate the Dexus Agreement, is a relevant consideration to the exercise of the Court’s discretion.

50    For the following reasons, however, I am satisfied that the operation of the stay ought not to preclude the grant of the extension for a period of 12 months.

51    First, the Administrator deposed that the Dexus Parties have not communicated their opposition to the application for the extension, despite having received notice in advance of the hearing on two separate occasions. Nor did the Dexus Parties seek to be heard at the hearing of the application.

52    Second, the scope of the statutory stay is limited to the “ipso facto” provision in cl 16.1(d) of the Dexus Agreement. No other rights of the Dexus Parties under the Dexus Agreement will be affected. Importantly, the Dexus Parties retain their rights to require the proper performance of the Dexus Agreement, and to terminate the Dexus Agreement if it is not properly performed by Citius.

53    Third, it remains open to the Dexus Parties to restore the matter before the Court to address any prejudice that arises from the extension.

54    Having regard to all of the circumstances, I consider that it is appropriate and consistent with the object of Part 5.3A to make the order sought by the Administrator extending the convening period for the second meeting of creditors up to and including 3 February 2024. I also make the “Daiseytek” order sought by the Administrator. It is well-established that s 447A of the Act empowers the Court to make orders altering the times fixed by Part 5.3A of the Act: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [24] per Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ. Orders in the form sought by the Administrator is ‘sensible and now almost routine’: In the matter of LED Builders Pty Ltd (administrators appointed) [2008] NSWSC 633 at [2] per Austin J. It enables the administrator to call the second meeting of creditors at an earlier time if it is appropriate and desirable to do so, thereby avoiding unnecessary delay and promoting the efficient conduct of the administration.

Operation of s 451E of the Act

Submissions of the Administrator

55    The Administrator sought the following orders in relation to the operation of s 451E(1) of the Act:

(a)    an order pursuant to s 90-15 of the IPSC that the Administrator is justified and acting reasonably in proceeding on the basis that, if the administration of Citius ends because of a resolution or order for Citius to be wound up, the stay period described in s 451E(1) of the Act comes to an end upon the completion of the winding up of Citius; and

(b)    an order pursuant to s 451E(3)(a) of the Act that, if the administration of Citius ends because of a resolution or order for Citius to be wound up, the stay period described in s 451E(1) of the Act is extended up to the completion of the winding up of Citius.

56    The Administrator submitted that it was appropriate to make the orders sought in the absence of any judicial consideration of s 451E in order to provide certainty to the Administrator and to Citius as to its position with respect to the Dexus Agreement. The Administrator submitted that this was so notwithstanding that s 451E(1) would appear to be clear on its face, such that the stay on the Dexus Parties’ rights under cl 16.1(d) of the Dexus Agreement could continue for the duration of the administration and, if the administration ended because of a resolution or order to wind up Citius, until the winding up was complete. The Administrator submitted that, properly construed, the stay regime in s 451E would appear to be available to companies in administrations that transition into liquidation, but would not otherwise be available to companies that go into liquidation without having been in administration immediately prior to the commencement of the liquidation. The Administrator submitted that this may seem an anomalous outcome and gives rise to the potential for dispute with respect to the meaning and effect of s 451E. It was not suggested, however, that any such dispute had yet arisen. The Administrator deposed that the Dexus Parties had not sought to rely on cl 16.1(d) of the Dexus Agreement, nor given any indication of their intention to do so in the future.

Section 451E

57    Section 451E(1) of the Act relevantly provides:

Stay on enforcing rights

(1)    A right cannot be enforced against a company for:

(a)    the reason that the company has come or is under administration; or

(b)    the company’s financial position, if the company is under administration; or

(c)    a reason, prescribed by the regulations for the purposes of this paragraph, that relates to:

(i)      the company coming, or possibly coming, under administration; or

   (ii)     the company’s financial position;

if the company later comes under administration; or

(d)    a reason that, in substance, is contrary to this subsection;

if the right arises for that reason by express provision (however described) of a contract, agreement or arrangement.

Note:    This result is subject to subsections (5) and (7), and to any order under section 451F.

Example: A right to terminate a contract will not be enforceable to the extent that those rights are triggered by the company coming under administration.

    Period of the stay

(2)    The right cannot be enforced as described in subsection (1) during the period (the stay period) starting when the company comes under administration and ending at the latest of the following:

(a)    when the administration ends;

(b)    if one or more orders are made under subsection (3) for the company as the result of an application made before the administration ends–when the last made of those orders ceases to be in force;

(c)    if the administration ends because of a resolution or order for the company to be wound up–when the company’s affairs have been fully wound up.

(3)    The Court:

(a)    may order an extension of the period otherwise applying under subsection (2) for the company if the Court is satisfied that the extension is appropriate having regard to the interests of justice; and

(b)    before deciding an application for an order under paragraph (a), may grant an interim order, but must not require the applicant to give an undertaking as to damages as a condition for doing so.

Enforcing rights after the stay for reasons relating to earlier circumstances

(4)    The right is unenforceable against the company indefinitely after the end of the stay period to the extent that a reason for seeking to enforce the right:

(a)    is the company’s financial position before the end of the stay period; or

(b)    is the company having come or been under administration before the end of the stay period; or

(c)    is a reason, prescribed by the regulations for the purposes of this paragraph, relating to circumstances in existence during the stay period; or

(d)    is a reason referred to in paragraph (1)(c) or (d).

58    Section 90-15(1) of the IPSC relevantly provides:

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the external administration of a company.

Consideration

59    In my view, the Administrator’s apprehensions with respect to the meaning and effect of s 451E are unwarranted. The language and purpose of s 451E(1) of the Act is clear on its terms. Section 451E(1) operates to restrain a counterparty from exercising rights arising in a contract, agreement or other arrangement by reason of the fact of a company’s entry into administration or its financial position during the period of administration. The stay operates for the length of the administration and, if the administration concludes because of a resolution or order for the company to be wound up, until the winding up is complete.

60    The supposed anomaly referred to by the Administrator does not arise. The stay under s 451E does not apply to contractual rights that may arise by reason of the winding up. If the counterparty has a right to terminate a contract by reason of the company’s entry into liquidation, s 451E does not operate to stay that right. The stay only applies to a right that arises by reason of the company entering administration or the company’s financial position during administration. It is the stay of such a right that continues during a subsequent liquidation. The section does not stay the exercise of a right that arises by reason of liquidation.

61    In the present case, it is clear that s 451E(1) operates with respect to Citius and that it serves to restrain the Dexus Parties from exercising their right to terminate under cl 16.1(d) of the Dexus Agreement by reason of Citius’s entry into administration for the duration of the administration and, if the administration ends by resolution or order to wind up Citius, for the duration of the winding up.

62    In respect of the order sought by the Administrator under s 90-15 of the IPSC, the Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, but will not usually do so when, amongst other things, there is no particular legal issue raised and no attack on the propriety or reasonableness of the decision: see Lewis (Liquidator), Re Concrete Supply Pty Ltd (in liquidation) [2020] FCA 841; 145 ACSR 459 at [31(c)] per White J. In the present case, there is no legal issue or question requiring determination with respect to the proper operation of s 451E(1). There has been no attack on, or criticism of, the Administrator’s intended course of action with respect to the Dexus Agreement and the application of the statutory stay on the Dexus Parties’ exercise of cl 16.1(d), either by the Dexus Parties or any other party. In these circumstances, I consider it unnecessary to make the order under s 90-15 sought by the Administrator.

63    In respect of the order sought by the Administrator under s 451E(3)(a), that section empowers the Court to order an extension of the period otherwise applying under s 451E(2) for the company. The order sought by the Administrator is merely to restate the effect of s 451E(2). That is not an order contemplated by s 451E(3)(a) and, for that reason, is not an order that could or should be made.

Ancillary orders

64    The Administrator sought the following additional orders:

(a)    orders pursuant to s 447A(1) of the Act and s 90-15 of the IPSC permitting the Administrator to send notices to creditors electronically where their email addresses are available to the Administrator;

(b)    an order requiring the giving of notice to creditors of the Administrator’s application and the orders made in respect of that application;

(c)    an order granting liberty to apply to any person with a sufficient interest; and

(d)    an order that the plaintiffs’ costs of the application are costs in the administration of Citius.

65    I am satisfied that the orders sought are appropriate in the circumstances.

Associate:

Dated:    2 February 2023