Federal Court of Australia
Hutton, in the matter of Triple MMM Holdings Pty Ltd (Administrators Appointed) [2023] FCA 124
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The interlocutory process dated 15 February 2023 be made returnable instanter.
2. Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (Act), Pt 5.3A of the Act is to operate in relation to the second plaintiff (Company) as if the period for the first plaintiffs (Administrators) to convene the second meeting of the Company’s creditors under s 439A of the Act (second meeting) is the period ending on 21 May 2023.
3. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Company so that the second meeting may be held at any time during the period up to, or within five business days after the end of, the convening period referred to in paragraph 2 above.
4. Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Company such that notice of the second meeting required to be given pursuant to rr 75-225(1) and 75-15 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRC) will be validly given to creditors of the Company by:
(a) giving such notice electronically by email sent to the email address of any creditor (including persons claiming to be creditors) of the Company for whom or which the Administrators hold an email address;
(b) sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act or the IPRC, to any creditors not being a creditor referred to in sub-paragraph 4(a) above; and
(c) causing such notice to be published in the Insolvency Notices website located at: https://insolvencynotices.asic.gov.au.
5. Liberty be granted to any person who can demonstrate sufficient interest to discharge or modify these orders on the giving of three business days’ written notice to the plaintiffs and this Court.
6. The Administrators’ costs of and incidental to this application be costs in the administration of the Company.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
O’BRYAN J
Introduction
1 On 21 November 2022, the first plaintiffs, Mr Matthew Hutton and Mr Matthew Caddy (the Administrators), were appointed as administrators of the second plaintiff, Triple MMM Holdings Pty Ltd (Triple MMM), both in its personal capacity and in its capacity as trustee of the Triple MMM Unit Trust (Trust), pursuant to s 436C of the Corporations Act 2001 (Cth) (Act).
2 On 15 December 2022, Moshinsky J made orders pursuant to s 439A(6) of the Act granting an extension of the convening period for the second meeting of creditors of Triple MMM for a period of two months up to and including 21 February 2023.
3 By interlocutory process dated 15 February 2023, the plaintiffs applied to extend the convening period for the second meeting of creditors of Triple MMM for a second time up to and including 21 May 2023. The plaintiffs also sought an order that Part 5.3A operate in relation to Triple MMM such that the second meeting of creditors required by s 439A of the Act may be held at any time during, or within five business days after the end of, the convening period as extended by the Court. This order is typically referred to 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.
4 The plaintiffs also sought various ancillary orders, including orders concerning the form in which notice of the second creditors’ meeting is to be given to creditors and the Administrators’ costs of the application.
5 The application was supported by an affidavit affirmed by Mr Hutton on 15 February 2022, which is the fourth affidavit filed in this proceeding (Fourth Hutton Affidavit) and written submissions dated 15 February 2022. The plaintiffs also relied on documents previously filed in this proceeding, which relevantly comprised:
(a) an affidavit of Mr Hutton dated 25 November 2022;
(b) an affidavit of Mr Hutton dated 27 November 2022;
(c) an affidavit of Mr Hutton dated 14 December 2022; and
(d) an outline of written submissions dated 14 December 2022.
6 The application was heard on 16 February 2023. It was not opposed. At the hearing, I made orders extending the convening period for the second meeting of creditors of Triple MMM up to and including 21 May 2023, the accompanying “Daisytek” order and the other ancillary orders sought. These are my reasons for making those orders.
Background
7 Triple MMM was incorporated on 24 October 2018. It is the registered proprietor of the property located at 124-134 Russell Street, Melbourne, on which it is developing a 14-level tower development known as “Melbourne Place” (the Project). The Project is, and has always been, undertaken by Triple MMM exclusively in its capacity as trustee of the Trust. The assets and liabilities of the Project are held by Triple MMM in its capacity as trustee of the Trust.
8 The Project is being built by ADCO Group Pty Ltd pursuant to a contract dated 5 August 2021 (the Builder).
9 On 21 November 2022, the Administrators were appointed as joint and several administrators of Triple MMM pursuant to s 436C of the Act. The appointment was made pursuant to a Construction and Investment Facility Agreement dated 30 June 2022 between Triple MMM as borrower, MC MPH Pty Ltd (MC MPH) in its capacity as trustee for MC MPH Fund as financier, and various entities associated with the company as guarantors (Facility Agreement). The appointment was made following an unremedied default under the Facility Agreement. Mr Hutton deposed that Triple MMM had experienced significant liquidity issues for some time prior to the Administrators’ appointment.
10 The principal assets of Triple MMM at the time of the Administrators’ appointment were, and remain, the property the subject of the Project (which is subject to a registered mortgage in favour of MC MPH) and the construction contract with the Builder.
11 Mr Hutton deposed that the largest, and only secured, creditor of Triple MMM is MC MPH. There are two priority claims made by employees of Triple MMM in respect of employment entitlements arising from the pre-administration period. The balance of the claims against Triple MMM are unsecured.
12 By originating process dated 25 November 2022, the plaintiffs issued this proceeding seeking orders under ss 443A and 447A of the Act limiting the Administrators’ personal liability under a proposed funding deed for the provision of funding by MC MPH, and directions that they were justified and acting reasonably in entering into the funding deed. On 28 November 2022, McElwaine J made orders to this effect and the funding deed was executed by the parties later that day.
13 Since their appointment, the Administrators have continued to conduct the Project with a view to preserving the value of the assets of the Project and exploring a sale and/or recapitalisation of Triple MMM, the Project or its assets. For that purpose, the Administrators have continued to work with the Builder, to employ Triple MMM’s two employees, and to engage consultants assisting in the Project whose work the Administrators regard as critical to the outcome of the Project. The ongoing costs of the administration and the continued conduct of the Project have been met by MC MPH pursuant to the funding deed.
14 The first meeting of creditors was held on 1 December 2022. That same day, the Administrators drew down on the funding deed, which funds were used to pay certain costs of the Builder, the employees, the consultants and other fees.
15 Mr Hutton deposed that the Administrators commenced a three-stage sale process in late November 2022 in the aim of finalising the terms of any proposal for a deed of company arrangement or an asset sale agreement, and completing any conditions precedent, during January 2023.
16 By interlocutory process on 14 December 2022, the Administrators applied for orders seeking, among other things, a two-month extension of the period within which they were required to convene the second meeting of creditors under s 439A of the Act up to and including 21 February 2023. Justice Moshinsky made orders to that effect on 15 December 2022.
17 Mr Hutton deposed that, after the first extension was granted, the Administrators have:
(a) facilitated the sale process (which is detailed further below);
(b) continued to manage the ongoing construction of the Project;
(c) undertaken investigations, and sought advice, in respect of claims made against Triple MMM by a former employee;
(d) undertaken investigations in respect of insolvent trading, voidable transactions and the affairs of Triple MMM prior to the Administrators’ appointment;
(e) prepared (but not yet finalised) the Administrators’ report to creditors in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR); and
(f) attended to all other matters in connection with the day-to-day conduct of the administration.
18 During that same period, as part of the sale process:
(a) the Administrators engaged in a structured bidding process and undertook negotiations with potential purchasers of the company, following the receipt of non-binding indicative offers at the conclusion of ‘Phase 1” of the sale process;
(b) eleven “Phase 2” bidders were identified to participate in a due diligence process, from which three were selected to undertake further substantive due diligence and negotiations;
(c) two of the final three bidders declined to submit a final binding offer on the basis that they could not complete a transaction before the first extended convening period expired;
(d) the Administrators engaged in further substantive due diligence and negotiations with the final interested party;
(e) despite their best efforts, the final interested party informed the Administrators that it too was unable to submit a binding offer before 21 February 2023; and
(f) the Administrators re-engaged with underbidders from Phase 1 and Phase 2 of the sale process in the event that no offer from the final interested party is forthcoming.
19 Mr Hutton deposed that the Administrators require a further three months to achieve a binding sale.
20 On 15 February 2022, the Administrators filed the interlocutory process, together with the Fourth Hutton Affidavit, in this Court.
21 Mr Hutton deposed that the creditors of Triple MMM were notified of this application on 14 February 2023, and that no objection had been received. No objection was raised at the hearing. Relevantly, MC MPH supports the application and has provided indicative approval to fund the additional costs of the Project for the period of the extension sought.
Extension of convening period
Submissions of the plaintiffs
22 The principal order sought by the plaintiffs was an order pursuant to s 439A(6) of the Act that the period within which the Administrators must convene the second meeting of creditors in respect of Triple MMM under s 439A of the Act be extended to 21 May 2023.
23 The plaintiffs’ submissions in support of the further extension may be briefly summarised as follows.
24 First, additional time is necessary to facilitate a sale of Triple MMM and/or its assets, which the Administrators consider is more likely to result in the best possible return to creditors than if Triple MMM enters liquidation. In the Fourth Hutton Affidavit, Mr Hutton expressed the view that the sale must conclude before the second meeting of creditors to allow the Administrators to provide an opinion as to the best outcome for creditors – as required by r 75-225 of the IPR – and to allow creditors to make an informed decision as to the future of Triple MMM.
25 Second, the Administrators have acted diligently in pursuing the sale process but, for reasons outside of their control, they have been unable to secure a binding offer before the first extended convening period is due to expire.
26 Third, the Administrators have secured indicative approval from MC MPH to continue funding the additional costs of the Project and of the administration throughout the proposed extended period. In his evidence, Mr Hutton deposed that the additional trading costs incurred during this period will be more than offset by the expected return to creditors if a sale transaction completes, as compared to the likely return in a liquidation scenario.
27 Fourth, the creditors of Triple MMM have been notified of the application. The Administrators have received no objections, and Triple MMM’s largest (and only secured) creditor supports the application.
28 Fifth, key stakeholders will not be prejudiced by the further extension. Relevantly, Triple MMM’s two employees will be employed by the Administrators while trading continues. If a sale is achieved, their employment may be transferred to the purchaser, and may therefore continue. Even if this does not come to pass, the employees’ outstanding entitlements from the pre-administration period will be paid in priority from any sale proceeds.
Relevant principles
29 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.
30 Section 439C of the Act 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.
31 There is a question as to whether s 439A(6) in its current form empowers the Court to grant an extension of time to convene the second meeting of creditors where one or more extensions have previously been granted. That question was considered by Barrett J in Lombe, Re Australian Discount Retail Pty Ltd [2009] NSWSC 110 (Lombe) at [25]-[32]. His Honour observed that, in a number of cases decided before the provision was amended in 2007, it was concluded that the provision did not empower multiple extensions (at [25]). That conclusion was reached on the basis that the provision, in the form it stood prior to the 2007 amendments, required any application for an extension to be made within the original period for convening the second meeting. By amendments made in 2007, the provision was altered to permit an application for an extension to be made during or after the original convening period. However, his Honour expressed doubt as to whether, by those amendments, the legislature intended to create a general jurisdiction to make multiple extensions under s 439A(6) (at [31]). His Honour declined to express a concluded view on the question in circumstances where it had not been the subject of full argument, and where it was well-established that s 447A of the Act is available to facilitate further extensions of the convening period.
32 Section 447A(1) of the Act relevantly provides that the Court may make such order as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. Pursuant to that power, further extensions to a convening period following an earlier extension under s 439A(6) have been granted on numerous occasions: see, for example, Mentha, in the matter of the Griffin Coal Mining Co Pty Ltd (Administrators Appointed) (No 2) [2010] FCA 499 at [36] (McKerracher J); Owen, in the matter of Rivercity Motorway Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) [2012] FCA 1491; 92 ACSR 255 at [31] (Logan J) (Rivercity Motorway); Billingsley, in the matter of B K Chemists Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1059 at [12] (Gleeson J) (B K Chemists); Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 7) [2020] FCA 1182 at [12]-[13] (Middleton J) (Virgin Australia (No 7)); Park, in the matter of Collection House Limited (Administrators Appointed) [2022] FCA 1083 at [9] (Derrington J). The exercise of power under s 447A(1) for that purpose is consistent with the function of the provision as expressed in Australasian Memory Pty Ltd v O’Brien (2000) 200 CLR 270 at [24] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) (Australasian Memory), which is to permit alterations to the way that Part 5.3A operates including in respect of the time periods applicable under s 439A.
33 The principles for determining an application for a further extension of the convening period are the same as those in respect of the initial grant: Virgin Australia No 7 at [14]; B K Chemists at [14]; Strawbridge, in the matter of CBCH Group Pty Ltd (Administrators Appointed) (No 4) [2020] FCA 671 at [25] (Markovic J); Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 at [10] (Jacobson J). In Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 2) [2020] FCA 717; 144 ACSR 347 (Virgin Australia (No 2)), Middleton J observed ( at [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).
34 In Re Riviera Group Pty Ltd [2009] NSWSC 585; 72 ACSR 352 (Re Riviera) at [13]-[14], Austin J identified the matters in relation to which the Court may have regard when determining whether to grant an extension. These matters relevantly include: (i) whether the extension will allow the sale of the business as a going concern; (ii) the time needed to execute an orderly process of disposal of assets; (iii) the size and scope of the company’s business, (iv) the time needed for a thorough assessment of a proposal for a deed of company arrangement, and (v) the prejudice, if any, to those affected by the moratorium imposed by an administration. The matters identified in Re Riviera were referred to by Kiefel CJ, Edelman and Gageler JJ in Mighty River International Ltd v Hughes (2018) 265 CLR 480, where their Honours observed (at [73]) that in circumstances of the kind described by Austin J:
… 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 ability of the administrator to sell the business of the company as a going concern as part of a restructure or deed of company arrangement is often one of the most significant factors in support of an extension: see Kirk, in the matter of RL Adams Pty Ltd (Administrators Appointed) [2017] FCA 1111 at [23] (Derrington J). Further, the opinion of the administrator as to the need for an extension should be given weight in an application of this kind: see, for example, Rivercity Motorway at [26]; Virgin Australia (No 2) at [68].
Consideration
36 I am satisfied that the Court has power to extend the convening period for a second time under s 447A(1) of the Act. It is unnecessary to determine whether power also exists under s 439(6). The plaintiffs expressed no opposition to this course during the hearing.
37 For the reasons that follow, I am satisfied that it is appropriate to grant the extension sought by the plaintiffs.
38 First, the material before the Court demonstrates that a sale of Triple MMM and/or its assets is likely to achieve the best return to creditors in comparison to that which would be achieved if the company were to enter liquidation. The Administrators expect that a sale will enable payment of priority creditors and that it will, in Mr Hutton’s words, “largely [extinguish]” the claim of the largest, and only secured, creditor, MC MPH. By contrast, the outcome in the event of immediate liquidation is unlikely to be as favourable. The position of Triple MMM’s unsecured creditors is likely to be the same in either scenario: I was informed by counsel for the Administrators and Triple MMM during the hearing that the unsecured claims are unlikely to be discharged even in the event of a sale. Although Triple MMM and the Administrators will incur additional trading costs as a result of the extension, which costs will be met by MC MPH and will therefore increase Triple MMM’s secured indebtedness to that entity, I accept the Administrators’ considered opinion that these costs will very likely be offset by the proceeds of a successful sale transaction.
39 Second, I accept that the Administrators require further time to complete the sale process, and that the extension sought is limited to what is necessary to attain that objective. I also accept that the Administrators have acted properly and with expedition to progress the sale, and that the delay in finalising that process has arisen due to factors beyond the Administrators’ control. Moreover, I am satisfied that there is a sufficient (although not certain) prospect of a successful sale such that the interests of creditors are likely to be better served by the grant of an extension.
40 Third, I am also satisfied that there is no evidence of material prejudice to creditors and other persons affected arising from the further extension. No creditor has expressed opposition to the further extension sought despite having received notice of the application. The material before me demonstrates that MC MPH, Triple MMM’s principal creditor, consented to the application. MC MPH did not otherwise seek to be heard by the Court.
41 Fourth, there is also no disadvantage to the two employees of Triple MMM. Both will continue to be employed (and remunerated) by the Administrators for the duration of the extension, who are personally liable to the employees in respect of their entitlements. If the sale transaction completes, the outstanding amounts owed to both employees in respect of pre-administration entitlements will be discharged. It is also possible that their employment will be transferred to the purchaser of Triple MMM and/or its assets, and will therefore continue. Although the likelihood of this occurring is presently unknown, it is a factor that weighs in favour of granting the extension sought. The employees’ position if Triple MMM were to enter liquidation immediately is unlikely to be as favourable, although they will be paid out in priority from any available assets. While the extension will delay the employees’ ability to seek repayment of their outstanding entitlements (whether in liquidation or otherwise), I consider that any prejudice arising to the employees in this respect is minimal, given the confined period of the extension and the fact that their employment will continue during that time.
42 Taking into account all of the relevant circumstances, I consider that the further extension sought by the plaintiffs strikes an appropriate balance between the speedy progress of the administration and the taking of constructive steps to maximise the return to creditors, and that it is likely to achieve that latter outcome consistently with the object of Part 5.3A of the Act.
43 I have also made the “Daisytek” order sought by the plaintiffs. Such an order is routinely made in applications of this kind. There can be no doubt that it is an appropriate exercise of the power in s 447A(1) of the Act as contemplated in Australasian Memory. Importantly, it will also promote the efficient conduct of the administration insofar as it will allow the Administrators to call the second meeting of creditors at an earlier time if it is desirable to do so and will therefore avoid unnecessary delay.
Ancillary orders
44 The plaintiffs also sought the following orders:
(a) an order pursuant to s 447A(1) of the Act permitting the Administrators to give notice of the second meeting of creditors to creditors electronically where their email addresses are available to the Administrators;
(b) an order granting liberty to apply to any person with a sufficient interest on three days’ written notice to the Administrators and to the Court; and
(c) an order that the Administrators’ costs of, and incidental to, this application be costs in the administration of Triple MMM.
45 I am satisfied that it is appropriate to make these orders in the present circumstances.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan. |
Associate:
