Federal Court of Australia

Rose, in the matter of Cowch Holdings Pty Ltd (Administrators Appointed) [2023] FCA 413

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period defined in s 439A(5) of the Act in respect of the Second to Twelfth Plaintiffs set out in the schedule (the Companies) be extended until 21 July 2023.

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

3.    Within five (5) business days of these orders being entered, the Administrators are to cause notice of the orders to be given to:

(a)    creditors of each of the Companies:

(i)    by means of a circular sent by email transmission to creditors (including persons claiming to be creditors) of the Companies for whom or which the administrators have current email addresses;

(ii)    by placing a sealed copy of the orders on the website maintained by the administrators; and

(iii)    otherwise by post to all creditors (including persons claiming to be creditors) of the Companies; and

(b)    the Australian Securities and Investments Commission.

4.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), until further order, the publication and disclosure of information relating to this proceeding and comprising:

(a)    information lodged with or filed in this Court; and/or

(b)    information that comprises evidence or information about evidence;

being the affidavit of Terrence John Rose affirmed 12 April 2023 in this proceeding is prohibited and restricted and is to be kept confidential on the Court file and not made available for inspection, uplift or copying by any person (other than the First Plaintiffs) without an order of a judge of this Court.

5.    The First Plaintiffs as administrators have liberty to apply in relation to any further extension of the convening period referred to in paragraph 1 above at any time prior to 21 July 2023.

6.    Liberty to apply be granted to the Australian Securities and Investments Commission, any creditor or any person who can demonstrate sufficient interest to make such application to vary or discharge these orders upon three (3) clear business days’ written notice being given to the First Plaintiffs by their solicitors on record and to the Court.

7.    The First Plaintiffs’ costs of and incidental to this application be costs and expenses in the administration of the Companies, jointly and severally.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This is an application for an extension to the convening period set by s 439A(5) of the Corporations Act 2001 (Cth) (Corporations Act) for the second meeting of creditors of eleven companies presently under administration. Ancillary orders are also sought for the purpose of allowing the administrators to continue, during the extended convening period, to investigate the companies’ affairs and to exercise options for the disposal of the companies’ assets or, perhaps, entry into a deed of company arrangement.

2    The application has been brought on urgently as the convening period is due to expire in the near future.

Background

3    The eleven corporate entities under administration operate a number of retail dessert and beverage businesses throughout South East Queensland under the name, “Cowch Dessert and Cocktail Bars”, as well as conducting ancillary operations.

4    The evidence indicates that the companies, in general, operate as constituent parts of one broader business, although some particular corporations seem to function as separate entities.

5    Mr Arif Memis is a director of each of the companies.

6    The first plaintiff administrators, Mr Terrence Rose and Mr Terry van der Velde, were appointed on 14 March 2023 to each of the companies as a consequence of Mr Memis’ resolution, as director, that the companies be placed into administration.

7    Since their appointment, the administrators have carried out the usual functions of their role. In particular, they have undertaken the appropriate investigations into the companies’ affairs and have ascertained the viability of selling, as a whole, the businesses operated by them. In connection with that latter exercise, they commenced a six week expression of interest campaign to secure an investor in the companies or a purchaser for the businesses as going concerns. The current expression of interest period closes on 8 May 2023.

8    The first meetings of creditors were convened on 24 March 2023 and, at them, the administrators indicated that they intended to make an application to extend the convening period for the holding of the second meetings in respect of each company. No opposition was voiced by any creditor to that course. No committee of inspection was formed at that first meeting because there were no nominations. Nevertheless, the plaintiffs’ appointment as administrators was confirmed.

9    The administrators have provided evidence to the effect that, due to the complexity of the businesses and the interrelationships of the several corporate entities, they have not been able to complete their investigations adequately to date. They have been especially hampered in that endeavour by reason of the fact that they do not yet have possession of sufficient books and records.

10    Under s 439A of the Corporations Act, the convening period for the second meeting of creditors of each of the companies is due to end on 20 April 2023, thereby requiring all of the second meetings to be held on or before 28 April 2023; that is, five business days after the end of the convening period in accordance with s 439A(2).

Principles regarding the extension of a convening period

11    The legal principles relevant to an application to extend a convening period are well known. They have very helpfully been set out by Mr Hii in his written submissions, the substance of which is repeated below.

12    In ascertaining whether a convening period should be extended, the court should strike an appropriate balance between, on the one hand, the expectation that the administration will be completed relatively expeditiously and summarily and, on the other, the countervailing view that the undue expediting of the process should not be allowed to prejudice sensible and constructive actions being taken in the administration that are directed toward maximising a return for creditors: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313, [10] (Barrett J).

13    In Farnsworth v About Life Pty Ltd (Administrator Appointed), in the matter of About Life Pty Ltd [2019] FCA 11 [3] – [8], Thawley J adopted the observations of Austin J in Re Riviera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352 (Re Riviera), 355 [13] as to the categories of cases in which an extension of time is often granted. Those categories include:

(a)    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; Re Storm Financial Ltd (Receivers and Managers Appointed) (2009) 69 ACSR 584; ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No 5) [2008] FCA 1947);

(b)    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

(c)    more generally, where additional time is likely to enhance the return for unsecured creditors (citing Deputy Commissioner of Taxation v Scottsdale Homes No 3 Pty Ltd (No 2) (2009) 75 ATR 98; 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).

14    These are, of course, merely instances where orders are regularly made and there is no limited taxonomy of cases. The purpose of the extension is 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 deed of company arrangement proposal, which may provide a better return to creditors than a winding up. These are well-recognised examples of situations in which court have extended the convening period: Re Mentha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933; Re Kavia Holdings Pty Ltd (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737.

15    Mr Hii also identified that, in Mighty River International Limited v Hughes (2018) 265 CLR 480 at 511 – 512 [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.

16    It has been emphasised that the administrator’s own opinion as to the need for an extension will be given weight in an application of this kind: Owen v Madden (No 4) (2012) 92 ACSR 255, 260 [26] (Logan J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382, [67] (Farrell J); Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422, [32] (Gleeson J).

17    Whilst this last point appears to remain the received wisdom, one might question whether its status as such ought to continue. The limited time set by the Corporations Act for the completion of an administration was intentionally chosen, and there is nothing in the Act that suggests that the process of administration is supposed to be a form of de facto winding up, involving the undertaking of a fulsome and extended analysis of the company, and the pursuit by administrators of multiple sequential attempts to resolve its financial difficulties. Yet applications of the present nature are now seemingly made so regularly that one might possibly suspect that administrators in general have lost sight of the need to pursue expeditiously the alternative dual goals of an administration; namely, entry into of a deed of company arrangement or winding up. It is important to note that an extension of time in which to hold a second meeting of creditors should not, and indeed will not ordinarily, be granted for the asking.

The circumstances of the present case

18    There is no suggestion in the present matter that the administrators have failed to carry out their obligations diligently, or purported to seek the extension on anything other than genuine grounds. Indeed, the material reveals that there are good and substantive reasons to extend the convening period for the holding of the second meeting in respect of each of the eleven companies.

19    The first is, of course, that the present administrations are closely interrelated, in that they concern a group of companies through which a complex business arrangement has been operated. That necessarily renders the administrations vastly more intricate than might have been the case if a single company controlled and operated the whole of the business. Even then, a considerable amount of time would have been required to gain an understanding of the business. As a consequence of the corporate structure put in place, the administrators have been required to analyse issues relating to overlapping creditors and employees, as well as related transactions.

20    The second reason is that the administrators are presently attempting to negotiate and pursue a campaign for the sale of the business as a whole. As that business is spread across numerous companies, the sale process is necessarily complex, with the result that a substantial due diligence period is required. The period necessary to allow prospective purchasers sufficient time to examine the business will not conclude prior to the expiration of the current convening period on 20 April 2023.

21    Thirdly, the evidence indicates that the sale of the whole business as a going concern would likely provide the best possible outcome, not only for creditors but also for employees. In particular, employees may achieve continuity of employment if the business can be transferred to a new owner. Similarly, if a sale is achieved, existing lessors may well be advantaged by the new owner assuming the obligations of the existing companies under current leases, or entering into new leases. Further, the current trade creditors may form a relationship with the new owner so as to maintain an ongoing source of business.

22    If the business is sold as a going concern, or the companies are recapitalised, it can be expected that a better outcome will have been achieved for the creditors generally than if a liquidation were to have occurred.

23    The fourth reason supporting the grant of the extension is that the additional time will allow the administrators to properly investigate the companies’ affairs and to provide a meaningful report to creditors (which the administrators estimate will take approximately three weeks to prepare). That will allow those creditors to make a fully informed decision as to the future of the companies. See Re Foodora Australia Pty Ltd (Administrators Appointed) [2018] NSWSC 1426, [12] – [13] (Black J); Eagle, in the matter of Techfront Australia Pty Limited (administrators appointed) (No 2) [2020] FCA 618, [31](2) (Farrell J). Mr Rose, one of the administrators, has deposed that, as of now, the administrators have not received sufficient of the books and records of the companies to facilitate an accurate assessment of the companies’ asset and liability positions, and to enable them to adjudicate on proofs of debt and to seek proposals as to the possible entry of the companies into a deed of company arrangement. Although the lack of books and records provides some justification for an extension, it ought not to be forgotten that administrators have powers under the Corporations Act to require directors to comply with requests for the provision of documents. If the directors refuse to provide the requested documents, then the administrators ought to take appropriate measures to ensure compliance.

24    A further reason to extend the convening period is that, if no extension is granted, the administrators will be required to recommend the companies’ liquidation, simply because no person has yet acquired sufficient information to be in a position to propose a deed of company arrangement. If the sale campaign was to continue and conclude, there is a real possibility that a sale of the business, in the context of a deed of company arrangement, could occur. This would result in a greater amount of money being made available to the creditors than there would be if the companies were placed into liquidation. Further, liquidation would deprive the employees of the opportunity to continue their employment, and would bring an end to existing lease arrangements between the companies and a number of landlords.

25    The sixth reason is that the three month extension is relatively brief, given the size and complexity of the business of the eleven companies, and that extensions for that period of time are regularly granted. It was submitted that, in other matters, longer extensions have been granted. Specifically, it was submitted that, in Re Harrisons Pharmacy Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 [44] – [46], Farrell J noted the trend towards applications for lengthier convening periods and referred to six-month extensions being granted in a series of cases such as Re Chemeq Ltd (Administrators Appointed) (Receivers and Managers Appointed), ex parte McMaster [2007] WASC 154; Re an application by Horne & Vrsecky [2010] VSC 657; Strawbridge (Administrator) v Retail Holdings Pty Ltd (Administrators Appointed), In the Matter of Retail Adventures Holdings Pty Ltd (Administrators Appointed) [2013] FCA 151. It was further submitted that, more recently, O’Bryan J granted a 12-month extension to the convening period in Rathner, in the matter of Citius Property Pty Ltd (Administrator Appointed) [2023] FCA 26 to allow the company in administration to continue trading in order to extract the maximum possible revenue that could be earned under a project management agreement, and therefore maximise the funds available for distribution to creditors. Whilst these decisions are not irrelevant, there is, in general, not a great deal of value to be derived from comparing the lengths of extensions in different cases to one another, given the infinite variety of circumstances that come before the courts. Nevertheless, the authorities can be taken to indicate that three months is well within an acceptable period for an extension to the convening period in what might be considered a complex administration.

26    Seventhly, there will be no substantial prejudice to creditors from the extension of the administrations. The administrators are continuing to operate the businesses so as to maintain their value for any future sale. Employee entitlements are being met while the businesses continue. Whilst the moratoria in the administrations have the effect of staying legal proceedings currently on foot, there is no evidence that any particular legal proceedings are liable to be impaired. Moreover, there is some prospect that ongoing trading will assist the companies in meeting the claims of trade creditors.

27    Further, and as has already been mentioned, none of the creditors at the first meeting expressed any opposition to the administrators’ intention to seek an extension. Indeed, the major creditors were specifically asked for their views as to the appropriateness of the current application, and none opposed it. Importantly, there has been no opposition from the first-ranking secured creditor, Judo Bank, which expressly indicated that it does not object to the application.

Conclusion as to whether the convening period should be extended

28    In the foregoing circumstances, the administrators’ opinion that an extension of the convening period is in the best interests of the creditors and of the companies as a whole should be accepted, and an order made in the form sought in the application. Orders should also be made to the effect that the administrators are entitled to hold the second meeting for each of the companies at any time during the extended convening period. That is now a standard order: Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446, 448 – 449 [10] – [18] (Lindgren J); Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636, [18] (Lindgren J).

Confidentiality orders

29    Confidentiality orders are also sought pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth) in respect of parts of the affidavit material filed. Similar orders were made by Yates J in Farnsworth in his capacity as voluntary administrator, in the matter of Monorant Pty Limited (administrator appointed) [2013] FCA 949. The parts of the affidavit material in question, which relate to expressions of interest received in connection with the sale of the businesses, and to associated negotiations and conversations, obviously contain commercially confidential and price-sensitive information. The release of that information could adversely affect the interests of the creditors. The orders sought to prevent that outcome are not burdensome. Similar orders were made in Pleash, in the matter of Consolidated Tin Mines Limited (Administrators Appointed) [2016] FCA 931 and are regularly made in applications of this nature. They should be made in the present case.

Associate:    

Dated:    3 May 2023

SCHEDULE OF PARTIES