Federal Court of Australia

Goyal, in the matter of Halo Food Co. Limited (administrators appointed) (receivers and managers appointed) [2023] FCA 1135

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (the Act), the convening period within which the plaintiffs must convene the second meeting of creditors of Halo Food Co Limited (ACN 621 970 562) (administrators appointed) (receivers and managers appointed), Halo Manufacturing Pty Ltd (ACN 631 512 500) (administrators appointed) (receivers and managers appointed), Halo Food Co. Trading Pty Ltd (ACN 644 024 680) (administrators appointed) (receivers and managers appointed), Omni Brands Pty Ltd (ACN 625 073 485) (administrators appointed) (receivers and managers appointed) (together, the Companies) under s 439A of the Act (Second Meetings) be extended to 22 January 2024.

2.    Pursuant to s 447A of the Act, Part 5.3A of the Act is to operate such that the Second Meetings may be held, together or separately, at any time during, or within five (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.

3.    Pursuant to s 37AF of the Federal Court Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice as provided in s 37AG(1)(a) of the Federal Court Act 1976 (Cth), the following documents be suppressed and not be published to any person other than the Plaintiffs and their legal advisers until 22 January 2024 or until further order of the Court, whichever is the earlier:

(a)    Paragraphs 35(f) and 35(g) to the affidavit of Michael Korda sworn 14 September 2023; and

(b)    Paragraphs 23, 24, 26, 27, 30(f) and 31(a) to the affidavit of David Hardy affirmed 14 September 2023.

4.    The plaintiffs’ costs of and incidental to this application be costs and expenses in the administrations of the Companies, jointly and severally, and be paid out of the assets of the Companies.

5.    Leave be granted to any person demonstrating sufficient interest to move the Court to vary or vacate these orders on 3 days’ notice.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    The plaintiffs are the joint and several administrators of Halo Food Co. Limited (administrators appointed) (receivers and managers appointed) (Halo Food Co), Halo Manufacturing Pty Ltd (administrators appointed) (receivers and managers appointed), Halo Food Co. Trading Pty Ltd (administrators appointed) (receivers and managers appointed), and Omni Brands Pty Ltd (administrators appointed) (receivers and managers appointed) (the companies). They were appointed on 24 August 2023.

2    The plaintiffs seek an extension of the convening periods for the second meeting of creditors of each company required under s 439A of the Corporations Act 2001 (Cth) (the Act). Unless extended, the convening periods will expire on 21 September 2023. The plaintiffs are of the view that it is in the best interests of the creditors of the companies that the convening periods be extended up to and including 22 January 2024.

3    For the reasons that follow, I am satisfied that the convening periods should be extended for the period that is sought.

Background

4    Halo Food Co is listed on the Australian Securities Exchange (ASX). It is the holding company for a group of companies that include the other companies listed above (the Halo Group). The other companies in the Halo Group are Halo IP Pty Ltd and two companies registered in New Zealand—Halo Food Co Trading NZ Limited and Keytone Enterprises (NZ) Company Limited.

5    The companies in the Halo Group manufacture and distribute health food products including bars, snacks, powders, and beverages under brands that include Tonik and Gran’s Fudge. The companies also provide contract manufacturing for health and wellness brands in Australia and New Zealand.

6    The companies operate four manufacturing facilities and one warehouse in Australia, with each serving a specific production role. The properties are leased.

7    On 14 February 2022, the companies entered into a Facility Agreement and a General Security Deed with Arrowpoint Capital Finance 102 Pty Ltd (Arrowpoint). Under the General Security Deed, the companies granted Arrowpoint security over their present and after-acquired property in respect of their compliance with their obligations under the Facility Agreement.

8    On 24 August 2023, following the appointment of the plaintiffs as administrators, Arrowpoint exercised its rights under the Facility Agreement and the General Security Deed and demanded immediate repayment of the total amount owing under the Facility Agreement. The companies failed to meet the demand. Arrowpoint then appointed receivers and managers to the companies. The receivers and managers have the day-to-day control over the companies, including their business operations and assets. The receivers and managers are continuing to trade the business of the companies and are meeting their obligations in respect of employees’ wages and entitlements as they arise.

9    On 28 August 2023, the receivers and managers placed an advertisement seeking non-binding indicative offers in relation to the sale of the companies’ business and assets. To date they have received a number of responses. The sale process is still at a relatively early stage.

10    The receivers and managers want the convening periods to be extended to allow the present sale process to continue in an orderly fashion to anticipated completion, so as to maximise the return from that process. They understand that the companies’ assets are specialised in nature with a potentially limited market in a forced sale. It is their expectation that a greater outcome for creditors will be secured if a sale can be achieved in which a new operator takes possession of the companies’ business operations as a going concern. This would also likely preserve employment for as many employees of the companies as possible.

11    Further, the receivers and managers are of the view that the prospect of achieving an optimal sale price will be enhanced if the administrations of the companies continue. This would allow them to stabilise the business and continue the sale process with minimal disruptions. This will be assisted by the “lease moratorium” under s 440B of the Act continuing to apply.

12    Further, an extension of the convening periods will allow the proposed sale to be structured by way of a deed of company arrangement (DOCA). The receivers and managers are of the view that the ability to recapitalise the business through a DOCA, or for the sale of the business (or key parts of it) to include a DOCA, is likely to be viewed positively by potential purchasers. This may, in turn, influence the offers received in the next phase of the sale process. This is because any potential purchaser may, amongst other things, retain any licences, intellectual property, customer contracts, leases and/or the shareholding of an ASX-listed entity which may otherwise be terminated or unavailable in liquidation or an asset sale scenario.

The reason for the extensions

13    The plaintiffs are of the same view. They consider that the proposed sale of the business will most likely achieve a better return for the creditors of the companies compared to liquidation.

14    In this regard, the plaintiffs have informed the Court that if the convening periods are not extended, it is overwhelmingly likely that they will recommend that the companies be wound up. In their view, the companies are likely to be insolvent and should not be returned to the directors. At the present time, no DOCA proposal has been put forward and the anticipated return for creditors in a liquidation scenario is likely to be negligible because the debt owed by the companies to Arrowpoint significantly exceeds the realisable portion of the companies’ assets identified in the Reports on Company Activities and Property that have been provided.

15    The plaintiffs submit that a four-month extension of the convening periods to 22 January 2024 is warranted. They view a three-month period (to around December 2023) to be reasonable to allow the sale process to complete. They also consider it appropriate to allow an additional period so that the second meetings of creditors are not held early in January 2024. In the plaintiffs’ experience, creditors are less likely to be engaged with, and attend, a second meeting held in the traditional summer holiday period.

16    The plaintiffs have also said that, absent completion of the proposed sale before the expiration of the convening periods, they will not be in a position to make a quantitative assessment of the returns to creditors, because the returns are entirely predicated on the outcome of the proposed sale.

17    The plaintiffs have informed the known creditors of the companies and the Australian Securities and Investments Commission (ASIC) of the present application. They have not received any communication from the creditors or ASIC that expresses any concern about, or objection to, the application. The plaintiffs are not aware of any other stakeholder that would be adversely affected by extending the convening periods. The only person likely to have been adversely affected is Mr Jourdan Thompson, who was the Chief Executive Officer of Halo Food Co. at the time of the plaintiffs’ appointments. Mr Thompson is the only person who no longer remains employed by Halo Food Co. He will be affected by delay in obtaining his employee entitlements. However, he has informed the plaintiffs that he has no objection to the convening periods being extended.

Decision

18    The principles by which an application to extend the convening period for the second meeting of creditors of a company in administration should be considered are well-established and need not be repeated. I am satisfied on the material before me that it is appropriate that the convening periods for the meetings be extended until 22 January 2024. I am satisfied that this extension is reasonable in all the circumstances.

19    The plaintiffs have sought limited confidentiality orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth). Their concern is about the disclosure of commercially sensitive information about the sale process which, if disclosed to potential purchasers, could prejudice the receivers and managers receiving optimal offers for the business. I am satisfied that the orders that are sought in this regard are appropriate, and should be made.

Associate:

Dated:    22 September 2023