Federal Court of Australia

Warwick, in the matter of BWX Ltd (Receivers and Managers Appointed) (Administrators Appointed) (No 2) [2023] FCA 1395

ORDERS

THE COURT ORDERS THAT:

1.    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 to fourteenth plaintiffs (Companies) as if the period for first plaintiffs (Administrators) to convene the second meeting of creditors of each of the Companies under s 439A of the Act (Second Meetings) is the period ending at 11.59 pm on 13 May 2024.

2.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Companies so that the Second Meetings may be held together or separately at any time during the period up to, or within 5 business days after the end of, the convening period as extended in paragraph 1, above.

3.    Pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), until further order, on the grounds that it is necessary to prevent prejudice to the proper administration of justice, the following documents be marked confidential on the Court’s file, and not be made available for inspection by any person, other than any Judge of the Court, any member of any Judge’s staff or any officer of the Court, the Plaintiffs, their staff and their legal representatives and any other person who signs an undertaking in a form acceptable to the Administrators:

(a)    the unredacted affidavit of Joseph Ronald Hansell dated 20 October 2023 and Confidential Annexure JRH-3; and

(b)    the unredacted affidavit of David Alexander Hardy dated 20 October 2023 and all annexures; and

(c)    the unredacted written submissions dated 24 October 2023.

4.    Pursuant to ss 37AF and 37AG(1)(a) of the FCA Act, until further order, on the grounds that it is necessary to prevent prejudice to the proper administration of justice, there is to be no disclosure, by publication or otherwise, of:

(a)    information that relates to the sales process undertaken by Gayle Dickerson, James Stewart, James Dampney and David Hardy (Receivers) in their capacity as receivers of the second, third and sixth to fourteenth plaintiffs in respect of the business and other assets of those companies (Sales Processes); and

(b)    information that identifies or describes, or tends to identify or describe, any person involved in the Sales Processes (other than the Receivers).

5.    Within two business days of these orders being made, the Administrators are to give notice of these orders to each of the known creditors of each of the Companies (including persons claiming to be creditors) by means of a circular:

(a)    to be published on the website maintained by the Administrators in respect of the administration of the Companies; and

(b)    to be sent by email or by post to all known creditors to the email or physical address held by the Administrators or recorded in the Companies’ books and records.

6.    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 the Court.

7.    The Administrators’ costs of and incidental to this application be costs in the administration of the companies.

8.    There is liberty to apply.

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

REASONS FOR JUDGMENT

MCEVOY J:

1    By interlocutory process dated 20 October 2023, the first plaintiffs (the Administrators) sought orders for the further extension of the period in which they must hold a second meeting of creditors of the second to fourteenth plaintiffs (the Companies) under s 439A of the Corporations Act 2001 (Cth). I previously granted an extension of the convening period of the Companies on 5 May 2023 (First Extension Orders), and published reasons for judgment in Warwick, in the matter of BWX (Receivers and Managers Appointed) (Administrators Appointed) [2023] FCA 465 (First Extension Reasons).

2    By way of background, the day after the Administrators were appointed, Gayle Dickerson, James Stewart, James Dampney and David Hardy were appointed as receivers and managers (Receivers) of all the Companies except for the fourth and fifth plaintiffs (Receivership Companies). Further background to the Companies, the Administration and the Receivership that was relevant to the First Extension Orders are outlined in the First Extension Reasons at [2], [21]-[28]. In these reasons I utilise the terms there defined.

3    The Administrators submitted that a further extension to the convening period is required, principally to allow time for the Receivers to conclude the process for selling the Companies’ businesses. The Administrators consider that the conclusion of that sale process represents the best prospect of the purposes in Part 5.3A of the Act being realised.

4    The Administration began on 3 April 2023 when the Administrators were appointed as joint and several administrators of the Companies. On 4 April 2023 Receivers were appointed to the second, third, and sixth to fourteenth plaintiffs. The convening period was due to end on 11 May 2023. Pursuant to s 439A(2) of the Act, the second meetings of each of the Companies was required to be held within five business days before, or within five business days after, that date. Pursuant to the First Extension Orders the convening period was extended to 13 November 2023.

5    On this application for a further extension the Administrators relied primarily on the following:

(a)    written submissions dated 24 October 2023;

(b)    the affidavit of David Alexander Hardy affirmed on 4 May 2023 in support of the First Extension Orders (First Receiver Affidavit);

(c)    the second affidavit of David Alexander Hardy affirmed on 20 October 2023 in support of this application (Second Receiver Affidavit);

(d)    the affidavit of Joseph Ronald Hansell sworn on 4 May 2023 in support of the First Extension Orders (First Administrator Affidavit);

(e)    the affidavit of Joseph Ronald Hansell sworn on 20 October 2023 (Second Administrator Affidavit);

(f)    the affidavit of Harry Edmund Kennewell affirmed on 25 October 2023.

6    The Administrators also submitted a draft minute of proposed orders which provides broadly as follows:

(a)    for the period within which the Administrators must convene the second meetings to be extended to 11.59pm on 13 May 2024, pursuant to s 477A of the Act;

(b)    for Pt 5.3A of the Act to operate in relation to the Companies so that the second meetings may be held together or separately at any time during the period up to, or within 5 business days after the end of, the convening period as extended;

(c)    for the Administrators to give notice of these orders to creditors;

(d)    for interested parties to have liberty to apply; and

(e)    for the costs of the Administrators to be costs in the administration of the Companies.

7    The Administrators also sought orders pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), that the following documents not be disclosed or made available to any person, other than any Judge of the Court, any member of any Judge’s staff or any officer of the Court, the plaintiffs, their staff and their legal representatives and any other person who signs an undertaking in a form acceptable to the Administrators:

(a)    the unredacted Second Administrator Affidavit and Confidential Annexure JRH-3; and

(b)    the unredacted Second Receiver Affidavit and all annexures; and

(c)    the unredacted written submissions dated 24 October 2023.

8    The Administrators also sought an order pursuant to ss 37AF and 37AG(1)(a) of the FCA Act that there be no disclosure, by publication or otherwise, of information that relates to the sales process undertaken by the Receivers in their capacity as receivers of the second, third and sixth to fourteenth plaintiffs in respect of the business and other assets of those companies and information that identifies or describes, or tends to identify or describe, any person involved in the sales processes (other than the Receivers). At the hearing of the application aspects of the Second Receivers’ Affidavit and Second Administrators’ Affidavit subject to the proposed orders were discussed, and so the Administrators sought this order to provide protection to the matters that were canvassed.

9    These orders were sought on the basis that the matters contained in parts of those documents are confidential and commercially sensitive, and that the disclosure of those matters may undermine the sale process being conducted by the Receivers of the assets of all but two of the Companies. It was said, therefore, that the orders sought were necessary to prevent prejudice to the proper administration of justice.

10    I heard the Administrators’ application on 26 October 2023 and made orders. These are my reasons for those orders.

11    Following the hearing of the application, counsel for the Administrators also foreshadowed that orders pursuant to ss 37AF and 37AG(1)(a) would likely be sought in relation to parts of the transcript of that hearing on the basis that it is necessary to prevent prejudice to the proper administration of justice. On 2 November 2023 I made orders to that effect also.

The Statutory Regime and Relevant Principles

12    The principles in relation to the extension of the convening period were discussed in the First Extension Reasons at [10]-[20]. The principles relevant to the present application for a second extension are as follows.

13    The Court has the power to make orders extending the convening period under ss 439A(6) and 447A of the Act. That jurisdiction extends to granting a further extension of the convening period, after a previous extension has been granted.

14    There may, however, be some doubt as to whether the power in s 439A(6) extends to granting multiple extensions: see Re Lombe; Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [31] (Barrett J). It is unnecessary to determine the question for present purposes as it would seem that courts typically rely on the power contained in s 447A(1) of the Act to grant any further extension of the convening period: see, for example, Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (No 3) [2023] FCA 1002 at [23]-[28] (Anderson J); Hutton, in the matter of Triple MMM Holdings Pty Ltd (Administrators Appointed) [2023] FCA 124 at [32] (O’Bryan J); Park, in the matter of Collection House Limited (Administrators Appointed) [2022] FCA 1083 at [9] (Derrington J); Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 7) [2020] FCA 1182 at [12]-[13] (Middleton J) (Virgin No 7).

15    The principles that are to be considered in determining an application for a further extension of the convening period are the same as those in respect of the initial grant of an extension: IG Energy at [25]; Triple MMM at [33]; Virgin No 7 at [14]. These principles are summarised at [11]-[20] of the First Extension Reasons. The Administrators also referred to IG Energy at [25]-[28].

16    The Court must reach an appropriate balance between an expectation that an 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”: Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717 at [64] (Middleton J).

17    In Gothard, Re Sherwin Iron Ltd (No 2) [2015] FCA 401, Gleeson J considered circumstances where a second extension was sought by administrators to allow time for receivers to effect a sales process. Her Honour explained, at [39], that she was satisfied it was appropriate to grant an extension in those circumstances, including where the companies’ administrators considered the extension to be necessary to maximise the prospect of a return to unsecured creditors and allow for the sale of a business as a going concern.

The Extension Application

Steps taken by the Administrators and Receivers since the First Extension Orders

18    Since the making of the First Extension Orders, the Administrators submitted that they have, inter alia:

(a)    continued investigations into the financial affairs of the Companies prior to the Administrators’ appointment;

(b)    continued to investigate the business and affairs of the Companies;

(c)    commenced the drafting of the Administrators’ Report;

(d)    attended to all statutory requirements, including taxation, corporate administration and insurance;

(e)    held regular meetings with the Receivers as to the status of the receivership and the Receivers’ sale process; and

(f)    in respect of the receivership and in accordance with the agreed communication protocols, continued to deal with the Receivers to ensure efficient management of the parallel Receivership and Administrations.

19    The Administrators maintained that the “bulk of activity” since the First Extension Orders has been the Receivers’ sale process.

20    The Administrators’ evidence in support of the application was that they remain of the view that the successful conduct of the Receivers’ sale process is the course of action most likely to maximise the potential return to the creditors of the Companies in receivership and best achieve the objects of Pt 5.3A of the Act. The primary reason that the second extension was sought is to enable the Receivers to pursue and complete the sale process. The Administrators considered that the extension would increase the prospects of there being:

(a)    a surplus of assets available for unsecured creditors; and/or

(b)    a sale to be transacted via a deed of company arrangement (DOCA) which may allow for funds to be contributed to a deed fund by a DOCA proponent which ordinarily would not be made available to unsecured creditors.

21    However, as at the time of the Second Administrator Affidavit there were no known proposals for the sale of the Australian Business which involve a DOCA.

Stabilisation of the Australian Business

22    The Administrators’ evidence was that the primary reason for seeking the First Extension Orders was to allow the Receivers to stabilise the business of the Receivership Companies. They submitted that once those businesses had been stabilised, the Receivers anticipated being able to commence the separate sale processes for the Australian, US and Digital Businesses as well as to engage in a separate sale of BWX’s shares in Go-To Enterprise Holdings Pty Ltd (GTEH).

23    The Receivers’ evidence was that they have achieved significant success in stabilising the Australian Business and have achieved an increase in production to levels last achieved in October 2022, while decreasing operating costs. The Second Receiver Affidavit deposed that the Australian business’ increased production has resulted in progress towards normalisation of trading, an increase in the Australian Business’ sales, and that there has been strong support from its key customers.

Sale processes

24    The Receivers’ evidence was that the sale processes have continued. Mr Hardy deposed that the Receivers remain in the process of conducting sales of the Australian and US Businesses and BWX’s shares in GTEH, while the sale of the Digital Business has been completed.

25    The Receivers’ estimate that completing a sale of the Companies’ businesses and assets may take up to a further 6 months.

Sale of the Australian Business

26    The Receivers’ evidence was that the sale of the Australian Business has commenced and that they are not in a position to predict the precise timeframe in which any sale will complete. They pointed to a number of considerations including the fact that the extension period will fall over Christmas and the New Year period. In all the circumstances the Receivers consider that an extension of the convening period to 13 May 2024 would best maximise the prospect of a sale.

27    The Administrators’ evidence was that they consider the Receivers’ sale process to be in the best interests of creditors. The Administrators also deposed that they remain of the view that it will be difficult for a recommendation to be made by the Administrators until the proposed transactions (which are yet to be implemented) in connection with the Receivers’ sale process are known.

Sale of the US Business

28    The Receivers have also commenced the sale of the US Business, it was Mr Hardy’s evidence that the Receivers will need to:

(a)    select final buyer(s), evaluate potential exclusivity and conduct confirmatory due diligence;

(b)    consider sale structure mechanisms and the foreign exchange and tax implications of the sale of a foreign business; and

(c)    negotiate final terms and transaction documents.

Sale of the Digital Business

29    The sale of the Digital Business has completed.

Sale of BWX’s shares in GTEH

30    The Receivers’ deposed that the sale process for BWX’s shares in GTEH has also begun.

Effect on interested parties

31    Broadly, the Receivers’ evidence was that while the further extension may affect the outcomes for certain stakeholders, they consider that the prejudice to these stakeholders is likely to be minimal, if there is any prejudice at all.

32    The Administrators submitted that while the further extension is likely to incur additional costs during the extended period, the Receivers are meeting the costs of trading the business, and the Administrators consider that additional costs incurred by them and the Companies are justifiable due to the likely superiority of the return to creditors from a sale completed in “optimal conditions brought about by the continuation of the administrations”.

33    The primary secured creditor is the CBA, which appointed the Receivers. As with the First Extension Orders, CBA supports this further application because it was brought in part in support of the Receivers’ sale process.

34    The Second Receiver Affidavit explains that the Companies have 116 remaining employees with 5 people employed by overseas entities owned by BWX Brands Pty Ltd. These overseas entities are not subject to the appointment of Receivers. The Receivers had previously deposed to their intention to meet all obligations including in respect of wages and superannuation, as they arise. The Second Receiver Affidavit explained that the Receivers continue to undertake to meet ongoing obligations for employees of the Companies and consider that the sale of the Australian Business is in the interest of the Companies’ employees because it offers the best prospect of continuing employment for the greatest number of employees. The Receivers’ evidence was that to date the employee entitlements have all been met from circulating assets, and that they intend to continue to meet these entitlements as they arise from circulating assets.

35    The Receivers did acknowledge that if any employee creditors needed to rely on the Fair Entitlement Guarantee (FEG) to pay outstanding employee entitlements, then the further extension of the convening period will delay their access to FEG funding. The Receivers deposed, however, that they believe the employees may benefit from the sale process for the Australian Business being completed in improved conditions afforded by the continuation of the administrations in that this maximises the prospect of their continued employment.

36    As was noted in the First Extension Reasons, it may be accepted that the landlord(s) of the premises leased by the Companies will be affected by any extension to the prolongation of the statutory moratorium if the convening period was to be extended. The Receivers’ evidence was that two of the Companies three leases have been exited.

37    The evidence was also that the Receivers are continuing to meet BWX’s obligations under the remaining lease as they fall due, and that they are of the view that the landlord will not suffer any material prejudice should the current convening period be extended further to 13 May 2024. The Receivers indicated that they believe that the landlord’s financial position may be improved if the Receivers are able to achieve a sale of the Australian Business because it may result in the assignment of the lease. The Receivers considered that this would benefit the landlord’s financial position because they will be able to contract with a solvent tent and receive security for the incoming tenant’s obligations under the lease agreement.

38    The Receivers also contended that the sale of the Australian Business will have an indirect financial benefit to suppliers who will be able to maintain business relationships with the purchaser of the Australian Business.

39    The Administrators provided evidence of the position of unsecured creditors. The Receivers’ evidence was that it is not possible to form a view at this stage of the receivership as to whether there will be any return to ordinary unsecured creditors, although they believe that a further extension would increase the likelihood of return to unsecured creditors. It was said that if the further extension is granted, then the Administrators would have the benefit of additional time to undertake investigations for the benefit of unsecured creditors.

40    The Administrators notified all creditors of the current application and they received one response from an unsecured creditor which they brought to the attention of the Court. This person had emailed the BWX Group expressing their disappointment that the expected outcome of 13 November 2023 would likely be delayed by a further six months, and saying that while they understood the need for the Administrators to have some extra time, and that this may ultimately be beneficial to them, they nonetheless felt aggrieved. I have taken this creditor’s response into consideration, noting that the email did not express actual opposition to a further extension.

Length of extension requested

41    In relation to the First Extension Orders, the Administrators acknowledged that the six-month extension sought was substantial and said that this was because it took into account at least four sales campaigns: see First Extension Reasons at [50]. The Administrators have now sought a further six-month extension on the basis of the evidence provided in support of the present application about the time required to complete the Receivers’ sales processes and taking into account that the period falls over Christmas and the New Year: see, for example, Ten Sixty Four Limited, in the matter of Ten Sixty Four Limited [2023] FCA 862 at [31(i)] (Moshinsky J).

42    Once again, the Administrators sought an order in the terms made in Re Daisytek Australia Pty Ltd [2003] FCA 575; (2003) 45 ACSR 446 (Lindgren J) pursuant to s 447A of the Act, allowing the second meetings to be held at any time between the date of the order and the date ending five days after the end of the further extended convening period. The Administrators intend to hold the second meetings of the creditors of the Companies as soon as reasonably possible in the circumstances.

Conclusion

43    In all the circumstances I was satisfied that there should be orders for a further extension to the period within which the Administrators must convene the second meeting of creditors in respect of the Companies until 11:59pm on 13 May 2024 because:

(a)    the Companies’ Receivers have stabilised the Australian Business and have commenced, and in one instance completed, the sales campaigns of the four business units and they require additional time to finalise that process;

(b)    the Administrators consider the extension to be necessary for the Receivers’ sale processes, and consider that this is the approach most likely to maximise returns to creditors and achieve the objects of Pt 5.3A of the Act in that it will increase the likelihood of return to unsecured creditors;

(c)    beyond the continuing delay and the dissatisfaction expressed by one unsecured creditor there is no evidence of any real prejudice to unsecured creditors or stakeholders;

(d)    there is no suggestion that the Administrators have delayed in exercising their functions, rather it is just that the processes appear to be taking longer than was initially anticipated;

(e)    the likely alternative would be that the companies are placed into liquidation which the Administrators consider would be a worse outcome for creditors and other stakeholders than the Receivers’ sale process;

(f)    the extension allows sufficient time for the second meetings of the Companies to be held at the same time following the Receivers’ sale process;

(g)    the Receivers supported the further extension to the convening period;

(h)    the creditors received notice of this application for a further extension to the convening period and only one of them expressed some level of dissatisfaction with the situation, there otherwise being no objections; and

(i)    the proposed orders provided for liberty to apply to any creditor or other interested party.

44    I also accepted that there was utility in making the ancillary orders sought which would allow for:

(a)    the second meetings to be held together or separately at any time during the period up to, or within five business days after the end of the convening period; and

(b)    the Administrators to give notice to each of the known creditors of each of the Companies by means of a circular published on the website maintained by the Administrators or sent by email or post.

45    In the circumstances I also considered that it was necessary that there be orders pursuant to s 37AF of the FCA Act in the terms sought so as to prevent prejudice to the proper administration of justice: see Hayes, in the matter of Parcelpoint Pty Ltd (Administrator Appointed) [2022] FCA 1136 at [35]-[36] (Halley J); Hill, in the matter of Autocare Services Pty Ltd (Administrators Appointed) [2021] FCA 167 at [48]-[54] (Farrell J); Scott, in the matter of Tzukuri Pty Ltd (Administrators Appointed) [2018] FCA 16 at [15] (Rangiah J); and Pleash, in the matter of Consolidated Tin Mines Limited (Administrators Appointed) [2016] FCA 931 at [21] (Edelman J).

46    Finally, I accepted that the Administrators’ costs should be costs in the administration of the companies.

Associate:

Dated:    10 November 2023

SCHEDULE OF PARTIES