Federal Court of Australia

Strawbridge, in the matter of Sara Lee Holdings Pty Ltd (administrators appointed) [2023] FCA 1408

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 439A(6) of the Corporations Act 2001 (Cth) (Act), the convening period (as defined by s 439A(5) of the Act) within which Vaughan Strawbridge, Kathryn Evans, and Joseph Hansell (Administrators), each in their capacity as joint and several administrators of Sara Lee Holdings Pty Ltd (administrators appointed) (ACN 650 567 641) (Company) must convene the second meeting of creditors of the Company, as required by s 439A of the Act (Second Meeting), be extended up to and including 14 May 2024.

2.    Pursuant to s 447A(1) of the Act, Pt 5.3A of the Act is to operate in relation to the Company such that, notwithstanding the provisions of s 439A(2) of the Act, the Second Meeting may be convened and held at any time during, or within, 5 business days after the end of the convening period as extended by Order 1 above, provided that the Administrators give notice of the meeting to creditors of the Company (including the persons or entities claiming to be creditors of the Company) at least 5 business days before the meeting.

3.    The plaintiffs’ costs and expenses of and incidental to the originating process be costs and expenses in the administration of the Company and be paid out of the assets of the Company.

4.    The creditors of the Company, or other interested persons in the affairs of the Company, have liberty to apply to vary these orders on the giving of 3 business days’ notice to the plaintiffs and to the Court.

5.    The orders be entered forthwith.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

HALLEY J:

A.    Introduction

1    By an originating process filed on 8 November 2023, the plaintiffs, Sara Lee Holdings Pty Ltd (ACN 650 567 641) (administrators appointed) (Company) and its administrators, Vaughan Strawbridge, Kathryn Evans, and Joseph Hansell (together, the Administrators), seek orders that the period for the convening of the second meeting of creditors of the Company (convening period) be extended for six months to 14 May 2023. The plaintiffs also seek ancillary orders permitting the meeting to be convened at any time within that period. Absent any extension, the convening period for the second meeting of creditors would otherwise expire on 14 November 2023.

2    The application by the plaintiffs is supported by two affidavits from Mr Hansell sworn on 8 and 9 November 2023. Mr Krochmalik of counsel appears for the plaintiffs. He has provided comprehensive and focused written and oral submissions in support of the application, which the Court has found of considerable assistance. There is no appearance today by any creditor or other interested party. As I explain later in these reasons, each of these persons has been notified of the proposed application and has either consented to or not opposed the application for an extension of the convening period for the second meeting of creditors.

3    For the reasons that follow, I am satisfied that an order should be made extending the period for the convening of the second meeting of creditors for six months to 14 May 2024.

B.     Factual Background

4    The following factual background is taken from the affidavit of Mr Hansell sworn on 8 November 2023. For present purposes, it is sufficient to note the following.

5    On 17 October 2023, the Administrators were appointed following a resolution of the Company’s directors, pursuant to s 436A of the Corporations Act 2001 (Cth) (Act). The Company operates a well-known business, which manufactures and sells frozen desserts under the “Sara Lee” brand. It has operated for 25 years. The Company’s products are principally sold through large retailers in Australia and New Zealand. Some products are also resold by export agencies throughout Southeast Asia and the Middle East.

6    As at the date of the Administrators’ appointment, the Company had 208 employees. The Company manufactures its products from a property that it leases at 88 Railway Crescent Lisarow, New South Wales, from Certane CT Pty Limited (Certane). The Company has continued to occupy and operate the manufacturing facility at the property during the administration. The Company’s principal creditors are IFM Investors Pty Ltd (IFM), which is owed $65,410,429.12, and the National Australia Bank Limited (NAB), which is owed $1,810,886.80. Each of those creditors has security interests over the Company’s assets, with NAB’s security having priority to IFM’s security. To date, neither IFM nor NAB have taken any step to enforce their security.

7    Turning then to address the remaining creditors of the Company, creditors with security interests registered on the Personal Property Securities Register, typically in the nature of retention of title arrangements, are owed to $2,107,693.84. Employees of the Company are owed, by way of pre-appointment liabilities, a figure of $2,632,229.81. The lessor of the property, Certane, is owed $945,714.43 for pre-appointment unpaid rent and outgoings. Finally, I note that unsecured creditors are owed an amount in aggregate of $14,112,334.21.

8    The Company’s assets consist of plant, property and equipment, debtors, finished goods, raw materials and packaging, intangibles and goodwill. The main asset of the Company is the underlying business and the associated goodwill in the “Sara Lee” brand.

9    The Administrators have identified, on a preliminary basis, the following reasons for the Company’s entry into administration (a) trading losses caused by unforeseen challenges faced by the Company, including the impact of the COVID-19 pandemic, macroeconomic factors, and natural disasters, in particular flooding, (b) issues with major suppliers, (c) excessive senior debt owing to both IFM and NAB, and (d) insufficient liquidity to make investments and changes within the business to deal with these challenges. The Administrators have formed the view that the Company is presently insolvent.

10    It follows that, in the absence of any extension to the convening period, it is likely that the creditors will resolve to wind up the Company. The Administrators have commenced a process for the sale or restructuring of the assets and business of the Company (sale process). That sale process contemplates a completion of the process by early to mid-February 2024. The Administrators, however, seek an extension to 14 May 2024, because of the potential for the need for conditions precedent to be satisfied, potential approval that might need to be obtained by a major trade buyer from the Australian Competition and Consumer Commission, the potential need for an international buyer to require Foreign Investment Review Board approval, and to provide a buffer in the event that the sale process takes longer than anticipated.

11    The benefit to creditors, and the Company more generally, of an extension beyond early to mid-February 2024, is that it provides further flexibility to the Administrators and significantly avoids the costs that may otherwise be incurred in having to make a further application for an extension of the convening period if any sale cannot be completed by mid-February 2024. The Administrators are currently optimistic as to the prospects of a successful sale of the business as a going concern given the interest that the Administrators have received to date in a potential sale or restructure of the assets of the Company.

12    Further, and significantly, the Administrators have kept key stakeholders informed of the proposal to extend the convening period for the second meeting of creditors by six months. The secured creditors, both NAB and IFM, have confirmed to the Administrators that they either consent or do not oppose the application for the extension. The lessor, Certane, and the United Workers Union, which is the registered trade union which represents the employees of the Company, have also expressed their support to the Administrators for the extension of the convening period.

13    Finally, I note that, at the first meeting of creditors, the proposed application for a six-month extension of the convening period was explicitly foreshadowed to creditors, and no opposition was expressed by any creditor to the proposed application. In addition, immediately following their appointment, the Administrators met with the Company’s employees and notified them of the proposed application for an extension of the convening period, and no opposition was expressed to that proposal.

C.    Relevant Principles

14    Section 439A(6) of the Act expressly empowers the Court to extend the convening period for the second meeting of the creditors. The discretion is at large but must be exercised judicially. The circumstances in which the Court will extend a convening period are well-established.

15    Recently, the relevant principles were stated by Middleton J in Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) (2020) 144 ACSR 347; [2020] FCA 717 at [65] to [68] (and the cases cited therein).

16    Those principles can relevantly be summarised as follows:

(a)    the categories of cases in which an extension may be granted include, where the size and scope of the business in administration is substantial, where the extension will allow a sale of the business as a going concern, and more generally, where additional time is likely to enhance the return for unsecured creditors: Farnsworth v About Life Pty Limited (Administrator Appointed), in the matter of About Life Pty Limited (Administrator Appointed) [2019] FCA 11 at [3]-[8] (Thawley J); In the matter of Kavia Holdings Pty Limited (administrators appointed) (receivers and managers appointed) [2013] NSWSC 737 at [15] (Black J); Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18] (Lindgren J); Metha, in the matter of Hans Continental Smallgoods Pty Ltd (Administrators Appointed) [2008] FCA 1933 at [20] (Jacobson J);

(b)    an extension of the administration period to facilitate either or both the sale of the business of the company as a going concern, or the progression and assessment of a deed of company arrangement (DOCA) proposal, to provide a better return to creditors than a winding up, are well-recognised examples of situations where the court has extended the convening period; In the matter of Belmont Sportsmans Club Co-Operative Limited (Administrators Appointed) [2015] NSWSC 543 at [9] (Black J); In the matter of Riviera Group Pty Ltd (admins apptd) (recrs & mgrs apptd) [2009] NSWSC 585 at [13] (Austin J); and

(c)    the administrators’ own opinion as to the need for an extension will be given weight in applications for extensions of the convening period for the second meeting of creditors: Bumbak (Administrator), in the matter of Duro Felguera Australia Pty Limited (Administrators Appointed) [2020] FCA 422 at [32] (Gleeson J); Jahani, in the matter of Northern Energy Corporation Ltd (Administrators Appointed) (No 2) [2019] FCA 382 at [67] (Farrell J); Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 4) (2012) ACSR 255; [2012] FCA 1491 at [26] (Logan J).

17    His Honour, also referred in Strawbridge to the following statements by Nettle and Gordon JJ (in dissent, but not relevantly in this respect) in Mighty River International Limited v Hughes (as deed administrators of Mesa Minerals Limited) (2018) 265 CLR 480; [2018] HCA 38 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.

(Citations omitted.)

18    In addition to the factors identified by Middleton J in Strawbridge, an additional factor is the need for information to be provided to creditors at a second meeting in a way that allows them to exercise their decision in as an informed manner as possible: Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167 at [28] (Farrell J). In this regard, the interests of those whose claims are affected by the statutory moratorium will be relevant, although ultimately not decisive: Chamberlain, in the matter of South Wagga Sports and Bowling Club Ltd (Administrator Appointed) [2009] FCA 25 at [9] (Jacobson J); ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No. 8) (2009) 73 ACSR 478; [2009] FCA 994 at [52]-[53] (Emmett J).

19    Extensions of the convening period have been granted for periods of six months or longer, particularly in the context of large retail businesses or wholesale businesses that sell to retailers. Recent examples of six-month extensions being provided include: In the matter of Oventus Medical Limited (Administrators Appointed) [2022] FCA 840, Resnick, in the matter of Toplace Pty Ltd (administrators appointed) [2023] FCA 1086, and Re Mallee Resources Limited (Administrators Apptd) (Receivers & Manager Apptd) [2023] WASC 379.

20    A twelve-month extension was granted in Rathner, in the matter of Citius Property Pty Limited (Administrator Appointed) [2023] FCA 26. In that case, O’Bryan J stated at [39] that it was appropriate to allow the company to continue trading in order to extract the maximum possible revenue that could be earned under a project management agreement and, thereby, maximise the funds available for distribution to creditors. Ultimately, however, as Moshinsky J noted in Ford, in the matter of Ten Sixty Four Limited [2023] FCA 862 at [26] in the course of granting a six-month extension, courts are generally willing to tailor the timeframe in Pt 5.3A of the Act to suit the needs and circumstances of the particular company, having regard to the achievement of the objects of Pt 5.3A.

D.     Consideration

21    I am satisfied that this is an appropriate case for a six-month extension for the convening period for the second meeting of creditors of the Company for the following reasons.

22    First, an extension that is intended to facilitate the sale of the business of a company as a going concern, in order to maximise the value of its assets and the interests of creditors, is a well-recognised and orthodox circumstance warranting an extension of the convening period.

23    Second, I am satisfied that in the absence of an extension for the convening period, it is likely that the Administrators would recommend that the Company be wound up.

24    Third, I am satisfied that, as submitted by the plaintiffs, the advantages of a sale as a going concern, in contrast to a liquidation of the Company, are that it will likely (a) involve the transaction for the whole or, at least, a very substantial portion of the existing business, (b) preserve some or many existing contracts held by the Company with its suppliers and customers, (c) lead to the retention of many of the Company’s existing employees, (d) avoid a perceived fire sale of the Company’s assets, and (e) avoid triggering further employee claims.

25    I am satisfied that, in turn, it is likely to have three consequential benefits, being (a) the yield of a greater sale price, (b) preservation of goodwill in the “Sara Lee” brand, and (c) the total claims of creditors in the external administration will likely be lower if contracts are preserved and the employment of the Company’s employees is retained.

26    Fourth, the six-month extension is designed to allow as many bidders as possible to participate, actively, in the sale process, thereby increasing competitive tension and the price that is likely to be achieved.

27    Fifth, an extension of the convening period would facilitate the possibility of a deed of company arrangement as an alternative form of restructuring the Company’s assets and increasing the potential net return to creditors.

28    Sixth, as matters currently stand, the plaintiffs submitted, and I accept, that the Administrators are currently unable to prepare and circulate a comprehensive and meaningful report to creditors because their investigations are still ongoing.

29    Seventh, if the sale process is ultimately successful, it is likely that many of the employees will be able to continue in their employment.

30    Eighth, the Administrators’ collective view, which I accept should be afforded deference given their considerable experience which, in total, amounts to an aggregate of some 70 years as insolvency practitioners, is that the interests of the Company’s creditors will be enhanced by the proposed extensions sought.

31    Ninth, there is unlikely to be any prejudice to creditors or other stakeholders flowing from the extension in circumstances where the Administrators are continuing to pay employees post-appointment wages and entitlements and meeting the Company’s obligations under the lease with Certane, the secured creditors have not sought to enforce their security interests and there is ongoing trading of the business during the administration for the benefit of trade creditors.

32    Tenth, the orders proposed by the plaintiffs provide that creditors or any other potentially affected person may apply, on three business days’ notice, to the plaintiffs and to the Court to vary the orders sought by the plaintiffs.

33    Further, the orders provided to the Administrators have indicated that they may convene the second meeting of creditors at an earlier date than the latest possible time during the extended period, to the extent that it is possible and desirable to do so. For these reasons, I am satisfied that the extension sought by the plaintiffs is consistent with the objectives of Pt 5.3A of the Act, as I am satisfied that it maximises the prospects of the Company continuing the existence of its business and otherwise increasing the likely return to creditors.

E.    Disposition

34    Orders in the form of the orders sought by the plaintiffs will be made.

Associate:

Dated:    15 November 2023