Federal Court of Australia
Crawford, in the matter of Booktopia Pty Ltd [2024] FCA 856
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to s 439A of the Corporations Act 2001 (Cth) (Corporations Act), the convening period defined in s 439A(5)(b) of the Corporations Act for the meeting of creditors of each of the second to fifth plaintiffs (the Booktopia Group Companies) be extended by 120 days from 31 July 2024 to 28 November 2024.
2. Pursuant to s 447A(1) of the Corporations Act, Pt 5.3A of the Corporations Act is to operate in relation to each of the Booktopia Group Companies such that the meeting of creditors of each of the Booktopia Group Companies required to be held pursuant to s 439A(1) of the Corporations Act may be held at any time during the period up to, or within five business days after, the end of the convening period as extended by paragraph 1 above, notwithstanding the provisions of s 439A(2) of the Act.
3. Pursuant to s 447A(1) of the Corporations Act and/or s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Corporations Act, Pt 5.3A of the Corporations Act is to operate, nunc pro tunc, in relation to the plaintiffs as if s 443A(1) of the Corporations Act provides that:
(a) any debts or liability incurred by the first plaintiffs (Administrators) arising out of, or in connection with, the facility agreement dated 16 July 2024 between the Booktopia Group Companies and Moneytech Finance Pty Ltd (Moneytech Agreement), and/or any “Transaction Document” as defined in the Moneytech Agreement (together, the Finance Documents), are in the nature of debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of the Booktopia Group Companies; and
(b) notwithstanding that the liabilities arising out of or in connection with the Finance Documents (as set out in sub-paragraph (a) above) are debts or liabilities incurred by the performance and exercise of their functions as joint and several administrators of the Booktopia Group Companies, the Administrators are not personally liable to repay such debts or satisfy such liabilities to the extent that the Administrators’ right of indemnity under s 443D of the Corporations Act is insufficient to do so.
4. The Administrators take reasonable steps to cause notice of these orders to be given, within two business days of the making of these orders, to:
(a) the creditors (including persons or entities claiming to be creditors) of each of the Booktopia Group Companies by placing scanned, sealed copies of the orders, the Originating Process, and the affidavit of Keith Alexander Crawford sworn 25 July 2024 (without its exhibit) on the website maintained by the Administrators at https://www.mcgrathnicol.com/creditors/booktopia-group/;
(b) the Department of Employment and Workplace Relations; and
(c) the Australian Securities and Investments Commission.
5. Liberty be granted to any person who can demonstrate sufficient interest to discharge or vary paragraph 1 of these orders, on 3 business days’ written notice to the plaintiffs and the Court.
6. Any creditor of the Booktopia Group Companies affected by this order have liberty to apply upon not less than two business days’ written notice to the plaintiffs and the Court.
7. The plaintiffs have liberty to apply on one business day’s written notice to the Court in relation to any other matter generally arising in the administrations of any of the Booktopia Group Companies.
8. The plaintiffs’ costs of and incidental to the application be costs in the administrations of the Booktopia Group Companies.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MOSHINSKY J:
Introduction
1 By originating process dated 25 July 2024, the first plaintiffs (the Administrators) seek:
(a) orders extending the convening period for the second meeting of creditors of the second to fifth plaintiffs (together, the Booktopia Group Companies or the Group) by four months to 28 November 2024, and permitting the Administrators to hold the second meeting at any earlier point in that period;
(b) orders relieving the Administrators from personal liability for any debts or liabilities for which they might otherwise be liable pursuant to s 443A(1) of the Corporations Act 2001 (Cth), to the extent that such liabilities cannot be satisfied by the Administrators’ right of indemnity under s 443D of the Corporations Act, in connection with a post-appointment facility agreement dated 16 July 2024 between the Booktopia Group Companies and Moneytech Finance Pty Ltd (Moneytech) (the Moneytech Agreement) and any “Transaction Document” within the meaning of the Moneytech Agreement (together, the Finance Documents) (Moneytech having agreed to such a limitation in the Moneytech Agreement); and
(c) ancillary orders regarding service of the orders on creditors by the online creditor portal.
2 The application is supported by:
(a) an affidavit of Keith Alexander Crawford dated 25 July 2024 (Crawford Affidavit);
(b) a supplementary affidavit of Mr Crawford dated 29 July 2024 (Supplementary Crawford Affidavit); and
(c) an affidavit of Stephen Lloyd, a partner of Arnold Bloch Leibler, the solicitors for the Administrators, dated 29 July 2024.
3 The Administrators’ counsel has provided an outline of submissions. These reasons are substantially based on that outline.
Background
4 The Booktopia Group Companies comprise:
(a) Booktopia Pty Ltd (Administrators Appointed) (BPL);
(b) Booktopia Group Ltd (Administrators Appointed) (HoldCo);
(c) Virtual Lifestyles Pty Limited (Administrators Appointed) (Virtual Lifestyles); and
(d) Making I.T. Better Pty Limited (Administrators Appointed) (Making IT Better).
5 On 3 July 2024, the Administrators were appointed as joint and several administrators of the Booktopia Group Companies pursuant to s 436A of the Corporations Act.
6 BPL is the operating company in the Group. It employs all staff and is party to all key contracts. None of the other companies in the Group trade. Relevantly:
(a) HoldCo is the holding company for the Group and the ultimate sole shareholder of BPL, Virtual Lifestyles and Making IT Better;
(b) Virtual Lifestyles and Making IT Better are dormant entities; and
(c) prior to 5 July 2024, BPL operated Australia’s largest online bookstore, known as “Booktopia”, selling and distributing books, e-books, e-readers, audiobooks and stationery to a large and loyal customer base.
7 In the financial year ended 30 June 2024, the Group generated $153.4 million in revenue and made a net loss of $27.9 million.
8 Between 3 and 5 July 2024, the Administrators:
(a) caused BPL to cease trading the Booktopia business;
(b) terminated all but 18 of BPL’s employees; and
(c) caused the Group to vacate its head office premises in Rhodes, New South Wales (with effect from 10 July 2024).
9 It follows that the Group is no longer trading.
10 While a sales and/or recapitalisation process (hereafter, sales process) for the Group or its business and assets is being conducted, the Booktopia Group Companies continue to occupy a leased customer fulfilment centre and warehouse in Strathfield South, New South Wales. Rent in respect of the ongoing occupation of those premises is being paid and will continue to be paid during any extended convening period. It may be that the lease of that premises will be novated to any purchaser of the Group’s business.
11 The Group has more than 170,500 creditors, owed a total of approximately $68.5 million.
12 The overwhelming majority of creditors by number, approximately 170,000, are small retail creditors owed a collective ~$15.1 million, including in respect of unfulfilled customer orders and outstanding gift cards. That equates to an average debt of ~$89 per retail creditor.
13 The Group’s major secured creditor is Moneytech. This company:
(a) holds security interests over the whole or substantially the whole of the property of the Group and is owed approximately $8.2 million;
(b) on 5 July 2024, appointed receivers to various assets of the Group;
(c) on 16 July 2024, entered into the Moneytech Agreement with the Group, by which it agreed to lend the Group up to $1 million to fund administration and other costs (such as rent and wages) and preserve assets while a sales or recapitalisation process is undertaken, without which funding the Group would have been unable to pursue the sales process and would instead likely have needed to be immediately wound up; and
(d) supports the Administrators’ present application.
14 On 5 July 2024, the Administrators commenced the sales process as detailed in Section F of the Crawford Affidavit. As explained there, there has been significant interest in the Booktopia business, with over 100 expressions of interest, and a number of non-binding indicative offers (NBIOs) now received. The NBIOs include inquiries from ASX-listed entities who require time to undertake significant due diligence, including potentially obtaining regulatory approval for any contemplated transaction, before proceeding further, and from entities which may require up to six months to remove plant, equipment and inventory from the Group’s warehouse.
15 As matters stand:
(a) the date on which the convening period expires, and by which the Administrators are required to have reported their recommendation to creditors as to the future of the Group, is 31 July 2024;
(b) the sales process is ongoing and unlikely to be completed until September 2024 (at the earliest);
(c) the Administrators are not in a position to properly evaluate the Group’s options and inform creditors of their recommendation for its future by 31 July 2024, including because the outcome of the sales process is unknown and because the Administrators’ investigations (including as to likely outcomes in liquidation) are otherwise continuing.
16 Since their appointment to the Booktopia Group Companies, the Administrators have undertaken a significant amount of work. Much of that work is ongoing and cannot sensibly be completed until the sales process has concluded.
17 The Administrators anticipate that they will not be in a position to make any meaningful recommendation to creditors until October 2024 at the earliest.
18 Accordingly, they seek an extension to the convening period to allow sufficient time for potential purchasers to complete their due diligence and make binding offers, the terms of any proposed sale and Deed of Company Arrangement (DOCA) to be negotiated, any necessary regulatory approval to be secured, and for the Administrators to complete their investigations and prepare a meaningful report to creditors as to their recommendations for the Group’s future.
19 The Administrators have indicated that, should they be in a position to convene the second meeting of creditors before the end of the extended convening period, they will do so.
20 Non-customer creditors, employee creditors, the Australian Securities and Investments Commission (ASIC) and the Department of Employment and Workplace Relations (DEWR) (which administers the Fair Entitlements Guarantee, or FEG, scheme) have been notified of the application and its return date via email and, in the case of non-customer creditors and employee creditors, also via the online Booktopia creditor portal maintained by McGrathNicol.
21 Customer creditors (i.e., the approximately 170,000 individuals with unfulfilled orders or unclaimed gift cards) have been given notice of the application and its return date, by way of a circular on the online creditor portal. However, they have not been emailed a copy of the application, due to logistical difficulties and the expense involved.
22 No creditor has expressed any opposition to the application (but noting that some or many may not be aware of the application, given the methods of notifying them set out above). ASIC and DEWR have expressed no opposition. DEWR has however asked that the Administrators specifically address their consideration of the impact of extending the convening period on priority employee creditors, which Mr Crawford has done in his Supplementary Crawford Affidavit. Moneytech, the Group’s major secured creditor, has indicated its consent to the orders sought.
Extension of convening period
23 Applications to extend convening periods, particularly in large administrations or those involving administration of a group with significant trading operations, like Booktopia, have become commonplace. The Courts recognise that the interests of creditors can be prejudiced not only by delay but also by the convening of premature meetings, where the administrator(s) have been unable to obtain adequate information for the preparation of the report and statements required by r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) in a form that allows the creditors to make an informed decision: Re Grocon Pty Ltd (administrators appointed) (No 3) [2021] VSC 36; 151 ACSR 1 at [34] per Gardiner AsJ.
24 The principles relevant to extension applications are well-settled: see Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 (Virgin Australia) at [64]-[68] per Middleton J; Colley, in the matter of PF Group Holdings Pty Ltd (administrators appointed) [2024] FCA 792 at [23]-[26] per Shariff J. They were conveniently summarised by Button J in the recent case of Wight, in the matter of Responsible Entity Services Ltd (administrators appointed) [2024] FCA 458 (Wight) at [33]-[38].
25 The views of the administrators are regarded as significant: see Wight at [38]; Woodhouse, in the matter of Panoramic Resources Limited [2024] FCA 22 at [18] per Banks-Smith J; Virgin Australia at [68].
26 Courts are generally willing to tailor the timeframe in Pt 5.3A of the Corporations Act to suit the needs and circumstances of the particular company or group of companies, having regard to the achievement of the objects of Pt 5.3A: see Wight at [38] per Button J; Kaso, in the matter of Speedpanel Australia Ltd (administrators appointed) (No 2) [2017] FCA 682 at [21].
27 Relevant factors include (see Wight at [35]):
(a) whether there are prospects of a better return that may outweigh the expectation and desirability of a prompt resolution, so that creditors can be fully informed and vote as soon as possible;
(b) detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors and others;
(c) importantly, whether an extension is necessary to enable the administrator to prepare reports and to come to the opinion required by r 75-225(3) to inform creditors as to the appropriate choice between the options of a DOCA, for the administration to end, or for the company to be wound up; and
(d) whether creditors consent to the extension.
28 An extension of the convening period to facilitate either (or both) of: (a) the sale of the business of a company as a going concern, so as to maximise the value of the company’s assets; or (b) the progression and assessment of a DOCA proposal that may provide a better return to creditors than a winding up, are well-recognised examples of situations where the Court has extended the convening period: see Virgin Australia at [66].
29 Applying these principles to the present facts, I am satisfied that it is appropriate to extend the convening period for the period sought.
30 Booktopia is a large and complex business, with a large number of creditors. At the time of the Administrators’ appointment, the Group had an annual turnover of over $150 million and around 179 employees.
31 Mr Crawford gives evidence that:
(a) based on his experience, an extension of four months is necessary for the Administrators to “conduct a proper sale process for a business of the size and complexity of the Booktopia Group Companies, and in light of the type of NBIOs [the Administrators] have received”;
(b) such an extension would allow adequate time for the interested parties to conduct a thorough assessment of the business, for robust negotiations (likely to lead to a better return for creditors) to take place and for the Administrators to finalise their investigations into, and report meaningfully to creditors on, the matters set out at [26] of the Crawford Affidavit; and
(c) he and his fellow administrators consider it to be in the interests of the Group’s creditors for the convening period to be so extended.
32 Extending the period will have several advantages and few, if any, disadvantages for the reasons outlined at paragraphs 44, 46 and 47 of the Crawford Affidavit, and paragraph 11 of the Supplementary Crawford Affidavit. In short, the extension has the potential to increase the returns to creditors. No creditors are likely to be materially disadvantaged by the delay in finalising the administration. No creditor has objected to the extension (but noting that some or many may not be aware of the application). ASIC and the DEWR have taken no issue with the application. The Group’s main secured creditor, Moneytech, supports the application.
33 Without such an extension, the Administrators would be required to report to creditors and convene the second creditors meetings by 31 July 2024, and to hold those meetings by no later than 5 August 2024. In that scenario, the Administrators would not know, and would not be in a position to meaningfully inform the creditors of, the options available for the Group (because there would be insufficient time to explore them) and would not be in a position to provide a recommendation as to its future in light of those options. In the absence of an immediate DOCA proposal, creditors would be left with little choice but to put the Group into liquidation – destroying the possibility of the sale of the Booktopia business, any recapitalisation of the Group or part of it, and the continuation (or renewal) of any supplier or employee relationships.
34 While it is true that employee creditors are ordinarily unable to access the FEG scheme unless a company enters liquidation, the extension of the convening period allows for the possibility that the current employees’ employment may continue and former employees may be re-hired (such that, subject to the terms of their re-hiring, they may not need to access the FEG scheme) and is otherwise likely to increase the return to all unsecured creditors, including current and former employees. Circulating assets (available to satisfy priority employee claims pursuant to s 561 of the Corporations Act) are unlikely to be depleted by reason of any extension to the convening period for the reasons given in the Supplementary Crawford Affidavit, and because the Group has access to funding of up to $1 million under the Moneytech Agreement to meet ongoing administration expenses. Such funding was sought specifically to avoid eroding the circulating asset position.
Relief from personal liability under s 443A
35 Section 443A(1) of the Act provides that administrators bear personal liability for debts they incur in the performance or exercise, or purported performance or exercise, of any of their functions or powers as administrators for services rendered, goods bought, the repayment of money borrowed and the like. Section 443A(2) gives effect to that position despite any agreement to the contrary, but without prejudice to the administrators’ rights against the company or anyone else. Section 443D provides that administrators are indemnified out of the company’s property (except validly secured PPSA retention of title property) for such liabilities.
36 Because of the frequency with which administrators of companies that are insolvent or approaching insolvency require funding to conduct administrations under Pt 5.3A of the Corporations Act, it has now become common for courts to make orders about such funding; in particular, orders limiting the administrators’ personal liability for the repayment of borrowed funds: see Crosbie (administrator), in the matter of Godfreys Group Pty Ltd (administrators appointed) [2024] FCA 60 (Godfreys) at [72]-[73] per Beach J.
37 Section 90-15(3)(a) of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Corporations Act, confers a broad power on the Court to make “an order determining any question arising in the external administration of the company”.
38 Section 447A of the Act provides the Court with a similarly broad power to make “such orders as it thinks appropriate about how [Pt 5.3A of the Act] is to operate in relation to a particular company”.
39 The power of the Court to make orders limiting the personal liability of administrators under s 443A is well-established: see Godfreys at [70]; Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (administrators appointed) [2011] FCA 1493 at [23] per Gordon J.
40 The applicable principles were helpfully summarised by Beach J in Godfreys at [69]-[75].
41 Where administrators have entered into a loan agreement or other arrangement to enable the company’s business to continue to trade, or for assets to be preserved pending the outcome of a sales process, for the benefit of the company’s creditors, courts have held that it is not expected that they expose themselves to substantial personal liabilities: see Re Unlockd Limited (administrators appointed) [2018] VSC 345 at [61] per Sloss J; Re Nexus Energy Ltd (administrators appointed) [2014] NSWSC 1041 at [14] per Black J.
42 The Administrators submit, and I accept, that their entry into the Moneytech Agreement was for the benefit of creditors as a whole. Without access to the funding available under that agreement, the Group would not have been able to maintain the value of its business pending the outcome of the sales process, or indeed, undertake the sales process at all.
43 I am satisfied that the completion of the sales process is in the best interests of Group creditors for the reasons given in the Crawford Affidavit.
44 In the circumstances, it is both consistent with the objectives of Pt 5.3A of the Corporations Act and in the best interests of creditors of the Group for the Administrators to have caused the Group to enter into the Moneytech Agreement.
45 There is unlikely to be any material prejudice or disadvantage to creditors by limiting the personal liability of the Administrators under the Moneytech Agreement in the manner proposed (except to Moneytech, who has consented to the order limiting personal liability).
Notice
46 Paragraph 4(a) of the originating process seeks an order permitting the Administrators to give notice of the outcome of this application by placing a copy of the orders on the online creditors portal the Administrators maintain in relation to the Booktopia Group Companies.
47 The Administrators seek this order to avoid the significant costs associated with sending emails to the more than 170,500 creditors of the Booktopia Group Companies. Mr Crawford has estimated that emailing the creditors would cost approximately $30,000.
48 I am satisfied that it is in the interests of creditors that the Administrators be permitted to provide notice of the outcome of this application in the manner sought.
Conclusion
49 For these reasons, I will make orders substantially in the terms sought by the Administrators.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky. |
Associate:
VID 722 of 2024 | |
VIRTUAL LIFESTYLES PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 088 289 507) | |
Fifth Plaintiff: | MAKING I.T. BETTER PTY LIMITED (ADMINISTRATORS APPOINTED (ACN 088 289 534) |
