Federal Court of Australia
Anderson (administrator), in the matter of S&W Holdings Australia Pty Ltd (administrators appointed) (No 2) [2024] FCA 941
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to section 439A(6) of the Corporations Act 2001 (Cth), the convening period (as defined in section 439A(5)(a) of the Corporations Act) within which the First Plaintiffs (Administrators) must convene the second meeting of creditors of each of the Second Plaintiff and Third Plaintiff (Companies), be extended until 21 October 2024.
2. Pursuant to section 447A(1) of the Corporations Act, Part 5.3A of the Corporations Act is to operate in relation to each of the Companies such that, notwithstanding the provisions in section 439A(2) of the Corporations Act, the second meeting of the creditors of each of the Companies required under section 439A of the Corporations Act may be convened and held at any time during, or within, five 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 each of the Companies (including the persons or entities claiming to be creditors of the Companies) at least five business days before the meeting.
3. Within three business days of the making of these orders, the Plaintiffs are to take all reasonable steps to give notice of these orders to the creditors of the Companies (including persons or entities claiming to be creditors) utilising the means identified in order 3 of the orders made on 2 August 2024.
4. Any person who can demonstrate sufficient interest to vary or discharge these orders has liberty to apply on three business days’ written notice to the Plaintiffs and the Court.
5. The Plaintiffs’ costs of the application are to be treated as costs in the administrations of each of the Companies, jointly and severally, and be paid out of the assets of the Companies.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
CHEESEMAN J:
INTRODUCTION
1 This is an interlocutory application brought by the Plaintiffs, S&W Holdings Australia Pty Ltd (Administrators Appointed), S&W Seed Company Australia Pty Ltd (Administrators Appointed) (together, the Companies), and their Administrators, Travis Anderson and Glen Kanevsky of Deloitte filed on 16 August 2024. The matter came before me as the Commercial & Corporations duty judge on 20 August 2024 at which time I made orders substantially as sought by the Plaintiffs. These are my reasons for doing so.
NATURE OF APPLICATION
2 The Plaintiffs seek orders extending the Convening Period for the second meeting of creditors of each of the Companies for a period of about two months, to 21 October 2024. They also seek ancillary orders including an order permitting the Second Meetings to be convened at any time in the extended period.
3 The Convening Period, absent any extension, is due to expire tomorrow, Wednesday 21 August 2024. The principal reason for seeking the extension of the Convening Period is to afford adequate time for the Administrators to either sell the business as a going concern or restructure the business and assets of S&W with a view to maximising the prospect of employment for as many of its employees as possible and also maximising the possible return to secured and unsecured creditors of the Companies. A sale process is presently in train. A possible outcome of that process is that the Administrators may be in a position to recommend a deed of company arrangement to the second meeting of creditors. The period of the extension sought is informed by this possibility.
4 At the first meeting of the Companies’ creditors on 5 August 2024, the creditors were informed of the possibility of an application being made to extend the Convening Period. There was no opposition expressed by any creditor. Notice of this application has been given to creditors and to the Australian Securities and Investments Commission (ASIC). The Administrators confirm that they have not been informed of any opposition in response. No interested party sought to be heard when the matter was called on.
5 The Plaintiffs read the following affidavits in support of the application:
(1) Travis Adrian Anderson, one of the two joint and several administrators appointed to the two Companies, affirmed 30 July 2024;
(2) Travis Adrian Anderson affirmed 16 August 2024 and the exhibit TAA-2 thereto;
(3) Travis Adrian Anderson affirmed 19 August 2024; and
(4) Jonathon James Stuchbery affirmed 20 August 2024 and the exhibit JJS-1 thereto.
6 Mr Anderson is authorised by Mr Kanevsky, the other joint and several administrator, to make his affidavits on behalf of the Administrators.
BACKGROUND
7 On 24 July 2024, the Administrators were appointed, jointly and severally, as Administrators of each of the Companies by resolution of directors of those Companies pursuant to s 436A of the Corporations Act 2001 (Cth).
8 On 30 July 2024, the Plaintiffs filed an originating process seeking orders for limitation of liability under s 447A(1) of the Act which were made by Halley J sitting as Commercial and Corporations duty judge on 2 August 2024: Anderson (administrator), in the matter of S&W Holdings Australia Pty Ltd (administrators appointed) [2024] FCA 878.
9 It is convenient to extract from S&W Holdings Australia the following relevant matters of background (at [5]-[14]):
[5] The Companies are part of a broader corporate group which is based in the United States. S&W Holdings is the holding company of the Australian arm of the group, and wholly owns the shares of S&W Seed, and indirectly through its shareholding in S&W Seed, all other downstream Australian companies in the group.
[6] The Companies conduct a business of processing high quality seeds for Australian agriculture and international distribution. S&W Seed purchases various types of seeds from a network of over 100 Australian based farmers. S&W Seed then coats and treats those seeds using a specialised process that is undertaken at particular seed processing facilities that are either owned or leased by S&W Seed (Facilities). After the seeds have been coated and treated, S&W Seed then distributes them to customers in both Australia and internationally.
[7] Mr Anderson gives evidence that the catalyst for the appointment of the Administrators appears to be that the Companies faced significant trading challenges primarily due to the imposition of import sanctions in Saudi Arabia that prevented S&W Seed’s key customers in that country from purchasing certain seeds.
[8] Prior to the appointment of the Administrators, S&W Seed, which was the trading entity, employed approximately 56 employees. The business has continued to trade since the appointment of the Administrators, and to date, those employees have been retained.
[9] The creditors of S&W Seed include:
(a) lenders under secured corporate debt financing facilities, including NAB, who together are owed approximately $50 million;
(b) trade creditors owed approximately $9.8 million; and
(c) employees with respect to leave entitlements totalling approximately $1.15 million.
[10] NAB is a secured creditor under the terms of a finance agreement between NAB, S&W Seed (as borrower), and S&W Holdings (as a guarantor and security provider) dated 29 June 2023 (subsequently amended and re-stated) (Finance Agreement).
[11] Since the appointment of the Administrators, NAB has not taken any steps to enforce its security interest over the property of the Companies.
[12] Mr Anderson gives evidence that the Companies presently have no cash on hand, and the administrations are currently being funded by way of an interim funding arrangement with NAB pursuant to which the bank has provided the Administrators with access to a temporary $400,000 overdraft (Overdraft Arrangement).
[13] Mr Anderson gives evidence that a more comprehensive funding agreement with NAB is in the process of being negotiated. It is envisaged that that funding agreement will provide funding of up to $1.8 million, which would then permit the Administrators to meet ongoing trading expenses during the administrations, including importantly, payment of employee wages.
[14 ] The terms of the Overdraft Arrangement are in accordance with the existing Finance Agreement which was agreed between NAB and the Companies well prior to the commencement of the administrations. The amount that the Administrators have currently caused the Companies to draw down on the overdraft in accordance with the Overdraft Arrangement is presently in an amount of $155,362.42 for the purpose of making payments of wages to employees.
10 The Plaintiffs’ submissions summarise the following salient developments that have occurred in the administrations of the Companies in the period since 2 August 2024.
11 The Administrators have continued to trade the S&W Business on a “business as usual” basis, including facilitating payments for operational and trading costs of the Business and continuing the employment of all 56 staff members and facilitating the payment of post-appointment employee wages.
12 As mentioned, on 5 August 2024, the first meeting of the creditors of S&W was held. The meeting of S&W Holdings was inquorate, essentially because S&W Holdings did not trade and had no creditors other than contingently pursuant to a guarantee in favour of National Australia Bank Limited (NAB). At the first meeting of S&W, in response to a question from a creditor, the Administrators indicated that, depending on the process for the sale or recapitalisation of the Companies’ business and assets, there was a good prospect that the Administrators would apply to extend the Convening Period. Mr Anderson deposes that no creditor expressed opposition to the potential extension to the Convening Period.
13 Mr Anderson deposes to the steps taken by the Administrators to commence the process of recapitalising the Companies or selling the S&W Business and the Companies’ assets as a going concern (Sale Process).
14 Mr Anderson in his evidence addresses in detail the steps taken to date in the Sale Process, including: advertising for expressions of interest from potential buyers, entry into non-disclosure agreements and solicitation of non-binding indicative offers (NBIOs), liaising with offerors, shortlisting potential bidders (Shortlisted Bidders) based on the Administrators’ assessment of the NBIOs and the operation of a due diligence data room accessible to Shortlisted Bidders.
15 Mr Anderson has deposed to the next steps in the Sale Process which include further assessment of the NBIOs, liaising with Shortlisted Bidders, and extracting final binding offers from Shortlisted Bidders by 30 August 2024.
16 In deposing to the likely timeframe to complete the Sale Process, Mr Anderson properly notes that the Administrators intend to move as quickly as possible, ensuring that they take the requisite time to maintain competitive tension amongst bidders and undertake due diligence with a view to securing the maximum return for creditors.
17 The Administrators have secured temporary funding of the administration from NAB through existing overdraft arrangements but are confident that a further funding agreement with NAB will shortly be concluded. The further funding agreement is anticipated to make provision for the whole of the administration.
18 The Plaintiffs expect that a sale or restructure of the S&W Business is a reasonable possibility although the value range and possible return to creditors is unclear at this point. The primary purpose of the application is to permit sufficient time to enable finalisation of funding arrangements to permit the S&W Business to continue to trade pending completion of the Sale Process, completion of the Sale Process itself and thereafter preparation of a report for the Second Meetings.
19 In his third affidavit Mr Anderson says that the timing of this application has been dictated by two things. First, the need to review and assess the NBIOs in order to conclude that there is a proper basis to progress the Sale Process and thus to extend the time during which the Companies continue under Administration. Secondly, time is needed by the Administrators to engage with NAB to secure NAB’s consent to ensure the extension of the Convening Period and to provide funding of the administration during the extending period of the administration.
20 The evidence before me demonstrates that the Administrators have been appropriately proactive in bringing this application forward in a timely manner.
APPLICABLE PRINCIPLES
21 The principles applicable in relation to when the Court will extend the convening period for the second meeting of creditors pursuant to s 439A(6) of the Act are well established. In making such an order, the Court must reach an appropriate balance between an expectation that the 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: Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]. See also Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 717; 144 ACSR 347 at [64]-[68], Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [18]-[20] and Walker, in the matter of Plumbfirst Pty Ltd (Administrators Appointed) [2023] FCA 441 at [16].
22 It is clear that the Court should not allow longer than is required for the diligent exercise of the powers of the administrator. It may be appropriate to grant an extension in circumstances where:
(a) there is a proper evidentiary case for the extension;
(b) there is no evidence of material prejudice to those affected by the moratorium during the continued period of administration; and
(c) the length of the extension sought by the administrator is exposed as having a reasonable basis.
23 In exercising the discretion to extend the convening period the Court will generally afford significant weight to the view of the administrator as to the needs and circumstances of the particular company in considering whether it is appropriate to grant an extension having regard to the objects of Pt 5.3A: Wight, in the matter of Responsible Entity Services Ltd (Administrators Appointed) [2024] FCA 458 at [36], [38] (and the authorities cited therein).
CONSIDERATION
24 Mr Anderson is an experienced insolvency practitioner. Based on his evidence and having regard to the lack of opposition from those who have been notified of this application and applying the principles outlined above, I was satisfied that it was appropriate to make orders substantially in the form sought by the Plaintiffs. My reasons for doing so are as follows.
25 The proposed extension of the administration period is designed principally to facilitate the sale of the S&W Business as a going concern, so as to maximise the value of the Companies’ assets in the interests of creditors. That is an orthodox circumstance in which an extension of the Convening Period will often be warranted.
26 The advantages of a going concern sale compared to an immediate liquidation need hardly be recited. The three main consequential benefits attendant on a going concern sale in the present circumstances where the Sale Process is in train and a major secured creditor is supporting the process are: that a higher sale price will likely be achieved; goodwill will likely be preserved; and there will likely be a reduction in creditors’ claims by reason of continuance of employment and trade contracts. By contrast, an immediate liquidation scenario would prematurely terminate the Sale Process and is likely to be contrary to the best interests of the Companies’ creditors.
27 The length of the extension sought by the Plaintiffs is appropriately confined having regard to the evidence in relation to the NAB negotiations and the Sale Process. The Sale Process is well advanced and the proposed extension, until 21 October 2024, strikes the appropriate balance given the need to provide the time to enter into, and thereafter, complete, a transaction for the sale or restructure of the Companies’ business and assets (and thereafter to permit the Administrators to prepare their report to creditors in advance of the Second Meetings).
28 The Plaintiffs identified a number of further ancillary reasons why the extension of the Convening Period is in the interests of the Companies and its creditors. Principal amongst those ancillary reasons was that the continuance of the moratorium as a result of the extension being granted was unlikely to prejudice creditors or other stakeholders. I accept that is so.
29 The Administrators’ collective view is that the interests of the Companies’ creditors are enhanced by the proposed extension sought. Mr Anderson’s evidence exposes that the Administrators’ opinion is soundly based having regard to the particular circumstances of these Companies.
30 I was satisfied that to grant the extension would be consistent with the objectives of Part 5.3A of the Act (as embodied in s 435A) as it will maximise the prospects of the Company, or as much as possible of its business, continuing in existence (and otherwise increases the likely return to creditors): Algeri, in the matter of WBHO Australia Pty Ltd (Administrators appointed) (No 2) [2022] FCA 234 at [16]. I am further satisfied that if the Sale Process is successful, it is likely that many of S&W’s employees will continue in their employment.
31 The Administrators have indicated that they may convene the Second Meetings at an earlier date than the latest possible time during the extended period, to the extent that it is possible and desirable. In this regard, the Administrators sought a Daisytek order in accordance with In the matter of Daisytek Australia Pty Ltd [2003] FCA 575; 45 ACSR 446. A Daisytek order will permit them to hold the meeting at any time during the extended period. The desirability of such an order is self-evident, insofar as it provides a level of flexibility: Silvia, in the matter of Austcorp Group Limited (Administrators Appointed) [2009] FCA 636 at [18].
32 The Administrators also seek an order allowing any person demonstrating a sufficient interest to apply to vary or discharge any orders which the Court makes. That order is also appropriate in the circumstances.
33 Finally, I am satisfied that it is appropriate to order that the Plaintiffs’ costs of this application be costs in the administrations of each of the Companies, jointly and severally, and be paid out of the assets of the Companies.
CONCLUSION
34 For these reasons, at the conclusion of the hearing, I made orders substantially in accordance with the orders proposed by the Plaintiffs.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. |
Associate:
