FEDERAL COURT OF AUSTRALIA

Livingstone, in the matter of Vertical 4 Pty Ltd (Administrators Appointed) [2025] FCA 382

ORDERS

THE COURT ORDERS THAT:

Ex-parte orders

1.    The Originating Process be returnable instanter and determined on an ex parte basis.

Extension of the convening periods

2.    Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (the Act), the date of the convening period as defined by section 439A(5) of the Act, for the second meetings of creditors of the Vertical 4 Pty Ltd (Administrators Appointed) ACN 603 513 604 and the other company listed in the Schedule (together, the Companies) required by section 439A of the Act (Second Meetings) be extended up to and including 31 July 2025.

3.    Pursuant to section 447A of the Act, Part 5.3A of the Act is to operate in relation to the Companies as if the Second Meetings may be convened and held at any time during the convening period, or within five business days after the end of the convening period as extended by the order 3 above, notwithstanding the provisions of section 439A(2) of the Act.

4.    The Plaintiffs have leave to apply for any further extension of the convening period referred to in order 3 above or any other matter arising in the administration of the Companies generally.

5.    Pursuant to section 447A(1) of the Act and section 90-15 of Schedule 2, Part 5.3A of the Act is to operate in relation to the Companies such that the requirements on the First Plaintiffs (the Administrators) to issue notices under rules 75-15 and 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Rules) are modified such that notice of the Second Meeting will be validly given to the creditors of the Companies (including the persons claiming to be creditors) by, not less than five business days prior to the date of the proposed meeting:

(a)    sending such notice electronically to the email address of the creditors of the Companies for whom the Administrators have an email address;

(b)    sending such notice to the postal address or facsimile number, or otherwise as provided for by the Act, Schedule 2 or the Rules to any creditors of the Companies not being a creditor referred to in sub-paragraph 5(a) above; and

(c)    causing such notice to be published in the Insolvency Notices website located at: https://publishednotices.asic.gov.au/

6.    Pursuant to section 447A(1) of the Act and section 90-15 of Schedule 2, Part 5.3A of the Act is to operate in relation to the Companies such that any notice (other than a notice referred to in order 5 above), report and communication that the Administrators must or may give or send to creditors of the Companies (including the persons claiming to be creditors) may be given or sent as follows:

(a)    sending such notice, report or communication electronically to the email address of the creditors of the Companies for whom the Administrators have an email address;

(b)    sending such notice, report or communication to the postal address or facsimile number, or otherwise as provided for by the Act, Schedule 2 or the Rules to any creditor of the Companies not being a creditor referred to in subparagraph 6(a) above;

(c)    providing a creditor of the Companies, upon receipt of a written request, with a copy of any such notice, report or communication; and

(d)    permitting a creditor of the Companies, upon receipt of a written request, to inspect a copy of any such notice, report or communication.

Other

7.    The First Plaintiffs shall take reasonable steps to cause a copy of this application and the Court’s orders to be given to creditors of the Second and Third Plaintiffs within two business days of the making of these orders.

8.    Any person who can demonstrate a sufficient interest have liberty to apply to vary or discharge the Court’s orders on 2 business days’ notice.

9.    The First Plaintiffs’ costs of and incidental to this application be costs in the administration of the Second and Third Plaintiffs.

10.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

Delivered ex tempore, revised from transcript

OWENS J:

1 The first plaintiffs are joint and several administrators of Vertical 4 Proprietary Limited (Administrators Appointed) and Abacus 49 Proprietary Limited (Administrators Appointed).

2 Vertical and Abacus continue to operate early childhood education and care businesses at leased premises around Australia, although some of the centres operated by them before they were placed into administration have now been closed.

3 Unless an extension of time is granted, the effect of s 439A of the Corporations Act 2001 (Cth) is that the convening period for Vertical will expire tomorrow on 10 April 2025 and, for Abacus, it will expire on 28 April 2025, with the second meeting of creditors for each company required to be held within five business days of the relevant date.

4 The administrators seek an order pursuant to ss 439A(6) and 447A(1) of the Corporations Act extending the convening period for both companies until 31 July 2025. They also seek orders allowing for the electronic notification of creditors pursuant to s 447A of the Corporations Act and s 90-15 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act, along with various consequential orders.

5 In those circumstances, particularly as they pertain to Vertical, the matter is attended by a degree of urgency, and it has come before me in my capacity as the commercial and corporations duty judge.

6 I am satisfied that the orders sought should be made for the reasons I am about to give.

7 The application was supported by two affidavits of Glenn Livingstone, one of the administrators, affirmed on 7 April 2025 and 9 April 2025, respectively, along with their accompanying exhibits.

8 The application was not served on any creditor or other potentially interested person.

9 Creditors have, however, been notified of the administrators' intention to make this application, both in a general way at the first meeting of creditors held on 25 March 2025 (for Vertical) and 31 March 2025 (for Abacus), and by way of circular issued on 7 April 2025 and distributed by email. Additionally, certain landlord creditors have been individually notified of the administrators' intention to make this application in the course of correspondence regarding payment of rent. No objection was conveyed to the administrators, save that one creditor requested information before confirming their support for the application. The requested information appears to have been provided to the extent that the administrators are able to do so, although the relevant creditor has not indicated one way or another their attitude to this application.

10 Also tendered on the application was an email from the United Workers Union, the union representing many employees employed by the companies, indicating that the union neither supports nor opposes the application.

11 Vertical is also the subject of winding up proceedings in this court (proceedings VID1275/2024). That application is based on the failure by Vertical to comply with a statutory demand served on it by Asia Property AU 1 Pty Ltd. The hearing of that application has been adjourned to 22 April 2025 on the application of the administrators on grounds including that they intended to apply to extend the convening period.

12 The administrators only determined to bring the present application after their application for the adjournment of the winding up proceedings was granted on 3 April this year. The reason they did not determine to bring the proceedings before that date was, for reasons that will become apparent, because they considered that this application would have no practical utility if the company was placed into winding up.

13 In those circumstances, there is a satisfactory explanation for why notice of the intention to bring the proceedings was not provided to creditors earlier than it was.  Although the evidence did not disclose whether the email notification on 7 April was effective in respect of all creditors, it is the fact that at least general notice of the administrators' intention to bring such an application has been given to all creditors at the first meeting.

14 In the circumstances, I am satisfied that the potential that some creditors may not have received the email notifying them of today's date as the date upon which the application would be made, nor the fact that all creditors have only received specific notice of the date relatively recently, are circumstances that provide a reason not to make the orders sought.

15 It is, however, appropriate to recall generally the statement of Cheeseman J in Frisken, in the matter of Xpress Transport Solutions Proprietary Limited [2023] FCA 448 at [24]-[28] that it is highly desirable that, to the extent possible, creditors are given as much notice as possible of applications for extensions of convening periods for second meetings of creditors. As her Honour noted at [28], the problem created by a late application is not cured simply by the fact that an administrator may seek orders including the grant of leave for interested parties to apply on notice after the event.

16 In any case, in the circumstances of this application, the possibility that individual creditors may not have received notice will be cured to an extent by the fact that the administrators do seek an order that they give notice of this application and the Court's orders to all of the company's creditors within two days of the orders being made and that an order be made granting any interested party liberty to apply on two business days’ notice for the purpose of varying or discharging the orders extending the convening period. I am satisfied that that approach is appropriate in the circumstances of the case. See, for example, Crawford, in the matter of North Queensland Heavy Haulage Services Proprietary Limited [2017] FCA 635 at [25] and in the matter of Harrisons Pharmacy Proprietary Limited [2013] FCA 458.

17 The fundamental justification for the requested extension of time is to enable the administrators to attempt to sell the assets of the companies, either by way of an asset sale or through a deed of company arrangement, as well as to provide more time for the administrators to investigate the affairs of the companies and to report to creditors.

FACTUAL BACKGROUND

18 I have already mentioned that Vertical and Abacus operate early childhood education and care businesses throughout various leased centres around the country, and before the administrators were appointed, they operated even more.

19 The Vertical centres that remain in operation have a total of 594 approved places for children and employ a total of 121 employees.

20 The Abacus centres that remain in operation have a total of 523 approved places for children and employ a total of 87 employees.

21 The particular form of care and education that the companies provide is known as “centre-based daycare” (CBDC, sometimes referred to as “long daycare”).

22 Mr Livingstone, who has some experience in relation to the childcare industry, gave evidence that in order to operate a CBDC service, the provider must be an "approved provider", which requires approval from the relevant state or territory government.

23 Once a provider is an "approved provider", they can apply for the approval of the specific service that they intend to provide.  That form of approval is known as a "service approval".

24 Mr Livingstone's evidence was that the key assets of a childcare business are the relevant "service approval", which can be transferred subject to regulatory consent and the premises from which the centre operates.

25 He said that the value of a "service approval" is of nominal value without suitable premises from which to operate.

26 It is thus of relevance to this application that each of the premises from which Vertical and Abacus operate is leased for terms of up to 20 years.

27 The administrators were appointed to each of Vertical and Abacus by a secured creditor, Perpetual Corporate Trust Limited, in connection with funding provided by Finexia Securities Ltd, as trustee for the Finexia Childcare Centre Incubation Fund.

28 In the case of Vertical, that occurred on 13 March 2025, and in the case of Abacus, it was 19 March 2025.

29 Finexia and the companies are related, at least commercially, if not legally. That is because:

(1)    the largest shareholder of Finexia is Sprint Capital Partners Pty Ltd;

(2)    Mr Darren Misquitta is the sole director of each of Vertical and Abacus; and

(3)    Mr Misquitta is the sole shareholder secretary and shareholder of Sprint.

30 Following their appointment, the administrators have been able to continue to trade most of the childcare centres operated by the companies because of funding provided by Finexia. That funding is in a total amount of just over $1 million. The administrators have also recovered approximately $278,000 from Steps Learning Pty Ltd in respect of childcare subsidy receipts paid to that company after their appointment.

31 Following their appointments, the administrators have continued to trade the businesses operated by:

(1)    Vertical; from seven of the nine premises from which it operates (with trading subsequently ceasing at one further premises); and

(2)    Abacus; from six of nine premises from which it operates.

32 It should also be noted that Finexia holds security over seven of the nine leases of premises from which Vertical operated, and one of the premises from which Abacus operated.

33 The administrators have, since their appointment, taken steps to attempt to sell the businesses of Vertical and Abacus. Mr Livingstone's evidence was that the administrators have done this to achieve a better outcome for creditors of both of those companies.

34 Mr Livingstone described the indicative timetable for the sale process, which is presently anticipated to conclude by late July 2025. That involves:

A.    confidentiality agreements to be distributed and signed between 20 March 2025 and 28 March 2025;

B.    the Administrators require receipt of any non-binding indicative offers (NBIOs) from interested parties by 9 April 2025;

C.    the Administrators review NBIOs between 10 April 2025 and 11 April 2025;

D.    offer stage two VDR access to approved interested parties on 11 April 2025;

E.    due diligence conducted by interested parties between 14 April 2025 and 22 April 2025;

F.    Centre visits and management presentations to interested parties be held between 14 April 2025 and 22 April 2025;

G.    the Administrators require receipt of final binding offers by 28 April 2025;

H.    winning party or parties notified and deposits due and contracts exchanged (subject to creditor approval if structured as a DOCA) by 2 May 2025;

I.    the Administrators to notify ACECQA of the transfer of any Provider Approvals by 2 May 2025. I note that 60 days' notice is required in respect of any transfer;

J.    the interested persons satisfy any conditions precedent (including any necessary consents/approvals) and completion under the asset sale agreements to occur by 4 July 2025; and

K.    the Administrators expect to convene a meeting of creditors by late July 2025. Failing the granting of an extension, the Administrators expect to convene a meeting of creditors prior to the expiry of the convening periods of the Companies and subsequently adjourn the meeting for a period of 45 business days, with the adjourned meeting being reconvened in mid/late­June 2025. If the Administrators consider it appropriate to convene the second meeting or adjourned second meeting earlier, the Administrators will do so.

35 The administrators have received approximately 402 registered inquiries from interested parties in respect of the centres operated by each of Vertical and Abacus. That interest includes interest in either the whole or part of those companies or businesses.

36 Mr Livingstone also gave evidence that, as a result of their investigations, the administrators have become aware of a number of separate business sale agreements between either Vertical or Abacus on the one hand, and various third parties, on the other. Finexia has also expressed an interest in purchasing a number of centres. The administrators propose to explore those possibilities.

37 Mr Livingstone's evidence was that while the current sale process is ongoing and at an early stage (and as such, the administrators are not in a position to determine the likely returns from any potential sales in administration as against a winding up), he could say that it is likely that the return from sales, if any, in a liquidation scenario will be nominal.

38 That is because, amongst other things, if the companies are placed into liquidation, the funding presently provided by Finexia will cease to be available, and that will result in both companies ceasing to trade, terminating their employees, and an increased risk of termination of each of the leases of the premises from which they operate. A winding up would also impact the ability to transfer relevant service approvals, which requires a compliant premises.

39 It thus appears that immediate liquidation will almost certainly destroy any value in Vertical's and Abacus' businesses, and the only assets recoverable in that scenario would be from plant and equipment and claims made in the liquidation.

40 The sale of the businesses as going concerns, on the other hand, at least holds out the prospect of a valuable recovery.

41 In addition to taking steps to explore a sale of the companies' businesses, the administrators have also undertaken a number of other investigative and other tasks.  They have obtained funding, liaised with creditors, employees, unions, landlords and customers. They have undertaken a wide range of activities associated with keeping the businesses trading, including arranging insurance, preparing budgets, and generally keeping the companies running. They have commenced their review of the companies' books and records (which appear to them to be inadequate), and to investigate the companies' affairs.

THE COMPANIES’ CREDITORS

42 The administrators are still in the process of investigating and identifying the companies' creditors. Based on the books and records to which the administrators have had access, however, the administrators have identified claims of creditors of approximately:

(1)    $74,040,986 in respect of Vertical, comprised of claims by:

(a)    secured creditors of $24,187,649;

(b)    priority creditors of $5,884,467 (which may be lower);

(c)    unsecured creditors of $30,970,786; and

(d)    related-party unsecured creditors of $12,998,082; and

(2)    $38,397,275 in respect of Abacus, comprised of claims by:

(a)    secured creditors of $24,547,120;

(b)    priority creditors of $1,646,753 (which may be lower);

(c)    unsecured creditors of $12,203,403; and

(d)    related party unsecured creditors of $886,771.

43 Each of the companies has securities registered against certain of their assets by way of registrations on the Personal Property Securities Register.

THE COMPANIES’ ASSETS

44 The companies' primary assets include provider approvals, service approvals, plant and equipment and, significantly, the leases of the premises from which the companies' businesses operate.

45 As to the leases, while the administrators have not obtained valuations, based on Mr Livingstone's experience, those leases will be of greater value in administration rather than in liquidation, primarily by reason of the statutory moratorium under s 451E of the Corporations Act.

46 The companies also hold assets in the form of bank guarantees provided as security for certain leases of properties occupied by the companies (the value of which is, plainly, contingent on claims made against them), cash at bank (of approximately $199,415.60 in respect of Vertical, and $4,481 in respect of Abacus), and accounts receivable and related party loans.

RELEVANT LAW

47 The principles concerning an extension of time for the holding of a second creditors meeting pursuant to s 439A of the Corporations Act are well settled.  A long line of authority has made clear, of which the decision of Halley J in Beattie (Administrator Appointed), in the matter of Sharvain Facades Pty Ltd (Administrator Appointed) [2025] FCA 304 at [24] is but the latest example in this Court, that the section forms part of a suite of provisions designed to maximise the chance of a company continuing in existence or, if that is not possible, obtaining a better return for the company's creditors and members than would result from an immediate winding up.

48 In exercising the discretion, the Court is required, as Markovic J put it in Crawford, in the matter of North Queensland Heavy Haulage Services Pty Ltd (Administrators Appointed) [2017] FCA 635 at [19], to:

… strike an appropriate balance between the expectation that administration will be a relatively speedy matter and the requirement that undue speed should not be allowed to prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders.

49 Her Honour went on to identify specific relevant factors also pertaining to the present circumstances as follows at [20]:

(1)    whether the prospects of a better outcome for creditors through a longer period of administration may outweigh the general expectation of a prompt resolution of the administration: see Fincorp Group Holdings Pty Ltd (2007) 62 ACSR 192; [2007] NSWSC 363 (Fincorp) at [18];

(2)    the fact that while the voluntary administration continues there is an embargo or moratorium on the enforcement of remedies by secured creditors, lessors and others, a factor which may militate against the too ready grant of an extension: see Fincorp at [4]; and

(3)    whether an extension is necessary to enable the administrators to prepare and provide the report and statements, and to arrive at the opinion required by s 439A(4), in order to inform creditors adequately so that they, in turn, will be in a position to decide whether to terminate the administration, execute a DOCA or place the company in liquidation: see Re Pan Pharmaceuticals Ltd (admins apptd) (ACN 091 032 914) (McGrath and Honey as joint liquidators) (2003) 46 ACSR 77; [2003] FCA 598 at [41]).

50 It is also relevant to note the quotation of authorities by Halley J in Beattie at [26] to [27], which are also applicable to the present circumstances:

As Austin J stated in Re Riviera Group Pty Ltd (2009) 72 ACSR 352; [2009] NSWSC 585 at [16]:

If the approach is to “balance” the expectation of speedy administration against the risk of prejudice, there cannot be any predisposition in favour of speedy administration, for that would skew the balancing process.  Rather, the cases suggest that where the administrator proves a substantial ground in any of the categories that I have set out, and there is no specific evidence of prejudice, an extension commensurate with the administrator’s task will be granted, notwithstanding that the Explanatory Memorandum suggested that extensions would not be granted frequently.

Further, as McKerracher J stated in Mentha, in the matter of The Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) [2010] FCA 30 at [16]:

In order for the administrators to carry out their function properly, it is necessary that they should have sufficient time to investigate the affairs of the companies under administration and to provide sensible information and advice to the creditors:  Hayes, in the matter of Estate Property Group Limited (Administrators Appointed) [2007] FCA 935 at [1]. …

APPLICATION OF THE PRINCIPLES

51 In my opinion, having regard to the statements of principle above and the circumstances of the companies, it is appropriate that an extension of the convening period be granted.

52 The administrators have justified the need for the extension so that they can conduct a sale process in respect of the companies' assets. As Mr Livingstone explained, there are a number of steps which he considers will need to be undertaken in order for that to occur including reviewing non-binding indicative offers; allowing further access to a virtual data room and due diligence by interested parties; allowing for centre visits and management presentations to interested parties; receiving final binding offers and finalising sale documents; and attending to post-contractual steps as required.

53 I am satisfied that the process outlined and the time anticipated for it to be undertaken is reasonable in the circumstances.

54 I am also satisfied that there is at least a material prospect that the outcome of such a process may yield a more favourable result for the companies and their creditors.

55 I am also satisfied that it is appropriate to allow the administrators sufficient time to obtain further information, carry out further investigations, and report to creditors.

56 I am satisfied that 31 July 2025 is a reasonable date to allow all of those steps to be taken.

57 Insofar as potential prejudice is concerned:

(1)    I am satisfied that, insofar as secured creditors are concerned, in circumstances where the administrators remain liable to make payments to secured creditors, secured creditors will not be prejudiced by any extension of the convening period;

(2)    insofar as unsecured creditors are concerned, there is no specific prejudice which the administrators have identified or that I can see which might be suffered by unsecured creditors other than a potential delay in any dividend being paid. An extension of the convening period provides an opportunity to provide a greater return to unsecured creditors;

(3)    the most troubling aspect is that relating to employees. While there is some potential for prejudice to employees by reason of a delay in their ability to access the Fair Entitlements Guarantee scheme, for the reasons given by Mr Livingstone in respect of the extension of the convening period generally, the prospects of returns to unsecured creditors, including employees, are likely to be enhanced by the extension sought.

58 Overall, I am satisfied that the potential for prejudice in the elongation of the administration is outweighed by the potential to achieve the advantages flowing from a sale of the businesses as a going concern.

59 I thus consider that the objects of s 435A of the Corporations Act are best served by the extension sought, as it will maximise the chance of the companies, or as much as possible of their business, to continue in existence, and to maximise the return to creditors.

60 I also note:

(1)    this application for the extension of the convening period is made before the convening period expires, and it is the first application;

(2)    the extension sought is for a period of approximately three and a half months.  This period is reasonable when one has regard to:

(a)    the need to conduct further investigations into the affairs of the companies;

(b)    the need for further time to sell the companies' assets;  and

(c)    the need generally for the administrators to continue to carry out their investigations;

(3)    creditors will not be materially prejudiced by the extension in most respects;

(4)    the orders proposed make provision for any person who can demonstrate sufficient interest to apply to the Court for modification of these orders; and

(5)    whilst there is a winding up application on foot in respect of Vertical, that proceeding will not be affected by any extension (and it remains open to Asia Property to seek in those proceedings to have Vertical wound up notwithstanding my grant of an extension today).

NOTIFICATION ORDERS SOUGHT

61 The administrators also seek orders providing for the electronic provision of reports and other documents to the companies' creditors.

62 In Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) [2020] FCA 571, Middleton J observed at [27] that:

It is now commonplace for orders to be made … permitting external administrators to give notices to creditors by email and other electronic publication.

63 His Honour referred to a passage in the reasoning of Brereton J in the matter of BBY Limited [2015] NSWSC 974 at [7] and other cases in which those remarks were endorsed and similar orders were made in this court; namely, Quinlan, in the matter of Halifax Investment Services Pty Ltd (Administrators Appointed) [2018] FCA 1891 at [12] to [14], and Jahani, in the matter of The Ralan Group Pty Ltd (Administrators Appointed) [2019] FCA 1446 at [22].

64 I am satisfied that the orders sought are appropriate and that they will facilitate the objective of notifying as many creditors of the companies as quickly and cheaply as possible and will otherwise conserve the limited assets of the companies for the benefit of creditors.

CONCLUSION

65 For the reasons I have just given, I am satisfied that the orders sought by the administrators in their originating process filed on 7 April 2025 should be made, and I make orders in accordance with the short minutes of order handed to me and that I will initial and place with the court file.

Associate:

Dated:    17 April 2025