Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Coalpac Pty Ltd (administrators appointed); Lithgow Coal Company Pty Ltd (administrators appointed); Portland Road Pastoral Co Pty Ltd (administrators appointed); CET Resources Pty Ltd (administrators appointed) [2013] NSWSC 2017
• Hearing dates: 13 November 2013
• Decision date: 13 November 2013
• Jurisdiction: Equity Division - Corporations List
• Before: Black J

Decision

Extension of convening period for second meeting of creditors granted.

• Catchwords: CORPORATIONS - management and administration - meetings - application for extension of convening period for second meeting of creditors - whether extension in best interest of companies' creditors - whether prejudice to any party.
• Legislation Cited: Corporations Act 2001 (Cth) ss 439A(6), 440B(2), 443B(3), 447A
• Cases Cited: - Algeri; Re Colorado Group Ltd (admins apptd) (recs & mgrs apptd) [2011] VSC 260; - Darin Re Palamedia Ltd [2010] NSWSC 451; - Mann v Abruzzi Sports Club Ltd (1994) 12 ACSR 611; - Owen, Re RiverCity Motorway Pty Ltd (admins apptd) (recs & mgrs apptd) v Madden (No. 4) [2012] FCA 1491; (2012) 92 ACSR 255; - Re Diamond Press Australia Pty Ltd [2001] NSWSC 313; - Re Kavia Holdings Pty Ltd (admins apptd) (recs & mgrs apptd) [2013] NSWSC 737; - Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77; - Re Riviera Group Pty Ltd (admins apptd) (recs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352; - Silvia, in the matter of Austcorp Group Ltd (admins apptd) [2009] FCA 636
• Category: Interlocutory applications
• Parties: Shaun Robert Fraser and Matthew Wayne Caddy in their capacity as joint and several voluntary administrators of Coalpac Pty Ltd (administrators appointed); Lithgow Coal Company Pty Ltd (administrators appointed); Portland Road Pastoral Co Pty Ltd (administrators appointed); CET Resources Pty Ltd (administrators appointed) (Plaintiffs)
• Representation: Counsel: N M Bender (Plaintiffs); Solicitors: Allens (Plaintiffs)
• File Number(s): 2013/342611

Judgment - ex tempore

1 By originating process dated 12 November 2013, Messrs Shaun Fraser and Matthew Caddy as joint and several voluntary administrators of Coalpac Pty Ltd (administrators appointed) ("Coalpac") and three associated entities seek orders extending the period for convening the second meeting of creditors of those companies under ss 439A(6) and 447A of the Corporations Act 2001 (Cth).

2 The application is supported by Mr Fraser's affidavit sworn 12 November 2013. His evidence is that administrators were appointed to the companies on 18 October 2013 and he sets out the work that has been done since their appointment, which has included dealing with lessors and employees, some of whom have now been made redundant, negotiating a short term funding arrangement with a first ranking secured creditor, Australia and New Zealand Banking Group Limited ("ANZ"), conducting investigations into the companies' affairs, and commencing discussions with a major customer of the companies, Energy Australia, in relation to a possible Deed of Company Arrangement.

3 Mr Fraser sets out the nature of the corporate group, noting that the four companies and one other company that is not presently in administration together form the Coalpac Group which operated two mines in Lithgow, New South Wales, until the coal contained in the areas presently approved for mining was exhausted. The companies had supplied coal from those mines to a power station owned and operated by Energy Australia. The companies' mining operations are presently suspended and are subject to care and maintenance plans. The administrators continue to occupy some of companies' leased premises and have given notices under s 443B(3) of the Corporations Act that they are not exercising rights in relation to other premises and equipment. There is evidence that, to the extent they continue to occupy such premises, rent is being paid to the relevant lessors.

4 The administrators' investigations indicate that the companies have substantial debts, including a first ranking secured debt to ANZ Bank and an unquantified, but most likely significant, liability for breach of contract to Energy Australia secured by a second ranking charge. Neither ANZ nor Energy Australia has presently enforced rights under their respective security agreements, but the administrators have consented to the enforcement of those rights during the period of administration under s 440B(2) of the Corporations Act.

5 Mr Fraser sets out the background to the companies' insolvency, based on a review of the companies' books and records and information obtained from their Chief Executive Officer. That insolvency appears to be related to the exhaustion of their existing coal reserves within their approved mining areas, and the fact that the mines do not presently have approval to expand their mining areas.

6 A first meeting of creditors took place on 30 October 2013 and a committee of creditors was formed for one of the companies, Coalpac. The creditors were also informed at that meeting that an adjournment of the second meeting of creditors might be sought given the complexity of the Group's assets.

7 Mr Fraser indicates that it is contemplated that, subject to funding arrangements for an ongoing administration, Coalpac would apply to extend its current mining approvals to allow mining for a minimum of three further years at the mines at currently approved production levels. Mr Fraser also indicates that Energy Australia is presently formulating a proposal for a Deed of Company Arrangement, which would require the consent of ANZ as the first ranked secured creditor, and has commenced negotiations with ANZ in that regard but does not expect to conclude those negotiations until December 2013.

8 Mr Fraser also notes that the convening period for the second meeting of creditors would presently expire in two days time, on 15 November 2013, unless that period is extended under s 439A(6) of the Corporations Act. He expresses the view that the extension of the convening period is in the best interests of creditors, since it will potentially allow the proposal for the Deed of Company Arrangement to be developed and put, which may in turn result in a better return for the companies than an asset sale if the companies are in liquidation, where it is unlikely that there would be any return to unsecured creditors from such an asset sale. Mr Bender, who appears for the administrators, properly notes that there is no certainty that a Deed of Company Arrangement will lead to a better result; on the other hand, as he rightly points out, the present position appears to be that unsecured creditors would obtain no return from a liquidation, and there is at least a prospect that the extended time period which is sought, and the opportunity to develop a Deed of Company Arrangement, would deliver the possibility of a better return, and any improvement in the present position is plainly in the creditors' interests.

9 Mr Fraser also notes that the administrators need further time to investigate the questions whether there has been insolvent trading or voidable transactions, in circumstances that the mines' operations had ceased some time before the administrators' appointment, so as to provide meaningful information to creditors as to those matters, which are in turn relevant to the creditors' decision whether to place the companies in liquidation or to adopt one of the other alternatives available at the second meeting of creditors. Mr Fraser also notes that the alternative to an extension of the convening period for the second meeting may be an adjournment of the second meeting, which the administrators would recommend, but this would involve wasted costs both for the preparation of an interim report for the second meeting and a final report for the adjourned meeting, and for the attendance by the administrators and indeed by creditors at an additional meeting.

10 The application is not opposed by the committee of creditors for Coalpac; it is supported by Energy Australia, as the potential proponent of the Deed of Company Arrangement and a major secured creditor, and it is not opposed by ANZ as the first ranking secured creditor. Other creditors have been advised of the application being made to the Court and no creditors have appeared to oppose that application. Mr Bender recognises that any extension of time involves, potentially, a delay in the resolution of matters for creditors; however, he again rightly points out that that delay is of lesser weight where creditors are not being deprived of a return on liquidation, so far as unsecured creditors are not presently likely to obtain such a return. So far as lessors of properties occupied by the companies are concerned, an extension of time to call the second meeting would extend the moratorium which applies during an administration, but that is likely to be of lesser detriment to the lessors which are receiving rent on the properties presently occupied by the companies.

11 Notice of the application has also been given to the Australian Securities and Investments Commission, which has not presently indicated its attitude to the application.

12 The relevant authorities are well established, and there are now a very large number of cases in which the courts have considered applications of this kind. Sections 439A(6) and 447A of the Corporations Act allow the Court to extend the convening period for a second meeting of creditors in an application made, relevantly, during that period. The Court's function in determining such an application is to reach an appropriate balance between the expectation that an administration will be relatively speedy 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 at 612; Re Diamond Press Australia Pty Ltd [2001] NSWSC 313 at [10]; Re Kavia Holdings Pty Ltd (admins apptd) (recs & mgrs apptd) [2013] NSWSC 737 at [14]. In Re Riviera Group Pty Ltd (admins apptd) (recs & mgrs apptd) [2009] NSWSC 585; (2009) 72 ACSR 352 at [13]-[14], Austin J summarised the reasons which may support such an extension, in a passage which is commonly cited in applications of this kind, as including the size and scope of the company's business, the complexity of the relevant corporate structures, the time needed to execute an orderly process of disposal of assets or any other possibility that an extension of time will enhance the return for unsecured creditors, and the impact of any extension on a person whose claim is affected by the statutory moratoriums under Pt 5.3A, which is a matter to which I referred above in respect of the lessors of properties occupied by the company. The Court can, and should, also give weight to the considered judgment of administrators in matters of this kind: Owen, Re; RiverCity Motorway Pty Ltd (admins apptd) (recs & mgrs apptd) v Madden (No. 4) [2012] FCA 1491; (2012) 92 ACSR 255 at [26].

13 Mr Bender has helpfully drawn attention to several other decisions where applications of this kind have been considered in somewhat analogous contexts. In Re Pan Pharmaceuticals Ltd [2003] FCA 598; (2003) 46 ACSR 77, an extension of the convening period for the second meeting was sought under s 439A(6) of the Corporations Act to facilitate the sale of the assets of a business by a tender process, which was hoped to be effected by a deed of company arrangement, and an extension of time was in that case granted for two months, the likely time for that tender process to be completed. Lindgren J (at [42]) surveyed the relevant factors, including the need to balance the object of speedy administration and the maximising of potential recoveries, in accordance with the object of Pt 5.3A of the Corporations Act, which are the considerations to which I have referred above. In Silvia, in the matter of Austcorp Group Ltd (admins apptd) [2009] FCA 636, the administrators anticipated that a deed of company arrangement might emerge, but it would take some three to four months for that to occur, and the Court was prepared to grant an extension of time for that period to allow the prospect of that deed of company arrangement to emerge.

14 In Algeri; Re Colorado Group Ltd (admins apptd)(recs & mgrs apptd) [2011] VSC 260, in what was admittedly a very complex administration, the Court was prepared to grant a second extension of time to convene the second meeting of creditors, in that case for a period apparently of some seven months, in order to allow the administrators to complete a sale process of the properties held by the relevant companies. Importantly, Judd J there considered evidence of the administrators, to similar effect to the evidence given by Mr Fraser, that the alternative to such an extension would be an adjournment of the second meeting of creditors to allow the sale process to be completed, which would involve wasted costs which would not be incurred if the convening period for the second meeting of creditors were extended. His Honour gave weight to the administrator's reasoning in that regard, and I also consider that Mr Fraser's reasoning to similar effect has considerable force. Finally, in Darin Re Palamedia Limited [2010] NSWSC 451, an extension of time for a second meeting of creditors was given for a somewhat more modest period, of just over two months, in that case to allow the administrators to seek to enter a transaction which might realise value from the corporate shell of the relevant company.

15 With this background, the extension sought in this application is to 31 January 2014. The logic of that extended period reflects the fact that, as I noted above, it is not expected that Energy Australia would be in a position to propose the Deed of Company Arrangement until the end of December, the administrator will plainly need some time to analyse the Deed of Company Arrangement when the proposal is received, in order to prepare their report to creditors, and will also need time to give notice of the relevant meeting; and, of course, the Christmas break will also intervene in that period.

16 The determination whether to grant such an extension involves, as I have noted above, a weighing process. Mr Bender helpfully identified several factors which suggest that the weighing process, on balance, supports the grant of the extension sought. These include the comparison of at least the prospect of a better return to creditors from the potential Deed of Company Arrangement, as against the likelihood of no return to unsecured creditors from an immediate liquidation; the desirability of the administrators being in a position to properly report to creditors as to investigations into insolvent trading and preferential transactions; the fact that an extension of time will avoid the wasted costs of an adjournment of a second meeting; the fact that no unsecured creditor has opposed the extension sought, and Energy Australia supports it, in circumstances that creditors have been notified of the possibility of that extension at the first meeting of creditors and again before this application; and, finally, that there is little detriment to creditors of such an extension, for the reasons I have noted above. I am satisfied, by reference to these matters, that a strong case has been established to extend the period of the convening period and that the extension sought to 31 January 2014 is not inappropriate.

17 I note that the administrators have also, appropriately, sought orders of the form contemplated by Lindgren J in Silvia Re Austcorp Group Ltd above, which will permit the meeting to be held at any time during the convening period as extended, if events move more quickly than the administrators presently anticipate. The proposed orders also reserve liberty to other interested persons to restore the matter to the Court.

18 For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. These include an order that the costs of and incidental to this application be costs and expenses in the administration and be paid out of the companies' assets, where the application is plainly a proper expense incurred by the administrators in progressing the administration.

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Decision last updated: 11 February 2014