The recent decision of Moshinsky J in Kaso, in the matter of Speedpanel Australia Ltd (Administrators Appointed) (No 2) [2017] FCA 862 provides a timely reminder of the balancing role the Court plays when determining an application made under section 439A(6) of the Corporations Act 2001 (Cth) (Act).

Section 439A provides that an administrator of a company under administration must convene a meeting of the company’s creditors within the convening period, which meeting must be held within 5 business days before, or 5 business days after, the end of the convening period. The convening period is the period of 21 days commencing on the day the administration begins, or 28 days if the administration begins in December or a day less than 28 days before Good Friday. If an application is made to the court within the convening period, the convening period may be extended under section 439A(6).

In this matter, the Administrators of three related companies had previously applied for, and been granted, an extension of the convening period for the second meeting of the companies’ creditors.  The Administrators then sought further orders under sections 439A(6) and 447A of the Act to further extend the convening period.

The key reasons submitted by the Administrators as to why the further extension should be granted were to:-

1. enable the Administrators to continue the companies’ business in the short term in order to preserve the value of the companies’ assets (which would likely decrease if trading ceased);
2. allow the companies to continue using property used or occupied by, or in the possession of the companies, with the protection provided by section 440B of the Act;
3. allow a preferred bidder of the business of the companies to finalise the terms of a Deed of Company Arrangement proposal and obtain necessary funding; and
4. enable the Administrators to finalise their investigations and prepare a report containing the options required by section 439A(4) of the Act before convening the second meeting of the companies’ creditors.

When a court considers an application to extend the convening period, it must attempt to strike a balance between ensuring the administration is conducted quickly, but also ensuring that a “quick” administration will not be prejudicial to the rights of creditors and shareholders. In this matter, when considering the reasons submitted by the Administrators, the Court had regard to a number of factors, including that there was no opposition to the Administrator’s application and that a number of creditors were supportive of the proposal, including the preferred bidder.

Importantly, Moshinsky J opined at [19] (footnotes omitted):

“In this type of application, the Court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders.

“Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, the administration process is often given more time.  In the present case, there is a well-developed proposal that, if accepted by the creditors, will result in the continuation of the Business and, in the Administrators’ opinion, will generate a better outcome for creditors. These factors strongly support the grant of the further short extension sought.

Take away points

The decision reinforces the balancing role the Court plays in determining whether to extend the convening period of a meeting of a company’s creditors.

In circumstances where the administration is particularly complex and there is a prospect of realisation of the company’s assets, the Court will be more inclined to give the administration process more time.

For more information, please contact ERA Legal.