The Court’s willingness to extend the convening period for a meeting of creditors where the administration is large and complex

In Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169, the Federal Court heard the second application by the administrators who were seeking an extension to the convening period for the second meeting of creditors, which pursuant to section 439A(5) of the Corporations Act 2001 (Cth) (the Act) was set to expire on 24 March 2022.

Beach J granted the extension as the size and complexity of the administration justified the administrators requiring extra time before the second meeting and that ultimately, this did not prejudice the creditors.

Background

In the first application by the administrators,[1] Beach J provides background into the administration. In February 2022, the administrators were appointed to the Probuild Group which comprised of 18 companies after its South African-based parent company withdrew financial support.

At the time of appointment, the Probuild companies had 19 major construction and development projects underway in Victoria, New South Wales, Queensland, and Western Australia and the administrators are continuing to trade on the businesses of those companies.

Application

The administrators sought orders to extend the convening period for the second meeting of creditors pursuant to section 439A(5)(b) of the Act until 24 June 2022. Section 439A(5)(b) of the Act requires the administrator to convene a meeting of the company’s creditors within the convening period, which will generally be the period of 20 business days.[2] Therefore, the convening period was set to expire on 24 March 2022.

Size and complexity

The administrators were requesting an extension on account of the size and complexity of the administration. The sheer size of work to be undertaken by the administrators was attributed to the following:

• the number of companies in administration;
• businesses of several of the companies were continuing to trade;
• the number of stakeholders whose interests need to be considered including employees, union representatives, bondholders, lessors and financiers, trade creditors, and government and overseas creditors;
• the degree to which the assets, liabilities and interests of the companies interact; and
• the guarantee obligations given by some of the companies in respect of the obligations of other companies in the Probuild group.

Administrators’ ongoing tasks

The administrators also had a number of ongoing tasks that, had the extension not been granted, would not have been completed by the second meeting. Under section 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR), the administrators are required to prepare a report containing a variety of information for the creditors to consider, along with a statement with reasons as to whether it would be in the creditors’ interests for the companies to execute a Deed of Company Arrangement, if the administration should end and control of the companies be returned to the directors, or if the companies should be wound up.

The administrators were also attending to commencing the sale process for a number of the businesses and in doing so, had an in principle agreement to sell and various expressions of interest. The administrators did not expect to conclude this until after the convening period.

Adjournment

Without an extension to the convening period, the administrators would likely have recommended that the meeting be adjourned to address the outstanding tasks. An adjournment would have resulted in two meetings instead of one, incurring substantial wasted expenditure.

However, under section 75-140(3) of the IPR, the maximum period for adjournment is only 45 business days, so a further application to the Court would likely have been necessary.

Decision

The Court has the power to extend the convening period under sections 439A(6) and 447A of the Act in circumstances where the additional time will enhance the return to creditors. His Honour emphasised that the power to extend is not one to be exercised lightly. The Court must balance the expectation that administration will be speedy against the consideration that undue speed should not prejudice a maximum return for creditors.

In granting the extension, it was His Honour’s view that this would give the administrators sufficient time to complete the outstanding tasks and report them to creditors in a meaningful way. His Honour emphasised the size and complexity of the administration and did not consider that an adjournment by the administrators would allow sufficient time to complete the tasks. Further, the additional time would be beneficial in preserving existing relationships with employees, creditors, and other stakeholders, and increase the likelihood that employees will retain their jobs.

When considering the impact on creditors, His Honour found that the proposed extension, which had not been objected to by any of the creditors, would not be unduly prejudicial and any limited prejudice would be outweighed by the benefits to creditors as a whole.

In reaching this decision, His Honour found that the extension sought by the administrators was readily justified and the extension allows for the possibility that if the relevant steps can be completed earlier than anticipated, the second meeting can be held more promptly.

Key takeaway

When considering an application to extend the convening period, the Court will not exercise its power lightly. The administrators must be able to explain that the extension is necessary and importantly, will not prejudice the creditors.

The Court will be justified in granting an extension where the administration is significant in size and complexity. In doing so, the Court will not compel a quick resolution if this would result in costs and inconvenience to the administrators and creditors.

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Authored by:

Scott Couper, Partner
Caitlin Miller, Graduate

[1] Algeri, in the matter of WBHO Australia Pty Ltd (Administrators Appointed) [2022] FCA 169.

[2] Corporations Act 2001 (Cth) s 439A(5)(b).