A New Resolution at the First meeting of Creditors under Administration

Hancock, in the matter of Tarleton & Peters Pty Limited (Administrator Appointed) [2015] FCA 1058 (24 September 2015) and Hancock, in the matter of Tarleton & Peters Pty Limited (Administrator Appointed) (No 2) [2015] FCA 1232 ("Tarleton")

We have observed that many Administrators only call for creditors to determine the following resolutions (set out at s 436E of the Corporations Act 2001 (Cth) ("Act")) at a first meeting of creditors:

  1. Whether to appoint a committee of creditors, and if so, who are they to be; and
  2. Whether the creditors wish to remove the Administrator and appoint someone else.

The Federal Court case Tarleton confirms another useful resolution to be determined at a first meeting of creditors of a company under external administration: whether the Administrator should apply to the Court for an extension of the convening period. The resolution, if passed, will assist the Administrator in submitting to the Court that the extension sought is in the best interests of creditors.

Background

In Tarleton, a voluntary Administrator was appointed to the company Tarleton & Peters Pty Limited which owned a chain of 31 butcher shops. The Company had approximately $20 million owing to its creditors at the date of appointment. The Administrator decided to close down several unprofitable stores operated by the Company. However, the Administrator also decided to trade-on the remaining stores operated by the Company (27 stores) with a view to selling those businesses. It should be noted that the businesses were the Company's only assets of any significant value and that the Administrator was also considering a DOCA.

Due to the complexity of the administration, the Administrator decided that he would not be in a position to sell the business of the Company within the prescribed convening period. The Court noted that [at 8] the business was effectively 27 separate business operations at each store, each of which needed to be assessed separately because of the possibility that individual stores would be sold. The overall business also needed to be assessed against the possibility that it could be sold as a whole.

The Administrator anticipated that he would require an extension of the convening period for a period of six weeks to enable him to sell the business of the Company. The Administrator had the foresight to raise these issues at the first meeting of creditors, and as a result, a secured creditor proposed a resolution that the Administrator apply for an extension of the convening period and the resolution was passed.

Court Applications

The Administrator proceeded to make an application to the Court under s 439A(6) of the Act for an extension of the convening period. Justice Yates was satisfied, on the reasons advanced by the Administrator in favour of the proposed extension, that the extension should be granted. Importantly, the first of those reasons advanced by the Administrator was the fact that the creditors were in favour of the extension.

The Administrator ultimately applied to the Court for a second extension of the convening period which was also successful with Justice Gleeson concluding that [at 21, 22] the following matters also supported the orders:

  1. The committee of creditors and the secured creditor are in favour of the extension;
  2. There is no evidence of any prejudice to creditors arising from the proposed extension;
  3. There is no suggestion that the Administrator has delayed in the exercise of his functions; and
  4. The proposed orders provide for liberty to apply to any creditor or other interested party;
  5. Taking into account these matters, I was satisfied that it would be in the best interests of the creditors if the convening periods were extended in accordance with the application.

In respect of the second extension of the convening period, the Administrator was able to provide evidence to the Court that the committee of creditors had passed a resolution in favour of a further extension, and the secured creditor also consented to the further extension.

Tarleton confirms that the first meeting of creditors can provide a valuable opportunity for an Administrator who is considering selling a business, or expecting a DOCA proposal, to suggest that creditors resolve whether the Administrator should apply for an extension of the convening period to allow him or her sufficient time to resolve those matters. Both Justice Yates and Justice Gleeson gave weight to evidence that the creditors were in favour of the extension sought when deciding to grant it.

Despite the effect of s 436E of the Act, Tarleton illustrates that creditors are not limited to passing the resolutions provided for under that section, nor does there seem to be any limit on the sort of resolutions which can be passed at a first meeting of creditors, including the resolution to adjourn the first meeting of creditors.

gavinparsonsadm

Date posted: 2016-03-15