Procedural fundamentals: extension of convening period for second creditors’ meetings

Articles Written by Pravin Aathreya (Partner), Karl Barnett (Senior Associate)

Extension of convening period for second creditors’ meetings

The Part 5.3A administration regime was introduced to facilitate orderly and timely outcomes for creditors. This is clearly evidenced by the relatively short time frame stipulated by the Corporations Act 2001 (Cth) (the Act) between when the first and second creditors’ meetings are to be held. Under s 439A of the Act, an administrator must convene the second meeting of the company's creditors within the ‘convening period’ (generally 20 business days or so following the commencement of the administration).

It is however becoming increasingly commonplace for an administrator to need more time to investigate the affairs of the distressed company or group, and importantly to determine the best way forward to either rehabilitate the company or obtain the best outcome for creditors. This is the case not only in complex corporate groups but also in unique business environments. In such circumstances, an administrator may apply to the Court for an extension under s 439A(6).

Key takeaways

The factors which an administrator can cite in support of any extension application will necessarily depend upon the unique factual circumstances involved.

A court will look favourably upon an application in circumstances where there is a large volume and value of creditors, a broad geographical spread of business operations and/or a complex operational or lending structure, which justify additional investigations being undertaken by the administrators before they are in a position to recommend a specific course of action to the company’s creditors.

It is also advisable in such circumstances for an administrator to proactively make any such application as soon as it is clear that more time is likely required.

Relevant legal principles and key considerations

Broadly speaking, in exercising its discretion in considering an extension application, a Court will seek to strike an appropriate balance “between the expectation that an administration will be conducted with relative speed and the requirement that speed not prejudice sensible and constructive actions directed towards maximising the return for creditors and any return for shareholders”.1

The factors a Court may consider in exercising its discretion include:2

  • a lack of timely access to financial records;
  • non-cooperation of the company’s officers or employees with the administrator’s investigations;
  • the size and scope of the business of the company or corporate group;
  • the complexity of the corporate structure or transactions entered into by the company or corporate group;
  • the time needed to effect an orderly process for the disposal of assets in a manner sufficient to maximise the return to creditors;
  • the time needed for a thorough assessment of a proposal for a deed of company arrangement to enable the company to trade out or to restructure its affairs;
  • whether any extension would maximise the chances of the sale of the relevant business as a going concern; and
  • if a corporate group is involved, investigation of the appropriateness of deeds of company arrangement or “pooling” assets and creditors’ claims.

Botanic Homes

JWS successfully applied for a three month extension of the convening period for the second creditors’ meeting in the administration of Botanic Homes Pty Limited. Botanic was a registered domestic building company providing services within Victoria, including renovations and construction of new dwellings, with total creditors in excess of $10 million. Upon appointment, the administrators identified that Botanic’s business operations involved a large number of properties at varying stages of completion. The administrators’ application for an extension to the convening period was found to be justified by the following matters:

  • additional time was required to achieve completion of a number of the building projects and thereby maximise their realisable value and consequently the funds available for distribution to creditors; and
  • the administrators’ conclusion that the sale of Botanic as a going concern was a viable option and that investigating sale opportunities required more time than allowed for under s439A(5).

SDV Longwall Group

JWS acted for the administrators of the SDV Longwall Group. SDV Longwall were providers of mining services, specialising in underground coal equipment servicing and overhaul, longwall relocations and site services, primarily servicing mines in the Bowen Basin and Illawarra regions.

It was clear to the administrators that the best outcome achievable was to ensure SDV traded as a going concern beyond the statutory convening period and the completion of a number of key contracts would ensure a better return to creditors.

The Supreme Court of New South Wales granted an extension of approximately three months to allow the completion of certain customer contracts in Wollongong and enable the administrators to further explore a possible sale of SDV’s business based in Wollongong, finalise debtor collections and post-completion steps for the sale of SDV’s Mackay business and otherwise provide creditors with an informed recommendation on the future of the companies.

RiverCity Group

The Federal Court extended the convening period for the second meeting of creditors of the RiverCity Group of companies for six months, having earlier granted extensions of 18 months and 12 months.3 JWS acted for the administrators in obtaining the final six month extension, bringing the total extension to some three years, which Justice Logan noted was “something of a record”.4

The administrators (now liquidators) sought the further extension in order to allow the sale of the Group’s core asset, the tolling business associated with the Clem7 Tunnel in Brisbane, to be completed. The Court took numerous circumstances into account, including the position of the receivers and managers, the Group’s creditors, the absence of any objection from ASIC, as well as taxation consequences and the Group’s involvement in ongoing litigation. However, most significantly, Justice Logan noted that the asset was unique and required a targeted application of the Court’s powers under Part 5.3A of the Act, to the end of ensuring the possibility of maximising realisations from a corporate asset. The Court was mindful that if the administration was not extended, there was a risk that the administrators’ endeavours in trying to maximise realisation of the asset would come to nothing. 

1 Re Riviera Group Pty Ltd (administrators appointed) (receivers and managers appointed) (2009) 72 ACSR 352[2009] NSWSC 585 at [15]; Parbery, in the matter of NewSat Limited (administrators appointed) (receivers and managers appointed) [2015] FCA 435 at [59]; Weston, in the matter of Flush Fitness Pty Limited [2017] FCA 172 at [14]-[16]; Carter, in the matter of AMT Group Pty Ltd (administrators appointed) [2017] FCA 303 at [16].
2 Parbery, in the matter of NewSat Limited (administrators appointed) (receivers and managers appointed) [2015] FCA 435 at [63].
3 Owen, in the matter of RiverCity Motorway Pty Ltd (Administrators Appointed)(Receivers and Managers Appointed) v Madden (No 5) [2013] FCA 1443

4 Owen, in the matter of RiverCity Motorway Pty Ltd (Administrators Appointed)(Receivers and Managers Appointed) v Madden (No 5) [2013] FCA 1443 at [25].

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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