There is no presumption or predisposition against extending the convening period in an administration

In Brief

Applications under section 439A(6) of the Corporations Act to extend the period for convening the second meeting of creditors in a voluntary administration are relatively common, but are usually made in relation to large company groups or companies with complex, often cross-jurisdictional, businesses. In a recent Federal Court decision [1] Justice Besanko granted an additional three months for administrators to continue and complete their investigations into two small companies with a total of 14 employees.

The Facts

The directors of Megafert Pty Ltd and Interfert Pty Ltd (Companies) appointed voluntary administrators pursuant to s436A of the Corporations Act (Act) The Companies were involved in the import and resale of fertilisers, and between them employed 14 people. Just prior to convening the second creditors meeting, the administrators formed the view that despite the fact that the Companies were relatively small and were not involved in any obscure or complex businesses, further time was needed in order to:

• continue and complete investigations in relation to some inter-company loans
• obtain and assess valuations of the plant and equipment owned by the Companies
• investigate, and if need be issue, examination summonses in respect of recently discharged securities
• investigate the circumstances  of a substantial proposed financing transaction which did not proceed  and determine whether the Companies had any consequent claims
• investigate possible voidable transactions generally; and, perhaps most importantly,
• continue communications with a potential DoCA proponent on the basis that a DOCA was a “realistic possibility”. 

In short, the administrators formed the view that they could not provide a sufficiently detailed and accurate report to creditors in the time available.

Importantly:

• there was no default or failure on the part of the administrators
• the committee of creditors for each company did not object to the application
• the costs of adjourning the second meeting would have been significant.  

The Judgment

Despite the size and apparent simplicity of the businesses, Justice Besanko granted the three month extension. His Honour made the following observations:

• The time limits imposed in administrations apply irrespective of whether the company in administration is big or small, or its affairs complex or simple
• The Court has the power to extend the convening period and a great variety of circumstances can arise which mean that there is no presumption or predisposition against an extension
• The Court will only exercise its discretion to extend the period when there is a sound reason to do so, and having regard (amongst other things) to the objects of Part 5.3A of the Act, and
• The creditors should be given the opportunity to properly consider all relevant and accurate information about the company in question, prior to making a decision.  

Our View

The decision does not make new law but it does show that even in small and relatively uncomplicated administrations, the Court will assist administrators and creditors by granting additional time as long as there is sufficient evidence that it is appropriate to do so.