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Supreme Court of Victoria |
Last Updated: 16 October 2012
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
IN THE MATTER of Australian Music Group Holdings Pty Ltd (administrators appointed) (receivers and managers appointed) (ACN 127 691 534) (and others)
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JUDGE:
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WHERE HELD:
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Melbourne
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DATE OF HEARING:
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CASE MAY BE CITED AS:
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Corporations – External administration - Administrations under Part 5.3A of the Corporations Act 2001 – Application pursuant to sections 439A (6) and 447A(1) for extension of the convening period for meetings to be held under section 439A – Applications granted.
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1 The plaintiffs (“the administrators”) were appointed as administrators of the 17 companies in the Australian Music Group Holdings Group (“the Group”) on 23 August 2012 pursuant to Part 5.3A of the Corporations Act 2001 (Cth) (“the Act”). On the same day, immediately following their appointment, Mr James Stewart and Mr Brendan Richards of Ferrier Hodgson were appointed as receivers and managers of each of the companies in the Group, pursuant to fixed and floating charges granted by the companies in favour of Revere Capital Pty Ltd.
2 On 13 September 2012, the administrators filed an originating process which sought an extension of the convening period for the second meeting of creditors under s 439A(6) and s 447A of the Act together with certain ancillary orders. The administrators also sought orders pursuant to s 477A of the Act modifying the operation of the provisions dealing with the convening of the second meeting of creditors and how the creditors are to be provided with the requisite reports under s 439A and other documentation to be used in connection with the second meeting of creditors.
3 On 14 September 2012, I granted the extension and made orders of the type sought. I now publish reasons for doing so.
4 The receivers control the businesses and assets of the companies in the Group and are presently making all decisions regarding trading, staffing requirements and realisation of assets. They are trading the businesses of the Group in order to sell them on a going concern basis and if that is not possible, to carry out an orderly realisation of the Group’s assets.
5 The Group carries on business as Australia’s largest retailer and wholesaler of musical instruments. It operates the Allans and Billy Hyde chains. Each company in the Group has distinct functions. The Group operates 25 retail stores throughout New South Wales, Victoria, Queensland, South Australia and Western Australia. The Group was formed in 2010 by the merger of two longstanding musical instrument businesses, Allans Music and Australian Music Group (trading as Billy Hyde). The wholesale businesses within the Group sell to the stores operated or franchised by the Group and approximately 300 independent stores.
6 Australian Music Group Holdings Pty Ltd operates as a holding company with its shareholders being Revere Capital Pty Ltd and Brackenbury Music Pty Ltd. AMG Shared Services Pty Ltd is responsible for employment of the majority, if not all, employees within the Group and also holds the various leases and fixed assets. It is a wholly owned subsidiary of Australian Music Group Holdings Pty Ltd. Australian Music Pty Ltd is the principal retail trading entity and has a large holding of stock. It is also wholly owned by Billy Hyde Music Group Pty Ltd. The head office of the Group is based at Rowville in Victoria.
7 The application is supported by an affidavit by one of the administrators, Mr Ross Blakeley, and an affidavit of Stewart, one of receivers and managers.
8 When the administrators were appointed, the Group employed around of 600 staff. The employees are owed in excess of $2.18 million in unpaid leave entitlements and superannuation. AMG Shared Services Pty Ltd, the employer of staff within the Group, appears to have limited assets and is not likely to be in a position to meet all outstanding employee entitlements. The administrators have contacted the Commonwealth Department of Education, Employment and Workplace Relations have notified it of their appointment and provided details of the number and type of employees employed by the Group. This was in anticipation of potential claims being made under the General Employee Entitlements and Redundancy Scheme (“GEERS”). That Department was informed on 11 September 2012 that the administrators intended to make the current application for an extension of the convening period for a period up to 120 days. The administrators also advised the Department that while ordinarily a claim under GEERS can only be dealt with when an employing company is in liquidation (as distinct from administration), they noted that in limited circumstances the Minister can direct GEERS to make payment of eligible employee entitlements during the voluntary administration process. The administrators requested the Department to consider allowing the administrators to administer funds in accordance with GEERS in advance of any liquidation of the company. The administrators contend that should the Department grant their request to allow the funds to be used in accordance with GEERS during the voluntary administration of the companies in the Group, the employees will not be unfairly prejudiced by the proposed extension of the convening period.
9 The administrators depose that the Group’s records indicate that it has a net asset deficiency in the order of $4.72 million, although this amount may be higher. In addition to the employee creditors,It has 300 unsecured trade creditors, who are owed approximately $8.98 million.
10 The first meeting of creditors required to be convened under s 436E of the Act was held on 4 September 2012. At that meeting, the secured creditor, Revere Capital Pty Ltd, together with a number of landlords and other creditors were in attendance. A committee of creditors was formed in respect of one of the companies, Australian Music Pty Ltd. During the course of that meeting Mr Blakeley advised of the plaintiffs’ intention to apply for an extension of the convening period for up to 120 days and detailed their reasoning for doing so. It was indicated that this would effect, among others, landlords, as they would be prevented during the period of such extension from exercising any rights they may have under their leases to recover their properties by reason of the moratorium, which would apply during any extended convening period.
11 No dissent was voiced by creditors in respect of the proposed application to extend the convening period, despite invitations to do so. One of the receivers, Mr Stewart, was also in attendance and advised the creditors that the receivers were continuing to trade with a view to effecting a sale of the businesses in the Group. Mr Stewart indicated that the receivers had called for expressions of interest from prospective purchasers and that nonbinding and indicative offers were due by 7 September 2012.
12 In his affidavit, Mr Stewart details the sale process which is currently being undertaken by the receivers and highlights the importance and significance of the extension of the convening period in that process.
13 Prior to the convening of the second meeting, the administrators will be required to ascertain the true financial position of the Group, the nature and extent of the business conducted at the 25 stores operating across five States, the number and quantum of claims by the creditors, identification and quantification of claims by landlords and the rights and entitlements of employees.
14 On 28 August 2012, Mr Blakeley wrote to the directors requesting that they complete a report as to affairs in respect to the business, property affairs and financial circumstances for each of the companies in the Group. Apparently, due to the complexity of the Group’s affairs, the directors have requested an extension of time to complete such reports. The administrators have agreed to this request, allowing until 28 September 2012 to complete that process.
15 Mr Blakeley also indicates that the administrators require further time to liaise with the receivers in respect of ongoing trading, with the directors regarding the possibility of them proposing a deed of company arrangement and to prepare reports to creditors which contain the opinions required by s 439A(4) of the Act.
16 An extension of 120 days is sought and unless granted, the convening period will expire on 20 September 2012. If such an extension is not granted it is likely that the second meeting will be adjourned for the statutory maximum of 45 business days allowed by section 439B(2). Such a period is unlikely to be adequate for carrying out the identified tasks and would involve some expense for no apparent good purpose.
17 Mr Blakeley states that the primary bases for the application to extend time are as follows:
(i) to allow the administrators time to determine the individual position of each company in the group, noting that the financial information provided to date has been prepared on a consolidated basis;(ii) enable the administrators to complete their investigations, particularly in relation to the financial affairs and the position of each of the 17 companies within the group, including the identification and assessment of potentially voidable transactions and an analysis as to whether there has been insolvent trading;
(iii) review the outcome of the receivers’ sale process;
(iv) retain the option to recapitalise the group by way of a Deed of Company Arrangement if one is proposed and it is in the best interests of the creditors;
(v) enable the administrators to prepare a report that contains the requisite opinions and reasons for those opinions as required by s 439A(4) of the Act, more particularly whether it would be in the creditors’ interests for
(a) the companies to execute a Deed of Company Arrangement;
(b) the administration to end or see the companies to be wound up.
18 The criteria which are appropriate to be applied in these types of applications are summarised in the decision of Austin J in Re Riviera Group Pty Ltd (2009) 72 ACSR 315 at [13]. His Honour provides an extensive list of such criteria but it seems that the following are the most relevant in the present circumstance:
(a) the size and scope of the businesses conducted by the Group;(b) time to allow the sale of the businesses as a going concern;
(c) investigation of whether a proposal for a Deed of Company Arrangement will be put forward;
(d) the time needed to carry out an orderly process of the disposal of assets and in a more generic sense, time to enhance the return for unsecured creditors.
19 Counsel for the administrators also referred to the decision of Judd J in Algeri: Re Colorado Group Limited,[1] who considered that in the circumstances of that case there were good and substantial grounds to award an extension of time. He stated at [26]:
Applying all of these principles to the facts of this case, I am of the opinion that there are substantial grounds to support an extension of time for the period it sought by the administrators. These are:
(1) The application is supported by the receivers, who have commenced the sale process, and who depose that they require up to nine months within which to complete that process so as to provide the best possible outcome to stakeholders including employees and suppliers. The process may also promote a scheme of company arrangement.(2) The administrators have expressed the opinion that it is in the best interest of the creditors, including employees and suppliers, that the convening period be extended for a period of up to nine months.
(3) The administrators are currently unable to prepare and circulate a meaningful report to creditors so as to comply with their obligations under s 439A(4) of the Act. Such a report is required to enable the creditors to be adequately informed about the options for the future of the Group. The preparation of such a report, in the absence of the completion of the sale process, would be premature.
(4) A reasonable extension will avoid unnecessary cost and expense of adjourned meetings.
(5) If the sale process is successful, it is very likely that many of the employees will continue in their employment.
(6) While the receivers continue to operate the businesses in order to maintain their value for the purpose of the sale process they are acquiring goods and services from suppliers who comprise a large part of the unsecured creditors.
(7) The extension of the convening period, permitting the sale process to run its course, will facilitate the exploration of a possible recapitalisation of the group by way of a deed of company arrangement.
20 As in Colorado, the receivers have been paying rent on the properties leased by the companies and there is presently no evidence of opposition by or likely prejudice to landlords resulting from any extension of the convening period. As Judd J points out in Colorado, Part 5.3A of the Act has provisions designed to enable landlords to make application to protect their interests under s 440C.[2] The grant of an extension sought by the administrators would not, as Judd J points out, inhibit lessors from making such applications to the Court.
21 I consider that on the evidence before the Court and on an application of the principles referred to in the relevant authorities, it is appropriate to grant an extension of the convening period in terms of the orders which have been proposed on behalf of the administrators. The secured creditor, Revere Capital Pty Ltd and the committee of creditors formed for the one company electing such a body support the application. The creditors present at the first meeting of creditors, which included a number of landlords, did not voice any objection to the extension of the convening period for the time sought.
22 The administrators also sought ancillary orders which are routinely made in these types of applications. These include a “Daisytek” order.[3] Such an order will have the effect of permitting the administrators to hold the second meeting of creditors at any time during the extended period or within five business days after its end rather than strictly in accordance with s 439A(2).
23 The administrators also seek orders concerning the provision of notice and other documentation to the creditors of the company which follow those made in other cases including Lindholm, In the matter of Munday Group Pty Ltd (administrators appointed) (receivers and managers appointed)[4] by Gordon J and by me in Aegis Correctional Partnership Pty Ltd (administrators appointed) (receivers and managers appointed).[5]
24 Such orders are designed to curtail the cost of compliance with the provisions of the Act requiring hard copies of lengthy documents to be provided to creditors of the group in advance of the second meetings, in particular the s 439A reports to creditors and the remuneration reports. It is said by the administrators that strict compliance with those requirements would be unduly onerous and the provisions of Part 5.3A should be modified to provide that (a) a hard copy notice be sent to each creditor which provides notification of the convening of the second meeting (and notification that further information can be obtained from the plaintiffs’ website) and (b) documents which would otherwise be required to accompany the notification, including the report as to creditors, proxy form and remuneration reports be accessible on the website with hard copies being able to be provided on request. Similar mechanisms are sought to be provided for in regard to notification of any adjournment of the second meeting. I consider that it is appropriate to make such orders in thease circumstances. Orders of that type have been made in Re Ansett Australia Limited & Ors[6] by Goldberg J, by Emmett J in ABC Learning Centres Limited (administrators appointed) (receivers and managers appointed) v Honey[7] and by DoddsStreeton J in Re FEA Plantations Limited (administrators appointed).[8] To this end, I will also order that the notice period for the convening of the second meeting be increased from five to eight business days to enable any creditors who require hard copies of the 439A report to receive it and consider it.
25 Orders were made in the following terms on 14 September 2012:
at least eight business days before the meeting;
(b) s 439A(4) provided that:
- (i) the notice given to a creditor under s 439A(3)(a)(i), as it operates pursuant to paragraph 5(a)(i) above, need not be accompanied by copies of the report and the statements referred to in s 439A(4);
- (ii) the form of proxy required by reg 5.6.31 of the Corporations Regulations 2001 (Cth) to be sent with the notice of meeting need not be sent with the notice;
- (iii) copies of the notice, such report, such statements and such form of proxy be posted on the website http://www.taylorwoodings.com.au/ in such form that they may be downloaded by any person obtaining access to that website; and
- (iv) the Plaintiffs deliver to any creditor, at his, her or its request, by post, facsimile transmission or e-mail, a copy of such notice, report, such statements and such form of proxy.
- (v) The notice referred to in sub-paragraph (i) above makes reference to the ability to download the documents from the said website or to have them delivered as set out in sub-paragraphs (iii) and (iv) above.
(c) s 449E(7) provided that:
- (i) the remuneration reports referred to in s 449E(7) need not be given to each of the Companies at the same time as the creditor is notified of the meeting of creditors;
- (ii) copies of such remuneration reports be posted on the website http://www.taylorwoodings.com.au/ in such form that they may be downloaded by any person obtaining access to that website; and
- (iii) the Plaintiffs deliver to any creditor, at his, her or its request, by post, facsimile transmission or e-mail, a copy of such remuneration reports.
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[1] [2011] VSC 260 (“Colorado”).
[2] Ibid, [28].
[3] Re Daisytek Australia Pty Ltd (2003) 21 ACLC 1140.
[5] [2012] VSC 310, [20].
[6] [2006] FCA 277; (2006) 56 ACSR 718.
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