RE COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED); EX PARTE JEREMY NIPPS AND THOMAS BIRCH IN THEIR CAPACITIES as joint and several administrators of COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED) [2024] WASC 407 (4 November 2024)

Last Updated: 4 November 2024

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : RE COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED); EX PARTE JEREMY NIPPS AND THOMAS BIRCH IN THEIR CAPACITIES as joint and several administrators of COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED)
[2024] WASC 407

CORAM : HILL J

HEARD : 23 OCTOBER 2024

DELIVERED : 23 OCTOBER 2024

PUBLISHED : 4 NOVEMBER 2024

FILE NO/S : COR 160 of 2024

MATTER : IN THE MATTER OF COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED)

EX PARTE

JEREMY NIPPS AND THOMAS BIRCH IN THEIR CAPACITIES as joint and several administrators of COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED)

First Plaintiff

COCOS ISLANDS CO-OPERATIVE SOCIETY LIMITED (ADMINISTRATORS APPOINTED)

Second Plaintiff

Corporations - External administration - Co-operative registered in West Australia under Co-operatives Act 2009 (WA) - Application of pt 5.3A Corporations Act 2001 (Cth) to a co-operative - Whether operation of Pt 5.3A should be modified in relation to the administration of a co-operative - Whether provisions of Insolvency Practice Schedule and Insolvency Practice Rules should apply to administration of co-operative - Order made under Corporations Act 2001 (Cth) s 447A

Corporations - External administration - Application by administrators to extend convening period for second creditors' meeting - Whether modification in the interests of creditors as a whole - Whether interests of any persons prejudiced by modification are protected by terms of orders - Turns on own facts

Jurisdiction - External territory - Application of the laws of Western Australia to Cocos (Keeling) Islands under Cocos (Keeling) Islands Act 1955 (Cth)

Legislation:

Cocos (Keeling) Islands Act 1955 (Cth) s 7A, s 8A

Co-operatives Act 2009 (WA) s 323
Co-operatives Amendment Act 2016 (WA)

Corporations Act 2001 (Cth) s 435A, pt 5.3A

Result:

Application granted
Orders made under s 447A of the Corporations Act 2001

Category: B


Representation:

Counsel:

First Plaintiff	:	R M Johnson
Second Plaintiff	:	R M Johnson

Solicitors:

First Plaintiff	:	Ashurst
Second Plaintiff	:	Ashurst

Cases referred to in decision:

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript to include references, headings and to correct matters of grammar and expression.)

1. By originating process filed 21 October 2024, the plaintiffs seek orders extending the convening period of the second creditors' meeting of the second plaintiff (the Co-operative) until 23 April 2025. Unless an extension is granted by the court, the meeting is required to be convened by 23 October 2024, with a second creditors' meeting to be held by no later than 30 October 2024.[1]
2. Orders are also sought under s 447A of the Corporations Act 2001 (Cth) (Act) in relation to the application of a number of provisions of the Insolvency Practice Schedule (Corporations) (sch 2 to the Act) (IPS) and the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR) to the administration of the Co-operative.
3. At the hearing before me today, the plaintiffs relied on an affidavit of the first-named first plaintiff, Jeremy Joseph Nipps, filed 21 October 2024. I have also had very significant assistance from the outline of submissions that was filed by the plaintiff on 22 October 2024.

Factual background

4. The factual background to this application can be briefly summarised as follows.
5. The Co-operative is incorporated and domiciled in the Cocos (Keeling) Islands (the Islands), which is a territory of Australia. Pursuant to s 7A and 8A of the Cocos (Keeling) Islands Act 1955 (Cth), the laws of Western Australia apply to the Islands as if they were part of Western Australia.
6. The Co-operative is registered pursuant to the Co-operatives Act 2009 (WA) (Co-operatives Act).[2] The Co-operatives Act was amended by the Co-operatives Amendment Act 2016 (WA) to align the laws in Western Australia with the Co-operatives National Law. I accept that, pursuant to s 323 of the Co-operatives Act, pt 5.3A of the Act applies to the Co-operative.
7. The Co-operative is owned by the Cocos Malay Muslim community members of the Islands and provides a number of essential services to the inhabitants of the Islands, including accommodation, hospitality, and retail services including the supermarket, as well as the only ferry service between the Islands. It is also the largest employer on the Islands.[3]
8. On 25 September 2024, the first plaintiffs (Administrators) were appointed as joint and several administrators of the Co-operative, pursuant to a resolution of directors under s 436A of the Act.[4]
9. Based on the investigations of the Administrators to date, their preliminary understanding is that the Co-operative's outstanding debt is more than $4 million, which comprises:[5]

(a) the claims of 74 employee creditors, who are owed almost $1 million;
(b) trade creditors and suppliers, who are owed more than $1.5 million; and
(c) the Australian Taxation Office, who is owed approximately $1.8 million.

10. The administrators have noted that this preliminary assessment may not be accurate, that it does not include the outstanding wages and long service leave claims that are owed to employees, and is subject to change.[6] This is largely because of the lack of available information, books and records relating to the business and financial affairs of the Co-operative, which has hampered the Administrators' ability to accurately assess its financial position.[7]
11. Mr Nipps' evidence is that the lack of accessible documentation is largely attributable to the fact that the Co-operative's business and financial affairs were almost exclusively managed and run by its general manager from the time of his employment in or about October 2009, to the time of his sudden death in September 2024.[8] This has been corroborated in discussions with the other directors of the Co‑operative who, Mr Nipps believes, largely deferred to the general manager and did not have direct access to the books and records of the Co-operative.[9]
12. At this stage, the Administrators have not called for the formal proofs of debt, nor have they adjudicated on any proofs of debt or claims. Based on their investigations to date, the Administrators seek to maintain the status quo so that further investigations can be undertaken, as well as to preserve options for a restructure or sale, including by way of a deed of company arrangement (DOCA).[10]
13. The Administrators' evidence is that they intend to run a restructure or sale process once the assets and business operations of the Co-operative have been properly valued and investigations have sufficiently progressed. While neither of these processes has yet commenced, Mr Nipps' evidence is that the Administrators have already received some inquiries from third parties who may be interested in taking on some of the Co-operative's services and/or assets. At this preliminary stage, and for that reason, the Administrators are unable to provide a definitive timeframe as to the sale process. On this basis, they seek an extension of 6 months until 23 April 2025, with liberty to apply should further time be required.[11]

Should an extension of time to convene the second creditors' meeting be granted?

14. There is no question that the court has power to grant the extension sought under s 439A(6) of the Act.[12]
15. In determining the application, it is necessary for the court to consider the objects and scheme of pt 5.3A of the Act. These objects (which are set out in s 435A of the Act) are to maximise the chances of the company or as much as possible of its business continuing in existence or, if this is not possible, for the administration to be done in a way so as to result in a better return for the company's creditors and members than would result from an immediate winding up.
16. In reaching its decision, the court must maintain an appropriate balance between the expectation that administration will be undertaken in a relatively speedy and summary manner with a need to ensure that the administration is not concluded without consideration of sensible and constructive options directed towards maximising the returns for creditors and any return that is possible for shareholders.[13]
17. The court must also take into account the possible detriment to third parties (if any), including the suspension of rights and remedies of secured creditors, lessors, and others.[14] In this regard, I specifically note that creditors' interests can be prejudiced not only by delay, but also by the premature convening of meetings. Instances where creditors have been prejudiced include where an administrator has been unable to obtain adequate information for the preparation of an administrator's report in a form enabling creditors to make an informed decision.[15]
18. In Mighty River International Limited v Hughes, Nettle and Gordon JJ stated that the court will generally exercise its discretion to extend the convening period where one or more of the established categories are raised, where there is no evidence of material prejudice to those affected by the extension of time, and the court is satisfied that the administrator's estimate of time required has a reasonable basis.[16]
19. The relevant established categories include:

(a) whether the convening period allows enough time for the administrator to produce a satisfactory report;
(b) where there is a need to extend the administration period to facilitate the sale of the business of the company as a going concern or to progress and assess a DOCA proposal;
(c) the complexity of the administration;
(d) whether creditors support the extension;
(e) the administrator's own opinion as to the need for an extension, particularly where the administration is complex; and
(f) more generally, where additional time is likely to enhance the return for unsecured creditors.

20. The evidence of Mr Nipps, which I accept, is that further time is needed to properly investigate the financial status of the Co-operative, as well as to progress proposals for a restructure or sale, including the possibility of a DOCA. His evidence is that, at this stage, the Administrators believe a restructure or sale process will maximise the chances of achieving the best outcome for all stakeholders of the Co‑operative. On this basis, his opinion is that there is insufficient time at present to prepare a creditors' report before the end of the convening period, or for sufficient discussions and proposals to be had with third parties.[17]
21. Mr Nipps' opinion is that a restructure or sale process is likely to produce a better outcome for creditors than liquidation, and that an extension of approximately 6 months is required, with liberty to apply.[18]
22. The Administrators gave notice at the first creditors' meeting of their intention to seek orders for the extension of the convening period.[19] Notice has also been given to community members of the Islands, contract counterparties of the Co-operative, and the Indian Ocean Territories' administrator. No one has objected to the proposed extension or appeared at the hearing today to oppose the application.[20]
23. For the following reasons, I am satisfied that it is appropriate to grant the application for an extension of the convening period, and that the proposed Daisytek order should be made.[21]
24. First, Mr Nipps' evidence, which I accept, is that further time is required to prepare a report to creditors which contains a considered recommendation. I accept that without an extension, the Administrators will not be in a position to provide an informed recommendation, given that the proposed sale or restructure process has not yet started and investigations have not yet been completed.
25. Second, I accept the administration is complex for a number of reasons, including its structure as a co-operative, the essential role the Co‑operative plays in providing services to the Islands, and the relative isolation of the Islands, even when compared with Western Australia.
26. Third, I accept that the convening period is required to be extended in order to facilitate the sale or restructure of the Co-operative or its assets, or to enable a DOCA to be proposed and negotiated. Both of these matters are consistent with the purposes and objects of pt 5.3A of the Act.
27. Fourth, the Administrators' opinion is that an extension of time is required for a period of approximately six months. On the basis of the evidence before me, I am satisfied there is a reasonable basis for this time period.
28. Fifth, the orders sought require the Administrators to give notice of the orders made to all creditors and to the Australian Securities and Investments Commission, with leave for parties with sufficient interest to apply to vary the orders upon three business days' written notice. In my view, this is the appropriate order.
29. Finally, no creditor (or any other relevant party) has raised any opposition to the proposed extension. I am satisfied on all of the evidence before me that the return to creditors is likely to be significantly enhanced through the granting of the extension and enabling the Administrators to undertake further investigations. In my view, the potential benefit of the extension outweighs any prejudice to creditors and is in the best interests of creditors of the Co-operative as a whole.

Should orders be made under s 447A of the Act in relation to the application of the IPS and IPR?

30. The plaintiffs also seek orders pursuant to s 447A of the Act to modify the operation of pt 5.3A of the Act so that certain provisions of the IPS and the IPR will apply to the administration.
31. These orders are required because the Co-operatives Act (and the Co‑operatives Amendment Act 2016 (WA)) do not expressly refer to the IPS or the IPR as applying to co-operatives.
32. The issues raised by this aspect of the application have been helpfully previously considered by Black J and analysed by Gleeson J of the New South Wales Supreme Court in respect of the equivalent New South Wales legislation[22] in Re University Co-operative Bookshop Ltd[23] and Re University Co-operative Bookshop Ltd (admins apptd) (No 2).[24] I accept and agree with the analysis and the reasons given by their Honours that:

(a) where a part of the Act that would have applied under the Co‑operatives National Law has been repealed and then re-enacted as part of the IPS or IPR, the savings provisions in cl 6 of sch 4 of the Co-operatives National Law apply. In respect of these provisions, it is not necessary to seek orders under s 90-15 of the Act because, as a matter of law, these provisions apply to the administration of the co-operative; and
(b) it is appropriate, pursuant to s 447A of the Act, to modify the operation of pt 5.3A of the Act in relation to the administration of a co-operative to enable other provisions of the IPS and IPR to apply.

33. I note that this analysis has been accepted and applied subsequently by both Black J in subsequent decisions in the New South Wales Supreme Court,[25] as well by McWilliam AJ as in the Supreme Court of the Australian Capital Territory.[26]
34. The Administrators submitted that, for the following reasons, the orders sought pursuant to s 447A of the Act should be made:

(a) the orders would ensure that the administrators and creditors of the Co-operative would have the benefit of the rights and obligations conferred by the IPS and the IPR;
(b) the orders would avoid any uncertainty or inconsistency that might otherwise arise from the application of the repealed or unmodified provisions of the Act or Corporations Regulations 2001 (Cth) to the Co-operative, which may not reflect the current policy and practice of external administration, and which may create difficulties or disadvantages for the Administrators and the creditors of the Co-operative;
(c) the orders are not contrary to the purpose or object of the Co‑operatives Act;
(d) the orders do not affect any vested rights or interests of any parties, as the IPS and the IPR only regulate the processes and procedures for external administration. The IPS and IPR do not alter the substantive rights or liabilities of the Co-operative, its members, or creditors; and
(e) the orders do not prejudice any parties, as the IPS and the IPR are designed to enhance transparency, accountability and efficiency of external administration, and to facilitate the participation and involvement of creditors and other stakeholders in the administration process.

35. I accept these submissions and agree that, in the circumstances of this case, it is appropriate to make the orders sought.

Costs and other orders

36. Finally, the plaintiffs seek orders for notice to be given to creditors of these orders, with liberty to apply to set aside the orders, and for the costs of the originating process to be costs in the voluntary administration of the Co-operative. In my view, it is also appropriate to make these orders.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

KC
Associate to the Honourable Justice Hill

4 NOVEMBER 2024

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[1] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [52].
[2] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [16], 'JJN-5'.
[3] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [18].
[4] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [12] - [13], 'JJN-3'.
[5] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [25] - [28], 'JJN-9'.
[6] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [25].
[7] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [29].
[8] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [30] - [31].
[9] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [31] - [36].
[10] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [40], [44], [55(a)].
[11] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [48] - [50].
[12] Including where the application is made during, or after the period referred to in s 439A(5)(a) of s 439A(5)(b) of the Act (or as the case requires).
[13] Tucker (Administrator) v Bolten (Trustee), in the matter of Quintis Leasing Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 46 [54] (Banks-Smith J), citing Barrett J in Diamond Press Australia Limited [2001] NSWSC 313 [10].
[14] Shaw and Albarran (Joint and Several Administrators of Home Art Building Group Pty Ltd) v Home Art Building Group Pty Ltd (Administrators Appointed) [2016] WASC 274 [18] (Beech J).
[15] Re Harrisons Pharmacy Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] FCA 458 [13] (Farrell J).
[16] Mighty River International Limited v Hughes [2018] HCA 38 [73].
[17] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [54] - [55].
[18] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [51], [54].
[19] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [41] - [42].
[20] Affidavit of Jeremy Joseph Nipps filed 21 October 2024 [60].
[21] Re Daisytek Australia Pty Ltd (Administrators Appointed) [2003] FCA 768.
[22] Co-operations (Adoption of National Law) Act 2012 (NSW).
[23] Re University Co-operative Bookshop Ltd [2019] NSWSC 1898.
[24] Re University Co-operative Bookshop Ltd (admins apptd) (No 2) [2020] NSWSC 97.
[25] Re Australian Wine Consumers Co-Operative Society Ltd (t/as The Wine Society) (administrator appointed) [2020] NSWSC 1437 [4] - [6]; Re Order of AHEPA NSW Inc [2020] NSWSC 1626 [24].
[26] Re National Health Co-operative Ltd (admins apptd) [2021] ACTSC 206 [67].