NYLEX (NEW ZEALAND) LIMITED (ADMINISTRATORS APPOINTED AND IN RECEIVERSHIP) AND ANOR HC AK CIV 2009-404-1217 [2009] NZHC 291 (10 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                            CIV 2009-404-1217

             UNDER                    section 239AT of the Companies Act 1993,
                                      Part 15A of
the Companies Act 1993 and
                                      Part 19 of the High Court Rules

             IN THE MATTER OF 
       an application under s 239AT of the
                                      Companies Act 1993 for an order extending
     
                                the convening period by which the
                                      administrators must convene
the watershed
                                      meeting

                                      NYLEX (NEW ZEALAND) LIMITED
 
                                    (ADMINISTRATORS APPOINTED AND
                                      IN RECEIVERSHIP)

      
                               NYLEX ENGINEERING SYSTEMS
                                      LIMITED (ADMINISTRATORS
         
                            APPOINTED AND IN RECEIVERSHIP)



Hearing:     (on the papers)

Counsel:     B Gustafson and M Broad
for Applicants

Judgment:    10 March 2009

Reasons:     11 March 2009


                 REASONS FOR JUDGMENT OF HEATH J




Solicitors:
Kensington Swan, Private Bag 92101, Auckland

NYLEX (NEW ZEALAND) LIMITED (ADMINISTRATORS APPOINTED AND IN RECEIVERSHIP) AND
ANOR
HC AK CIV 2009-404-1217 10 March 2009

Application and disposition


[1]    Part 15A of the Companies Act 1993 (the Act) introduced,
as from 1
November 2007, a voluntary administration regime in New Zealand. The voluntary
administration procedure is designed to
assist companies in financial distress to
maximise returns to creditors.


[2]    Nylex (New Zealand) Ltd (Nylex NZ) and Nylex (Engineering
Systems) Ltd
(Nylex Engineering) were each placed in voluntary administration on 11 February
2009. The statute requires that a "watershed
meeting" be convened within 20 days
after the date on which the Administrator is appointed: s 239AT(2). On 9 March
2009, the Administrators
of each company applied to extend the convening period.


[3]    On 10 March 2009 I granted the application and made the following
orders:

               (a) An order under s 239AT(3) of the Companies Act 1993 that the
                   convening period in the
administration of Nylex (New Zealand)
                   Ltd (Administrators Appointed and in Receivership) defined in
         
         s 239AT(2) of the Companies Act 1993 be extended to 31 July
                   2009.

               (b) An order under
s 239AT(3) of the Companies Act 1993 that the
                   convening period in the administration of Nylex Engineering
   
               Systems Ltd (Administrators Appointed and in Receivership)
                   defined in s 239AT(2) of the Companies
Act 1993 be extended
                   to 31 July 2009.

               (c) An order that leave to apply be granted to any person
who can
                   demonstrate a sufficient interest to modify or discharge either
                   the above orders upon
appropriate notice being given to the
                   applicants.

               (d) An order that the costs and disbursements
of this application be
                   paid out of the assets of Nylex (New Zealand) Ltd
                   (Administrators Appointed
and in Receivership).

               (e) The administrators of both Nylex (New Zealand) Ltd
                   (Administrators Appointed
and in Receivership) and Nylex
                   Engineering Systems Ltd (Administrators Appointed and in
                   Receivership)
shall advertise the order extending time to
                   convene each watershed meeting in The New Zealand Herald,
       
           The Dominion Post, Christchurch Press and Otago Daily Times
                   newspapers within seven days of the date
of this order.

I also reserved leave to the Administrators to apply further, in respect of any
ancillary issues arising out of the orders made. Any application
should be directed
for my attention.


[4]    These are my reasons for making those orders.


Background


[5]    Mr Meltzer and
Mr Lamacraft were appointed as Administrators of Nylex NZ
and Nylex Engineering, by resolution of directors of the respective companies,
dated
11 February 2009. Earlier that day, ANZ Fiduciary Services Pty Ltd, on behalf of a
syndicate of secured lenders, appointed
receivers to each company. Section 239AD
of the Act provides that the subsequent appointment of an Administrator to a
company in
receivership does not operate to remove the receiver from office.


[6]    The appointment of Administrators of Nylex NZ and Nylex
Engineering
followed appointments, earlier in the day, of Administrators to parent and related
companies in Australia; including
Nylex Ltd a public company listed on the
Australian Stock Exchange.       Subsequent to the appointment of the Australian
Administrators
to companies within the Nylex Group, secured creditors appointed
receivers and managers over a number of Australian companies within
the Nylex
Group that had been placed in voluntary administration. Mr Lamacraft deposed that
secured lenders did not have security
over all of the Nylex Group companies.


[7]    Nylex NZ is based in Auckland. Its business involves the distribution of
consumer
products. The company has 14 employees. The products include Nylex
garden hoses, garden watering equipment and fittings. The various
Nylex products
are manufactured in Australia.


[8]    Subsequent to appointment of the Australian Administrators, it appears that
only three companies are actively trading: Nylex Ltd, Nylex Corporation Pty Ltd and
Nylex Industrial Products Pty Ltd.     Nylex
NZ continues to trade, while Nylex
Engineering is dormant.

The New Zealand administrations


[9]    The first meeting of creditors
of Nylex NZ and Nylex Engineering were held
on 24 February 2009, in accordance with s 239AN of the Act. The appointment of
Mr Meltzer
and Mr Lamacraft, as Administrators, was confirmed at those meetings.


[10]   The Act requires an Administrator to call a "watershed
meeting": s 239AT.
The term "watershed meeting" is defined by s 239B of the Act as follows:

       239B Interpretation of some key
terms

       ...

       watershed meeting means the creditors' meeting called by the administrator
       to decide the future
of the company and, in particular, whether the company
       and the deed administrator should execute a deed of company arrangement.

[11]   A watershed meeting must be held within five working days after the end of
the convening period or any extended convening
period. The term "convening
period" is defined in s 239AT(2). The whole of s 239AT is relevant to the present
application:

    
  239AT    Administrator must convene watershed meeting

       (1)   The administrator must convene the watershed meeting within
the
       convening period.

       (2) The convening period is the period of 20 working days after the date on
       which the
administrator is appointed, and includes any period for which it is
       extended under subsection (3).

       (3)     The Court
may, on the administrator's application, extend the
       convening period.

       (4) The application to extend may be made before
or after the convening
       period has expired.

[12]   Although counsel for the Administrators, in a memorandum in support of
the
without notice application, suggested that the administration would come to an end if
an order were not made before the "convening
period" expired, I do not interpret the
Act as contemplating such an abrupt termination. Section 239E(2)(c) refers to the
administration
ending at a time when the "application [to extend the convening

period] is refused or otherwise disposed of without the convening
period being
extended". Because s 239AT(4) contemplates an application to extend being made
"before or after the convening period has expired", the administration does not come
to an end if no extension order were made before the period of 20 working days
expires.


Analysis


[13]   The s 239AT(3) discretion
to extend time to convene a watershed meeting is
expressed in unfettered terms. However, I consider that it must be exercised having
regard to the purposes of the voluntary administration regime and the duties cast
upon an Administrator. The Court must also be mindful
that applications of this type
will, necessarily, be made without notice. Accordingly, there is a duty on the Court
to scrutinise
any application carefully.


[14]   The objects of the voluntary administration regime are set out in s 239A of
the Act:

      
239A    Objects of this Part

       The objects of this Part are to provide for the business, property, and affairs
       of an
insolvent company, or a company that may in the future become
       insolvent, to be administered in a way that--

       (a) maximises
the chances of the company, or as much as possible of its
       business, continuing in existence; or

       (b) if it is not possible
for the company or its business to continue in
       existence, results in a better return for the company's creditors and
    
  shareholders than would result from an immediate liquidation of the
       company.

[15]   An Administrator has private and public
functions cast upon him or her.
Section 239AE requires the Administrator "as soon as practicable after the
administration of a company
begins", to investigate the company's business,
property affairs and financial circumstances and to form an opinion about whether
it
would be in the creditors' interests for the company to execute a Deed of Company
Arrangement, to end the administration or to
appoint a liquidator. The Administrator
is also required to lodge a report with the Registrar of Companies specifying any

matter
that, in his or her opinion, should be brought to the Registrar's notice:
s 239AH. If the Administrator believes that there has been
misconduct, by a person
to whom s 239AI refers, that too must be reported, as soon as practicable, to the
Registrar.


[16]   A watershed
meeting must be convened by giving written notice to as many
of the company's creditors as is reasonably practicable and by advertising
the
meeting in accordance with s 3(1) of the Act: s 239AU(1). The Administrator is
required to forward to the creditors a report
about the company's business, property,
affairs and financial circumstances and any other matter material to the decisions to
be
made at that meeting. The Administrator must also advise the creditors of his or
her opinion (with reasons) about whether it is in
the interests of creditors for the
company to execute a Deed of Company Arrangement, for the administration to end
or for the company
to be placed in liquidation: sees 239AU(2).


[17]   In addition, various restrictions are placed on the ability of certain classes
of
creditors to enforce charges or judgments, to take possession of or otherwise recover
demised premises or to bring proceedings,
without the consent of the Administrator
or the Court: see ss 239ABC-239ABJ and Maxim Group Ltd v Jones Publishing Ltd
(High Court,
Auckland, CIV 2008-404-8179, 17 December 2008, Randerson J).
These provisions act as a moratorium on specified creditor actions,
pending a
decision at a watershed meeting.


[18]   It is clear from the strict time limits contained in the legislation and the
need
to keep a moratorium against the exercise of certain creditors' rights in place for the
least time practicable, that Courts
should take care in determining whether to grant
applications to extend the convening period.


[19]   There will be cases (though
this is not one) where such an application is only
made for the purpose of delay and extension of the moratorium. But, in a case
where
complexity reigns and an Administrator cannot, in the time prescribed, conduct a
proper investigation to form opinions to put to creditors at a watershed meeting,
it is
appropriate (and indeed necessary) to extend the convening period so that the

Administrator can perform his or her functions
properly and creditors, at the
watershed meeting, can make informed decisions.


[20]   That approach is consistent with the view
taken in Australia: see Re Brash
Holdings Ltd (Administrator Appointed)  (1994) 13 ACSR 793, a decision of Hayne J
sitting in the Supreme Court of Victoria. A more recent illustration of the same
principle can be found in
Re Pan Pharmaceuticals [2003] NSWCA 131;  (2003) 21 ACLC 1,144, a
decision of Lindgren J, sitting in the Federal Court of Australia.


[21]   In the present case there is a need for additional
time to be given to the
Administrators because of the complex situation with which they are faced. Not
only do they need to establish
whether any free assets will be available to trade the
business and whether trading is a viable option, but they may also be faced
with
significant cross border issues arising out of the initiation of voluntary administration
procedures for parent and related
companies in Australia.


[22]   In those circumstances, as Barrett J suggested in Re Diamond Press Australia
Pty Ltd  [2001] NSWSC 313, an application to extend time requires a balance to be
struck between the expectation that an administration will be relatively
speedy and
the need to ensure that undue haste does not prejudice sensible and constructive
actions directed towards the object of
the regime, namely maximising returns for
creditors: at [10]. In this case, the balance falls clearly in favour of granting the
extension
application.


[23]   I add one final point. The draft order submitted contained no requirement to
advertise the orders or to notify
known creditors of them. For the order reserving
leave (to any person with a sufficient interest) to apply to modify or discharge
the
orders to be effective, I decided that notice must be given by advertisements
circulating in newspapers generally available in
New Zealand, albeit on a regional
basis in some cases.


[24]   In those circumstances, I made the orders set out in para [3] above
yesterday.

                                                    ____________________________
                                   
                                  P R Heath J