Pub­li­ca­tions

Extend­ing a con­ven­ing peri­od before it expires — rel­e­vant principles


In Brief

The admin­is­tra­tor of a com­pa­ny under admin­is­tra­tion must con­vene a meet­ing of the company’s cred­i­tors with­in the con­ven­ing peri­od set out in sec­tion 439A(5) of the Cor­po­ra­tions Act 2001 (Cth) or as extend­ed by the Court under sec­tion 439A(6). The courts have shown a will­ing­ness to extend the con­ven­ing peri­od pro­vid­ed there is good rea­son for such an exten­sion and an appro­pri­ate bal­ance is struck between a swift admin­is­tra­tion and the max­imi­sa­tion of a return to cred­i­tors and shareholders.


One recent exam­ple of a deter­mi­na­tion of an appli­ca­tion to extend a con­ven­ing peri­od is the case of Kiju­ri­na (as Admin­is­tra­tor), in the mat­ter of IGEA Life Sci­ences Pty Ltd (Admin­is­tra­tors Appoint­ed) v IGEA Life Sci­ences Pty Ltd (Admin­is­tra­tors Appoint­ed) [2014] FCA 509. In that case, her Hon­our Far­rell J con­firmed that the prin­ci­ples rel­e­vant to an appli­ca­tion to extend the con­ven­ing peri­od under sec­tion 439A(6) are those sum­marised in Sil­via, in the mat­ter of Aust­corp Group Lim­it­ed (Admin­is­tra­tors Appoint­ed) [2009] FCA 636 (Aust­corp) at [18] by Lind­gren J and in Re Riv­iera Group Pty Ltd (admins apptd) (recs and mgrs apptd) (2009) 72 ACSR 352 (Riv­iera) at [13] by Austin J. In that regard, Far­rell J stated:

[18] …Jus­tice Austin iden­ti­fied a num­ber of jus­ti­fi­ca­tions for allow­ing an exten­sion of time, includ­ing that the time is required to allow the sale of the busi­ness as a going con­cern and that an exten­sion of time is like­ly to enhance the return for unse­cured creditors.

[19] In Aust­corp, Lind­gren J at [18] described the fac­tors which must be bal­anced in decid­ing whether or not to make an order extend­ing the con­ven­ing period:

…the func­tion of the court is to strike an appro­pri­ate bal­ance between the legislature’s expec­ta­tion that the admin­is­tra­tion will be a rel­a­tive­ly swift and sum­ma­ry pro­ce­dure, and the require­ment that undue speed should not be allowed to prej­u­dice sen­si­ble and con­struc­tive actions direct­ed towards max­imis­ing the return for cred­i­tors and any return for shareholders

It is use­ful to refer back to the full deci­sions in both Aust­corp and Riv­iera in con­sid­er­ing the any appli­ca­tion to extend a con­ven­ing peri­od pur­suant to sec­tion 439A(6) of the Cor­po­ra­tions Act.

Austcorp

In Aust­corp, at [18], Lind­gren J sum­marised the over­lap­ping con­sid­er­a­tions affect­ing the exer­cise of the dis­cre­tion whether to extend the con­ven­ing peri­od as fol­lows (cita­tions omitted):

  1. the Court should recog­nise the objec­tive of speed of admin­is­tra­tion that was asso­ci­at­ed with the intro­duc­tion of Part 5.3A by the Cor­po­rate Law Reform Act 1992 (Cth) as from 23 June 1993. The Court should also recog­nise the objec­tives stat­ed in para 507 of the explana­to­ry mem­o­ran­dum asso­ci­at­ed with the Bill for that Act, that it was expect­ed that the pow­er to extend the peri­od would be exer­cised infre­quent­ly since it is an impor­tant objec­tive of Part 5.3A that cred­i­tors be ful­ly informed about the company’s posi­tion as ear­ly as pos­si­ble and have an oppor­tu­ni­ty to vote on its future as soon as possible;
  2. the func­tion of the Court is to strike an appro­pri­ate bal­ance between the legislature’s expec­ta­tion that the admin­is­tra­tion will be a rel­a­tive­ly swift and sum­ma­ry pro­ce­dure, and the require­ment that undue speed should not be allowed to prej­u­dice sen­si­ble and con­struc­tive actions direct­ed towards max­imis­ing the return for cred­i­tors and any return for shareholders;
  3. the prospects of a bet­ter out­come for cred­i­tors through a longer peri­od of admin­is­tra­tion may out­weigh the gen­er­al expec­ta­tion of a prompt res­o­lu­tion of the administration;
  4. a par­tic­u­lar con­sid­er­a­tion against the too ready grant of an exten­sion is the fact that while the vol­un­tary admin­is­tra­tion con­tin­ues there is an embar­go or mora­to­ri­um on the enforce­ment of reme­dies by secured cred­i­tors, lessors and others;
  5. the appli­ca­tion is to be assessed by ref­er­ence to whether an exten­sion is nec­es­sary to enable the admin­is­tra­tors to pre­pare and pro­vide the report and state­ments, and, in par­tic­u­lar, to arrive at the opin­ion referred to in s 439A(4), in order to inform cred­i­tors ade­quate­ly so that they will be in a posi­tion to decide whether to ter­mi­nate the admin­is­tra­tion, exe­cute a deed of com­pa­ny arrange­ment or place the com­pa­ny in liquidation;
  6. it is often desir­able that any exten­sion be accom­pa­nied by an order under s 447A, per­mit­ting the meet­ing to be held at any time dur­ing the con­ven­ing peri­od as extended.

Help­ful­ly, Lind­gren J also iden­ti­fied cas­es where exten­sions of five months to ten months had been grant­ed and con­sid­ered such exten­sions to be lengthy exten­sions” (at [19]).

Riv­iera Group

In Riv­iera, at [13], Austin J grouped the rea­sons pre­vi­ous­ly giv­en by courts for an exten­sion into the fol­low­ing broad cat­e­gories (cita­tions omitted):

  • the size and scope of the business;
  • sub­stan­tial off­shore activities;
  • large num­ber of employ­ees with com­plex entitlements;
  • com­plex cor­po­rate group struc­ture and inter­com­pa­ny loans;
  • com­plex trans­ac­tions entered into by the com­pa­ny (e.g. secu­ri­ties lend­ing or deriv­a­tives transactions);
  • com­plex prospects of recov­ery proceedings;
  • lack of access to cor­po­rate finan­cial records;
  • the time need­ed to exe­cute an order­ly process of dis­pos­al of assets;
  • the time need­ed for thor­ough assess­ment of a pro­pos­al for a deed of com­pa­ny arrangement;
  • where the exten­sion will allow sale of the busi­ness as a going concern;
  • more gen­er­al­ly, that addi­tion­al time is like­ly to enhance the return for unse­cured creditors.

Austin J also said, at [14]:

The cas­es show that where a sub­stan­tial issue in any of these cat­e­gories is estab­lished (and a for­tiori, where the facts fit into more than one cat­e­go­ry), the court tends to grant an exten­sion, and the exten­sion tends to be for the time sought by the admin­is­tra­tor pro­vid­ed that the evi­den­tiary case has been prop­er­ly pre­pared, there is no evi­dence of mate­r­i­al prej­u­dice to those affect­ed by the mora­to­ri­um imposed by an admin­is­tra­tion, and the court is sat­is­fied that the administrator’s esti­mate of time has a rea­son­able basis.

The upshot

If it becomes appar­ent to an admin­is­tra­tor that an issue in one or more of those cat­e­gories referred to by Austin J in Riv­iera will neces­si­tate an exten­sion of the con­ven­ing peri­od pur­suant to sec­tion 439A(6), action should be tak­en quick­ly and dur­ing the peri­od pre­scribed by sec­tion 439A(5) to seek an extension.

The prepa­ra­tion for such an appli­ca­tion will invari­ably require a detailed affi­davit set­ting out the infor­ma­tion avail­able at the time to the admin­is­tra­tor about the company’s affairs, the steps tak­en and to be tak­en by the admin­is­tra­tor in the dis­charge of his or her oblig­a­tions under 439A(4) and gen­er­al­ly in advanc­ing the objects of Part 5.3A of the Cor­po­ra­tions Act. The affi­davit should include details of any of those issues iden­ti­fied in Riv­iera, togeth­er with fur­ther details of any prej­u­dice or ben­e­fit aris­ing from the exten­sion to, for exam­ple, employ­ees, lessors, secured cred­i­tors, unse­cured cred­i­tors and share­hold­ers. The atti­tude of those par­ties to the exten­sion should also be set out. 

With the prop­er evi­dence before the court, the rel­e­vant bal­anc­ing exer­cise can be under­tak­en and an appli­ca­tion for the exten­sion of a con­ven­ing peri­od can be a rel­a­tive­ly straight­for­ward process.