Creditor not Emused – injunction to restrain second meeting

In Re Emu Group Pty Ltd¹, Justice Rees of the Supreme Court of New South Wales considered an urgent application to restrain the administrators of Emu Group Pty Ltd (administrators appointed) (Emu Group) from holding the second meeting of creditors which was scheduled to take place in just one hour.

Background

Emu Group was the developer of a property situated on a strata title.  On 12 December 2018, the owners of the strata (Strata Owners) commenced proceedings against Emu Group for defective building work amounting to the sum of $4,235,802 (Claim). The Claim is the subject of separate proceedings, which were ongoing during the administration.² Relevantly, the Strata Owners had served extensive expert evidence in support of their Claim.

On 1 April 2020, voluntary administrators (Administrators) were appointed to Emu Group and on 28 April 2020, the Administrators requested that the Strata Owners submit a proof of debt to support the Claim.  If the Strata Owners’ proof of debt was accepted by the Administrators, then the Strata Owners would become the largest creditor of the Emu Group.³ 

In addition to submitting their proof of debt, supported by the expert evidence from the proceedings, the Strata Owners expressed a wish to remove the current Administrators and appoint fresh administrators to Emu Group.⁴

On 11 May 2020, the Administrators advised the Strata Owners that their proof of debt would only be admitted for $1 for voting purposes as their Claim remained the subject of unresolved proceedings.⁵

The day before the second meeting of creditors was scheduled to be held, the Strata Owners sought an urgent injunction to restrain the Administrators from conducting the second meeting of creditors of Emu Group.⁶

On affidavit, the Administrators deposed that it was inevitable that the creditors of Emu Group would resolve to wind up the company and appoint a liquidator⁷ and that the costs of reconvening the meeting would be thrown away, to the disadvantage of Emu Group’s creditors.

However, the Strata Owners continued to seek orders restraining the second creditors meeting on the basis that the Strata Owners’ resolution to replace the Administrators would inevitably fail if their proof was confined to $1. Additionally, the Strata Owners sought leave to proceed with the Claim proceedings so as to obtain judgment and quantify its proof in that way, indirectly giving effect to their proposed replacement of the Administrators.⁸

Her Honour affirmed the Court’s power to restrain the second meeting of creditors if considered appropriate, as observed by Justice White in IRM Home Loans v Superwoman Financial Solutions Group.⁹ Her Honour considered if there was a serious issue to be tried and whether the balance of convenience lay with the Strata Owners or the Administrators.

Decision

In dismissing the Strata Owners’ application, Her Honour, held that the balance of convenience lay with the Administrators because:¹⁰

• money would be wasted in having to reconvene the meeting;
• the Strata Owners could seek to replace the Administrators after the second meeting of creditors;
• no additional advantage would be gained by the Administrators in remaining as administrators until a delayed second meeting or being appointed as liquidators at the second meeting as scheduled; and
• if the Emu Group was likely to be wound up and a liquidator appointed, then appointment of a liquidator “should occur sooner rather than later”.

Lavan comment

The balance of convenience guides the Court in circumstances of urgency and competing interests.

Here, the evidence demonstrated their was no inconvenience (and therefore no prejudice) to the Strata Owners’ Claim by allowing the meeting to proceed, including their ability to later seek the replacement of the Administrators. This case turned on the evidence and bears in mind the overarching interest of creditors more broadly, including the creditor in question.