Extending the time to convene a second meeting of creditors

Judd J’s reasons for decision in respect of Sal Algeri, Timothy Bryce Norman and David John Frank Lombe in their capacity as joint and several administrators of Colorado Group Limited (Administrators Appointed) (Receivers and Managers Appointed) (ACN 004327 566) & Ors [2011] VSC 260 (the Application) were released 20 June 2011 (the Reasons).

Administrators as well as receivers and managers were appointed to Colorado Group Ltd and nine other companies within the group (the Group) on 30 March 2011.  Pursuant to section 439A(5) of the Corporations Act 2001 the administrators were required to convene a second meeting of creditors by 6 May 2011.  The Application was brought by the administrators to extend the time within which they must convene the second meeting of creditors.  The Application was supported by affidavits deposed to by one of the joint and several administrators, one of the joint and several receivers and managers and one of the solicitors for the administrators (the Affidavits).

The administrators were successful in the Application because the Affidavits set out, amongst other things, that:

  1. the affairs of the Group are complex and an extension is in the best interests of the creditors, including the employees and suppliers;

  2. the administrators were yet to receive statements from the directors of the Group’s business, property, affairs and financial circumstances; 

  3. the administrators intended to conduct further investigations into the affairs of the Group and that these investigations could not be completed by 6 May 2011;

  4. the administrators were unable to prepare and circulate a meaningful report to creditors that would comply with the requirements of the Act so as to enable the creditors to be adequately informed about the future options of the Group.  Furthermore, the preparation of the report in the absence of the completion of the sale process being conducted by the receivers and managers would be premature;

  5. the Group was profitable at certain periods, although its cash flow was insufficient to meet its interest commitments and principal repayments to senior lenders.  Accordingly, extending the convening period will facilitate the exploration of a possible recapitalisation of the Group by way of a deed of company arrangement;

  6. the Application was supported by the receivers and managers;

  7. the receivers and managers were carrying on the businesses and had commenced the sale process.  The receiver’s affidavit described the sale process and deposed that in his experience as a receiver and manager in relation to other similar sized retail groups that had collapsed, the sale process took up to nine months;

  8. the sale process may also promote a scheme of company arrangement.  The receiver deposed that an extension of the convening period would allow the receivers a better opportunity to preserve the businesses and obtain a more satisfactory outcome for creditors;

  9. whilst continuing to operate the businesses, the receivers and managers continued to acquire goods and services from suppliers who comprise a large part of the unsecured creditors;

  10. if the second creditors’ meeting was held without giving the receivers and managers the opportunity to complete the sale process it was likely that the companies would be wound up.  Accordingly, if the sale process is successful it is likely that many of the employees will continue in their employment;

  11. if the period was not extended by the court, the administrators would recommend that the meeting be adjourned until the sale was complete, which would result in expenditure and waste; and

  12. as at the date of appointment the receivers continued to pay all rent and outgoings for all occupied premises and the administrators had provided all landlords with copies of the originating process and the administrator’s affidavit.

Lavan Legal comment

The administrators’ Application was successful.  The time within which the administrators had to convene a second creditors meeting was extended nine months, a comparatively long period of time.  The Reasons provide a useful example of the circumstances in which an extension of time to convene a second creditors’ meeting will be permitted and the evidence that is required in support of such an application. 

Judd J makes it clear that in such an application the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders.

For more information, please contact:

Ms Alison Robertson  
(08) 9288 6872

Mr Joseph Abberton
Senior Associate
(08) 9288 6765


Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.