Court Declines To Extend Convening Period of Adminnistration

Overview

In Autodom Ltd (Administrators Appointed) (Receivers and Managers Appointed), in the matter of Autodom Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2012] FCA 1393, the Federal Court considered an application from Administrators to extend the convening period of an administration of a group of companies, in circumstances where there was strenuous opposition by certain creditors to the granting of such an extension.

Ultimately, the application was unsuccessful.

Background

The Administrators sought a four month extension to the convening period as they had encountered difficulties in collating essential information about the Group necessary to prepare the report to creditors and make recommendations to creditors at the second meeting of creditors.

The unions representing the employees of the Group opposed the extension on the basis that employees would be seriously disadvantaged until the group companies entered liquidation and access by employees to GEERS became available.

Extension of convening periods generally

As Justice McKerracher noted in his judgment, since the enactment of Part 5.3A of the Act there have been many applications for extensions. The overarching principle that the Courts have regard to when considering such applications is the balancing of the interests of creditors in a relatively speedy administration and the need to allow sufficient time to administrators to carry out their function and maximise the benefit to creditors through a proper administration.

Applications for extensions of the convening period are regularly successful. Perhaps the most notable example being the administration of ABC Learning Centres Limited where the Administrators applied to the Court on three separate occasions to have the convening period extended, resulting in the longest administration in Australian history.

Issues

In the present case, the Administrators found themselves in a struggle between the interests of particular creditors (the employees) and the carrying out of their statutory functions and duties.

On the basis of the information obtained during their investigations the Administrators could not form the view that the only option was to place the Group into liquidation. The Unions argued that any further delay in the administration of the Group would prejudice the employees as access to their entitlements under the GEERS scheme would be delayed.

Regarding these competing interests, the Administrators submitted that the employees were not the only creditor of the Group and the Administrators required the opportunity to form their own opinion as to what was in the best interests of the creditors as a whole, as required by the Act.

Decision

As to this dilemma faced by the Administrators, McKerracher J noted that was an unusual case, and there appeared to no precedent for extending the convening period in circumstances where there was "strenuous and apparently well-founded opposition".

The Court ultimately held there would be real prejudice to the employees of the Group in prolonging the administration, which outweighed the low degree of certainty of a better outcome being achieved by prolonging the administration as sought by the Administrators.

Conclusion

This decision provides helpful guidance to Administrators as to the circumstances in which the Court may decline to extend the convening period of an administration. Administrators should be mindful that such an application may be unsuccessful where there is opposition to the extension, and that opposition has a well-founded basis (particularly where employees are involved) which, on balance, may outweigh other considerations that Administrators are required to take into account during an administration.

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