Practical guidance on length of extensions

Re Bragu Pty Ltd (administrators apptd) [2023] WASC 388
How does a court determine the appropriate length of an extension to the convening period for a creditors’ meeting?

Overview

The Court has provided practical guidance on the appropriate length of an extension to the convening period for a second meeting of creditors in an administration. The administrators in this case sought a 3-month extension, but the Court concluded that a 45-day extension was appropriate. The Court found that a 3-month extension could not be justified in the circumstances - what appeared to be a modest administration of a single site brewery and restaurant. The Court also emphasised that requests for extensions of the convening period under s 439A are not simply available for the asking - there must be a strong evidentiary basis to justify the further time sought.

Background

The administrators of Bragu Pty Ltd (trading as Sound Brewing Co) - a brewery, taphouse and restaurant in Rockingham - brought an application seeking a 3-month extension to the convening period for the second meeting of creditors.

The administrators were appointed on 6 September 2023. At the time of the application to extend, they had begun seeking expressions of interest for the business, and 16 had been received. The administrators indicated they needed additional time to gather all offers, evaluate those offers and negotiate with interested parties. The due diligence process was not yet complete and site attendances had not yet been undertaken. The administrators also indicated that they had sought legal advice regarding an issue concerning the lease of the company’s premises.

The administrators argued that a 3-month extension was warranted to allow a fulsome and accurate report to creditors to be prepared, to enable the administrators to seek to conclude the sale of the business as a going concern, and to permit the business to continue to trade, which will assist with the potential sale of the business or assets to maximise the return to creditors.

The Court’s Decision

Justice Lundberg ultimately granted a 45-day extension, finding that a 3-month extension could not be justified in the circumstances.

Applications under s 439A of the Corporations Act 2001 to extend convening periods, particularly in large administrations or those involving corporate groups with significant trading operations, have become more commonplace. It is recognised that the time period prescribed by s 439A(5) will often not be sufficient to enable the administrators to perform the necessary tasks required before the second meeting of creditors is required to be held.

Generally speaking, courts will grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors.

In making an order to extend, the Court must reach an appropriate balance between an expectation that the administration will be relatively speedy and summary, and the countervailing factor that undue speed should not be allowed to prejudice sensible and constructive actions directed to maximising a return for creditors.

The court typically gives weight to the opinion of the appointed administrators. However, requests for extensions of the convening period under s 439A are not simply available for the asking. Administrators are required to adduce sufficiently detailed factual information to ensure the court has a thorough understanding of the administration and the work which has been undertaken, as well as the future work which is proposed to be undertaken (and why it is needed). This is unquestionably important in the context of an ex parte application (as this application was).

Here, Justice Lundberg found that the extension sought was a relatively lengthy period for what appears to be a modest administration of a single site brewery and restaurant in Rockhingham, a “far cry” from the businesses under consideration in other cases where longer extensions were justified.

Justice Lundberg also emphasised that the evidence adduced by the administrators provided the court with “very limited information about the administration to date, and other than conclusionary statements, does not adequately explain in the necessary detail why a further three months is required to hold the second creditors’ meeting”.

On the other hand, Justice Lundberg recognised the need for the administrators to have sufficient time to further progress the administration to complete the sale process, and accepted that this is in the interests of creditors as a whole. Balancing these considerations, Justice Lundberg concluded that a 45-day extension was appropriate.

Conclusion

Administrators should take heed of Justice Lundberg’s comments that extensions of the convening period are not simply available for the asking, and ensure that any application for an extension is supported by a full evidentiary record. Based on this decision, applications for lengthy extensions must be justified by more than conclusionary statements that the administrators need more time to conclude a sale.

Judge: Lundberg J

Counsel for the Administrators: Mr S D Ayres

Solicitors for the Administrators: Hale Legal