Introduction

Australian insolvency practitioners have long considered that the Court will take a liberal approach to granting an extension to the period in which the second meeting of creditors must be convened under section 439A(6) of the Corporations Act 2001 (Cth) (the Act). Indeed, there is ample case law where courts have granted extensions to the convening period, with some extensions even being granted “on the papers”. Out of the 30 judgments published since the beginning of 2022 in respect of applications made to the Federal Court under section 439A(6) of the Act, in only one application has the Court declined to extend the convening period.

The decision in Frisken, Xpress Transport Solutions Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) [2023] FCA 448 (Frisken) provides insolvency practitioners with a timely reminder that the Court will not just “rubber stamp” an application to extend the convening period in all circumstances and will not exercise its powers under section 439A(6) lightly.

Extensions to convening period

This Court has jurisdiction to make orders providing for an extension to the convening period under section 439A(6) and 447A of the Act. 

When considering an application to extend the convening period, Courts have recognised the need to balance competing considerations that arise from:

1. the expectation that an administration will be conducted in a relatively “speed and summary matter (see, e.g., Strawbridge, in the matter of Virgin Australia Holdings Ltd (Administrators Appointed) (No 2) [2020] FCA 717 (Virgin No 2) at [64] (Middleton J).  Typically, a voluntary administration lasts 25 to 30 business days; and
2. the need to fulfil the overall object of Part 5.3A of the Act, as described in s 435A, to maximise the chances of the company, or as much as possible of its business, continuing in existence, or achieving a better result for creditors and shareholders than an immediate winding up.

Factors relevant to granting an extension

In Re Riv­iera Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (2009) 72 ACSR 352, Austin J summarised the overlapping factors the Court will take into account when deciding on applications for an extension to the convening period.  These include:

1. the size and scope of the business;
2. substantial offshore activities;
3. complex corporate group structure and intercompany loans;
4. time needed to execute an orderly process of disposal of assets;
5. time needed for thorough assessment of a proposal for a deed of company arrangement;
6. where the extension will allow the sale of the business as a going concern; and
7. more generally, where additional time is likely to enhance the return for unsecured creditors.

Section 439A(8) provides that if the application for an extension is made after the convening period, the Court may only extend the convening period if it is satisfied that the extension would be in the best interests of the creditors.

The Frisken Decision

Background

In the case of Friskin, an application was brought by Mr Frisken and six related companies (Companies) of which he was appointed voluntary administrator (Administrator) for an order under section 439A(6) of the Act to extend the convening period for the second meeting of creditors by approximately six months.

Prior to the appointment of the Administrator on 4 April 2023, Receivers and Managers (Receivers) were appointed by the Companies’ secured creditor.

The Administrator first communicated to the Court his intention to seek an extension to the convening period for a period of six months when the application was lodged on 9 May 2023. In the absence of an extension, the time to convene the second meeting of creditors would otherwise expire on 11 May 2023.

Administrator’s application to extend convening period

Broadly, the Administrator’s view was that a six-month extension to the convening period was required and would be in the best interests of the creditors of the Companies, on the basis that the extension would:

• allow for the administration to be conducted in a thorough and orderly fashion;
• permit the receivership to continue, with a clearer position likely to emerge as to the approach to be taken by the Receivers;
• allow sufficient time for the director of the Companies, or a third party, to put forward a DOCA; and
• allow for further investigations which were said to be required in order properly to provide a complete report to creditors on the future of the Companies.

Federal Court’s decision:  no extension granted

Cheeseman J dismissed the application for a six-month extension to the convening period, citing the following reasons:

1. the director’s DOCA proposal remained highly generalised and was not supported by documentary evidence;
2. an extension of six months was a significant extension; and
3. while the Receivers did not oppose the Administrator’s application, the Receivers took the view that it was unclear whether the proposed six-month extension would be of benefit to creditors in circumstances where the businesses had been wound down and the DOCA proposal seemed highly speculative. Her Honour agreed with this view.

Cheeseman J was also critical of the manner in which the application was brought:

[27] … To bring the application so late and on such short notice unnecessarily and unfairly undermines the opportunity afforded to stakeholders to seek to oppose the application when they choose to do so. It deprives the Court of the benefit of a properly prepared and instructed contradictor when approaching the balancing task it is required to undertake on an application such as this.

The Frisken decision: Balancing Urgency and Procedural Fairness

The Frisken decision is a timely reminder that routine administrator applications of this kind are not just ‘rubber stamped’ by the Courts, and that the onus is on administrators to demonstrate that an extension of time to the convening period is necessary in the circumstances and will not prejudice creditors.

Cheeseman J was particularly critical of the lateness of the Administrator’s application and the short notice given to creditors (two days before the convening period was set to expire).  Whilst applications to extend the convening period are often done on an urgent or truncated basis, the Courts are not willing to forgo the principle of procedural fairness and, therefore, adequate notice of the application should always be given to creditors.  Practically speaking, it makes sense for administrators to leave some time between the hearing by a Court in relation to a convening period extension and the end of the convening period so that, if the application is not successful, they have ample time to write and finalise their report to creditors.

Authors: Peter Bowden, Becci Cartoon and Sashin Garber