Extensions of time limits for scheduling creditors’ meetings

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12 August 2011

In the recent Federal Court case of Duncan, in the matter of Megafert Pty Ltd (Administrators Appointed) [2011] FCA 785 the administrators sought to extend the time within which to hold a second meeting of creditors on the basis that further investigations were necessary before an accurate report about the company could be provided.

SECOND MEETING OF CREDITORS

The ultimate fate of a company in administration is determined at the second creditors meeting, which must be held within five business days before or after the end of the convening period (ie, the period of 20 business days from the first business day after the administrators were appointed). 

It is a requirement, under the Corporations Act 2001 (Cth), that appointed administrators give an accurate report at these meetings about the state of the company. 

The second creditors’ meeting may be adjourned but not for a period exceeding 45 business days. The administrators can also apply to the court for an extension of time with in which to convene the second meeting. 

Relevant facts

In this case, two related companies with common directors, Megafert Pty Ltd and Interfert Pty Ltd, were involved in the import and resale of fertiliser.  The directors placed both into voluntary administration.   

Prior to convening the second creditors meeting, the administrators formed the view that, although the administrations were not particularly large or complex, further investigations were necessary to conduct valuations of company assets, determine accounts receivable and liabilities, finalise company accounts, ascertain the existence of any claims and see whether a DOCA would be proposed by a third party.  The administrators formed the view that they could not provide an accurate report about the company without completing these investigations.

Decision

Justice Besanko of the Federal Court allowed a three month extension and made the following points: 

  • An administrator plays an important role in providing information to the creditors so that they can make a fully informed decision about what should happen to the company.
  • The time limits for scheduling creditors’ meetings may be extended by the Court in a great variety of circumstances and there is no presumption against extending the convening period provided good or sound reasons are advanced.
  • Sound reasons for undertaking further investigations include the need to complete valuations of company assets, determine accounts receivable and liabilities, the finalisation of company accounts and ascertaining the existence of any claims.
  • If there is a DOCA proposal pending, then “it is desirable that the creditors have the opportunity to consider a [DOCA] if there is a realistic possibility of one being proposed”. 
  • Simply convening then adjourning the second creditors’ meeting would incur unnecessary cost and expense.

Conclusion

This case is a straightforward but useful reminder to administrators that they should turn their minds to whether the voluntary administration process can properly occur within the 5 week statutory time period, or whether they should make a formal application to extend the convening period. 

If, due to no fault of the administrator, the administrator is unable to provide information to creditors so that they can make a fully informed decision about what should happen to the company, the Court is likely to permit an extension within which to hold the second meeting of creditors.

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