TGIF 25 March 2022 – Probuild update: Court extends convening period

In a recent decision of the Federal Court of Australia (Re WHBO Australia Pty Ltd [2022] FCA 234), Administrators of the Probuild group of companies (the Probuild Group) were granted a three-month extension for the convening period for the second meeting of Creditors largely due to the ‘size and complexity’ of the companies involved.

Key Takeaways

• A court will more readily allow a significant extension to a convening period where it is justified by the size and complexity of the business and/or transactions, the benefit to creditors and the preservation of existing relationships within the business.
  
  
• When applying for an extension to a convening period, administrators must be able to explain why the extension is necessary and in the best interests of affected parties, especially creditors.
  
  
• Although the courts encourage the efficient administration of companies, they will not compel a speedy resolution where this would unnecessarily incur cost and inconvenience to the administrators and creditors.

Background

In February 2022, the Probuild Group was placed in administration after its South African parent company decided to withdraw its financial support. At the time, the Probuild Group had approximately 26 major construction and development projects and contracts underway across Australia. It is presently one of the most sizeable and complex administrations in Australia, having already convened its first meeting of creditors. Four Administrators have been appointed to deal with the group of companies.

The application

The Administrators of the Probuild Group applied to extend the convening period for the second meeting of Creditors. This period was originally set to expire on 24 March 2022, with the second meeting to be held before 31 March 2022.

However, the Administrators were still in the process of identifying the Probuild Group’s assets and liabilities, all while trading the business and commencing a sale process for the various businesses involved.

Given the sheer scale of work in progress, the Administrators did not anticipate that the sales would be concluded until after 24 March 2022. Similarly, the Administrators did not believe they would be able to form a view as to the recommended outcome of administration before the second meeting.

Applicable law

Beach J considered that the Court’s power to extend the convening period was informed by the objects of administration under the Corporations Act 2001 (Cth). His Honour referred to the need to maximise the chance of a company’s survival or, where that is not possible, to maximise returns for a company’s creditors.

Although Beach J considered that the power to extend time should not be exercised lightly, his Honour accepted that it was important to account for commercial realities like the scale and difficulty of a transaction.

His Honour noted that while the Court generally seeks to encourage the efficient administration of companies, it will not prioritise speed at the cost of creditors’ interests particularly where there is a greater benefit to granting the extension.

Beach J acknowledged that, in context, there is usually a greater ‘upside’ to granting extensions for ‘reasonable periods’. What constitutes a ‘reasonable period’ will depend on the particular circumstances of each case.

What did the Court decide?

Beach J granted the three-month extension.

His Honour agreed that due to the ‘size and complexity’ of the transactions and businesses involved, the sale process was unlikely to conclude until after the expiration period. Similarly, his Honour accepted that the Administrators had been unable to complete their analysis of the various companies’ affairs. This meant that:

• the Administrators would have insufficient information to prepare a report and form a view about what to do with the Probuild Group’s businesses before a second meeting; and
  
  
• if forced to convene the meeting, the Administrators would likely have to recommend adjourning the meeting anyway, forcing unnecessary expenditure.

Beach J referred to the fact that the extension would better serve the interests of all of the parties affected. As well as benefitting the Probuild Group’s Creditors by maximising expected returns, his Honour considered that the extension would be more likely to preserve existing relationships within the Probuild Group (including some employment relationships). It was also relevant that no Creditors had objected to the possibility of an extension, which had been raised by the Administrators at previous meetings.

In reaching his decision, his Honour repeatedly emphasised the effect of the size and magnitude of the administration and the overarching benefits of an extension to the Creditors.

Comment

This case is a useful reminder of the applicable principles administrators ought to consider when applying for an extension to a convening period. While the creditors’ interests are generally paramount, courts will not inflexibly apply their discretion if the circumstances justify intervention.

In particular, courts are willing to grant extensions that reasonably reflect the potential benefit to affected parties and which are justified by the size and complexity of the administration. Before seeking an extension to a convening period, administrators should carefully consider how much time they reasonably need and how the extension will impact affected parties.