Legal Jigsaw Puzzle: Section 447A And IPS Section 90-15 In Action

In the matter of Aerison Pty Ltd, an urgent application for relief was made by the Administrators appointed to various companies within the Aerison Group, under section 447A of the Corporations Act 2001 (Cth) (Act) and section 90-15 of the Insolvency Practice Schedule (IPS).

Background

After the appointment, the Administrators continued to operate the group as a going concern while exploring options for recapitalisation or a sale of the group.

The Administrators, initiated an expression of interest campaign, with the most viable being a Deed of Company Arrangement (DOCA) proposal from Pacific Industrial Company (PIC).

An insoluble impasse with the DOCA

On 31 August 2023, a second creditors' meeting was convened to consider the recommended DOCA proposal.  However, the process reached an impasse between 4 September 2023 and 12 September 2023, when PIC informed the Administrators that they would not proceed with the DOCA.  This unexpected development created a dilemma, as section 444B of the Act requires the execution of a DOCA within 15 business days after the conclusion of the meetings of creditors, which falls on 26 September 2023.  Failure to do so results in the companies in the Aerison Group entering a creditors' voluntary winding-up, by reason of section 446A(1)(b).

The relief sought by the Administrators

To address this situation, the Administrators sought urgent relief from the court.  They proposed holding a further second meeting of creditors on 22 September 2023, to consider an alternative DOCA proposal from Applied Pollution Control Pty Ltd (APC).  The Administrators had already received a term sheet and a non-refundable deposit from APC, and both parties had executed an exclusivity agreement outlining the proposed DOCA.

The relief sought by the Administrators included:

1. Orders under section 447A to allow the holding of a further second creditors' meeting on 22 September 2023, as indicated in the notice given on 14 September 2023;
2. Orders permitting creditors at the further second meeting, for the purposes of any resolution pursuant to section 439C, to resolve either the execution of the specified DOCA or the winding-up of the Aerison Group; and
3. Orders under section 90-15 of the IPS that 75-225 IPR is to operate as if the notice issued by the Administrators on 14 September 2023, calling the further second meeting, is valid notice to eligible creditors, along with associated orders for facilitating notice.

Disposition

Section 447A of the Corporations Act, grants the court broad jurisdiction to issue any orders it deems appropriate for the effective functioning of the insolvency regime.  This authority is not limited by narrow constraints and allows the court to act swiftly in cases where administrators need to address urgent matters or fill gaps within Part 5.3A of the Act to uphold the overarching objectives of the insolvency regime.  This interpretation is in line with the principles regarding the scope and application of section 447A, as clarified by Austin J in the case of Deputy Commissioner of Taxation v Portinex Pty Ltd¹.

In this matter, the court considered that the relief sought by the Administrators was less expensive than what had been considered appropriate in other authorities.  It is also essential to highlight that if the original proponent of the DOCA had withdrawn from negotiations before the second meeting of creditors, as opposed to after it, the Administrators would have had the power to adjourn the meeting for up to 45 business days to continue the sale process.  Therefore, utilising the powers under section 447A to achieve the outcome sought by the Administrators aligns with the standard operation of Part 5.3A, albeit under different factual circumstances.

More specifically, the court's decision to grant the requested relief was based on the following reasons.

1. Proper Purpose: The relief was sought for a legitimate purpose, aligning with the goals of the administration process under Part 5.3A of the Act;
2. No Fault of Administrators: The impasse with the original DOCA proponent, PIC, was not due to any fault or lack of diligence on the part of the Administrators but was an unexpected development beyond their control;
3. Prompt Identification of Alternative DOCA Proponent: The Administrators had promptly identified an alternative DOCA proponent, APC, and had taken steps to negotiate and finalise a DOCA proposal with them;
4. Employee and Creditor Consideration: The Administrators had made efforts to update and brief employees and creditors about the situation, and the alternative DOCA proposal offered more favourable outcomes for various stakeholder;
5. Superior Outcome for Creditors: The alternative DOCA proposal promised a significantly better outcome for creditors compared to a winding-up scenario, including secured, unsecured creditors, and employees;
6.  Secured Creditors' Position: The first ranking secured creditor, the Commonwealth Bank of Australia, did not object to the relief sought, indicating no material detriment to secured creditors;
7. No Delay to the Period of Administration: Holding the further second meeting of creditors within the 15 business day period mandated by section 444B(2) of the Act ensured there is no extension to the statutory moratorium;
8. No Detriment to Any Third Parties: The relief sought did not impose any apparent material detriment on any third parties, including contractors and landlords associated with the Aerison Group; and
9. Appropriate Notice: The appropriate notice has been given to the creditors which has been made available on the Administrators’ website and the creditors of the Aerison Group have been duly informed through various means.  In addition, the Administrators have taken the initiative to notify the Australian Securities and Investments Commission (ASIC) and the Department of Employment and Workplace Relations, which serves as the manager of the Fair Entitlement Guarantee (FEG), via email.

Lavan Comment

In summary, the court's decision to grant the urgent relief sought by the Administrators, employees, and other stakeholders while adhering to the statutory framework governing insolvency proceedings. The decision aimed to maximise the chances of a successful DOCA proposal, thereby preserving the business and saving jobs, rather than opting for a winding-up that might result in a less favourable outcome for all parties involved.

Section 447A of the Act grants the court the authority to modify the implementation of Part 5.3A in order to resolve gaps and uncertainties that may arise during insolvency proceedings.  Furthermore, section 90-15 of the IPS supports the adaptation of regulations to streamline the notification process for the subsequent second meeting of creditors.

If you have any questions about this decision, or about the DOCA process in general, the experienced Lavan team is here to assist.