The role of section 447A of the Corporations Act 2001 (Cth) in the time of COVID-19

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By Kirsten Farmer, Partner

One of the first tasks required of an administrator appointed to a company is to facilitate communications with creditors and conduct creditors’ meetings.

The below decision considers these tasks against the backdrop of public health orders designed to reduce the spread of COVID-19, and the Court’s continued broad application of section 447A of the Corporation Act 2001(Cth) (Act) and section 90-15 of the Insolvency Practice Schedule (Corporations)(Schedule).

Eagle, in the matter of Techfront Australia Pty Limited (administrators appointed) [2020] FCA 542

Facts

On 7 April 2020, Ryan Eagle and Gayle Dickerson of KPMG were appointed as joint and several voluntary administrators (Administrators) of Techfront Australia Pty Ltd (Tf Australia), Screencorp Pty Ltd ((Screencorp) and Techfront Infrastructure Solutions Pty Ltd (Tf Infrastructure Solutions) (collectively, the Companies).

The Companies provided technology for sporting arenas for a range of sports codes, as well as digital display systems to various other industries (Business).

Following their appointment, the Administrators sought to continue to trade the Business. However, restrictions relating to COVID-19 had a significant impact on the Companies’ revenue. In an effort to preserve the Companies’ cash at bank, the Administrators approached the Court, pursuant to section 447A(1) of the Act and rule 90-15 of the Schedule, seeking a number of orders to enable them to:

  1. conduct meetings of the Companies’ creditors exclusively by audio-visual or telephone conference;
  2. send by email, notices of meetings to those creditors for whom the Administrators had email addresses; and
  3. conduct any committee of inspection meetings exclusively by audio-visual or telephone conference.

The Administrators also sought a two week extension of time in which they could give notice under section 443B of the Act.

Notice of meetings of creditors

The Court noted that there are many decisions in which the courts have made orders permitting notice of creditors’ meetings to be given by electronic means. Particularly in circumstances where this would save costs and time and so conserve a company’s assets for the benefit of creditors.

In the present matter, where restrictions had been placed to limit the spread of COVID-19, the Administrators’ staff faced practical difficulties arranging notices to be printed and posted. Accordingly, as the issuing of notices of creditors’ meeting by email and publishing the notice on both the Administrators’ and ASIC’s websites would fulfil the objective of notifying as many creditors of the Companies as quickly and cheaply as possible (a benefit which will ultimately accrue to creditors of the Companies) it was appropriate to make the orders sought.

Meetings

At first instance, the Court acknowledged the lack of clarity surrounding rule 75-75 of the Insolvency Practice Rules (Rules) which clearly authorises participation in meetings of creditors by electronic means, and the requirements of rules 75-15(1)(a), 75-30 and 75-35 of the Rules which suggests that meetings will be conducted at a “place”.

In order to ensure that the Administrators were not left in doubt as to whether a meeting had been validly convened and held, the Court permitted the meetings of creditors to be held by telephone or audio-visual conference facilities in place of a physical meeting.

This position was also extended to any meetings held with respect to a committee of inspection.

Extension to prevent the Administrators incurring liabilities

It was submitted by the Administrators that they wished to retain all essential goods or other equipment used by the Business in an effort to preserve the value of the Business (thereby maximising any possible sale price of the Business in the interests of the Companies’ creditors). However, at the same time, they did not want to burden the Companies or take on personal liability with respect to obligations to make repayments for a number of real property, equipment and motor vehicle leases.

The Administrators’ inability to make a determination on a number of these leases within the 5 business days stipulated under section 443B of the Act was due to, amongst other things, delays in their investigations caused by the practical and logistical difficulties arising from the measures taken to suppress COVID-19.

 

In these circumstances, the Court was willing to grant a time extension for Administrators to make a determination on the prospect of the Companies’ leases, whilst also disregarding the required 5 day limit under sections 443A(1)(c) and 443B(2) of the Corporations Act, to not find the Administrators personally liable.

Conclusion

Following on from our update on the Collette decision, this decision illustrates the Court’s identification of the impact that COVID-19 is having on administrators’ abilities to conduct their duties and the broad application of section 447A of the Act.

To this end, the Court noted that it was clearly desirable that orders pursuant to section 447A of the Act be made to facilitate the administration of the Companies, citing Justice Perram’s comment in Capic v Ford Motor Company of Australia Limited (Adjournment) [2020] FCA 486 that public institutions such as the Court must do all they can to facilitate the continuation of the economy.

For further information, please do not hesitate to contact us.

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