IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-7614 [2012] NZHC 3606

UNDER	Companies Act 1993

IN THE MATTER OF	GOURMET FOOD HOLDINGS NEW ZEALAND LIMITED

AND IN THE MATTER OF PITANGO INNOVATIVE CUISINE LIMITED

AND IN THE MATTER OF DAVID JOHN FRANK LOMBE AND VAUGHAN NEIL STRAWBRIDGE IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF GOURMET FOOD HOLDINGS NEW ZEALAND LIMITED AND PITANGO INNOVATIVE CUISINE LIMITED

Hearing:	On the Papers

Counsel:	J C Caird/L M Lim for Applicants

Judgment:	21 December 2012

JUDGMENT OF KATZ J

In accordance with r 11.5 High Court Rules
I direct the Registrar to endorse this judgment
with a delivery time of 11 a.m. on 21 December 2012.

Solicitors:	Simpson Grierson, Auckland –  lina.lim@simpsongrierson.com

GOURMET FOOD HOLDINGS & LOMBE HC AK CIV-2012-404-7614 [21 December 2012]

Introduction

[1]       On 30 November 2012 the applicants were appointed as joint and several administrators of Gourmet Food Holdings New Zealand Limited and Pitango Innovative Cuisine Limited (together, “the New Zealand companies”) and also seven related  Australian  companies.     The  companies  all  form  part  of  a  group  of Australasian companies (“Rosella Group Companies”) that operate a large food manufacturing business.  The Rosella Group Companies employ approximately 162 staff in Australia and 32 staff in New Zealand.

[2]       Immediately  following  the  applicants’ appointments,  receivers  were  also appointed  by  National Australia  Bank  Limited  (“NAB”)  over  the  New  Zealand companies and the majority of the Rosella Group Companies.

[3]       The applicants have filed an originating application for orders, on a without notice basis:

(a)	That  the  applicants  may  continue  to  act  as  joint  and  several administrators;

(b)	Extending the convening period for watershed meetings;

(c)	Varying the requirements for service of the documents to accompany the notices of watershed meetings and ancillary orders.

[4]       The applicants  have filed  supporting affidavits  of Mr David  Lombe,  Ms

Elizabeth Russell and Mr Jim Sarantinos. [5]	I address each order sought, in turn.

Application that the applicants may continue to act as joint and several administrators

Applicable law

[6]       Section 239F of the Companies Act 1993 (“Act”) sets out who may qualify (or  rather  is  disqualified)  from  accepting  an  appointment  as  an  administrator. Section 239F provides:

(1)	A natural person who is not disqualified under subsection (2) may be appointed an administrator of a company.

(2)	Unless the Court orders otherwise, a person is disqualified from appointment as an administrator if that person—

(a)        is disqualified under section 280(1) from being appointed or acting as a liquidator of the company; or

(b)        is prohibited from being an administrator by an order made under section 239ADV.

[7]       Section 280 of the Act was amended by the Companies Amendment Act 2006 and provides (relevantly):

S 280	Qualifications of Directors

(1)	Unless the Court orders otherwise, none of the following persons may be appointed or act as a liquidator

…

(cb)      a person who has, or whose firm has, within the 2 years immediately before the commencement of the liquidation, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors, unless, within 20 working days before the appointment of the liquidator, the board of the company resolves that the company will, on the appointment of the liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration

[8]       The opening words of both ss 239F and 280 provide “unless the Court orders otherwise” meaning that the Court has power to allow a person to act, notwithstanding the limits contained in those sections.

[9]       The principles relating to s 280(1)(cb) were summarised by Associate Judge

Abbott in Re Joeleen Enterprises Limited

There is no definition of “a continuing business relationship” in the Act. The cases I have just reviewed indicate that the Court will decide on the circumstances of each case whether there is such a relationship, and whether it is of such a nature and degree that a person should not be appointed.  The Court will have particular regard to whether the person or persons seeking appointment (or continuation of an appointment) have a direct relationship or whether it is merely by virtue of their involvement in a firm.   It will clearly be a relevant consideration whether or not any other member of the firm could have a role in the decisions or administration of the liquidation.

…

I remain of the view expressed in Icon Digital Entertainment Limited that the critical issue in considering whether the danger of conflict of interest exists  due  to  a continuing business relationship (however  that  might  be defined) is whether there is a risk that the applicant’s independence and ability to carry out her or his task professionally and effectively could be compromised in the particular circumstances of the case.  I come to the view on the facts of the present case that the provision of services to secured creditors by other members of the firm will not have this effect if those providing the services are not involved in the liquidation.

[10]     The  situation  faced  by  the  administrators  (where  there  is  a  potential continuing business relationship with a secured creditor) is not uncommon.  There have been a number of cases where the Court has permitted insolvency practitioners to accept appointments as administrators or liquidators, notwithstanding prima facie conflicts due to continuing business relationships with secured creditors.

[11]     Section 286(4)(b) provides that in circumstances where a liquidator has been disqualified under s 280 of the Act, the Court can order that the person may continue to act, notwithstanding s 280.  In addition, the Court is given a very broad general power under s 239ADO(1) of the Act to make appropriate orders in respect of the application of Part 15A of the Act (relating to the Voluntary Administration regime)
to any particular company.

The administrators’ connections to creditors

[12]   The applicants are experienced Chartered Accountants and insolvency practitioners.  However, their firm, Deloitte, has within the two years preceding their appointment as administrators of the Rosella Group companies undertaken a number of formal and informal insolvency and advisory engagements for NAB.

[13]     The applicants’ evidence however is that the past services to NAB were completely unrelated to the Rosella Group Companies and they are not paid any commissions, inducements or benefits to undertake any engagements with NAB.  In this context, it was submitted, they did not have a relationship with NAB that would restrict them from properly exercising their judgment and duties in relation to their appointment as administrators.

[14]     The applicants have also recently completed a thorough conflict check to determine whether Deloitte, or any of its other worldwide branches, have further continuing  business  relationships  with  any of  the  secured  creditors  of  the  New Zealand companies.  They have found that the New Zealand branch of Deloitte had within the preceding 2 years provided taxation and related advisory services to two of  Pitango  Innovative  Cuisine  Limited’s  (“Pitango”)  secured  creditors,  namely Sealed Air (New Zealand) (“Sealed Air”) and Amcor Packaging (New Zealand) Ltd (Amcor).

[15]     As a consequence of these Deloitte relationships, the applicants may arguably be disqualified from acting as administrators of the New Zealand companies.

[16]     I accept the applicants’ submission however that, although there may be a theoretical possibility of a conflict of interest arising out of Deloitte’s relationship with  the  secured  creditors,  there  is  no  real  conflict.    The  services  provided  by Deloitte in the past were completely unrelated to the Rosella Group Companies.  As a result, there is no real risk that the relationships between Deloitte and the secured creditors may compromise the applicants’ independence, competence or integrity. Similarly, these relationships will not affect their ability to carry out their tasks as administrators professionally and effectively.

[17]     Further,  with  respect  to  Sealed Air and Amcor  in  particular,  Ms  Russell deposed that neither of the administrators, nor any other Deloitte Australia employee who  is  involved  in  the  conduct  of  the  administration  of  the  Rosella  Group companies, have been or are in any way involved in the provision of services to Sealed Air or Amcor (which is carried out by Deloitte New Zealand).

[18]     In  all  other  respects  the  applicants  are  clearly  well  qualified  to  be administrators of the New Zealand companies.  There is no discernible prejudice to creditors.    The  applicants  have  already disclosed  the  relationship  with  NAB  to creditors and evidence was provided that no concerns have been raised.

[19]     Leave  will  however  be  granted  to  any  person  who  can  demonstrate  a sufficient interest to apply to modify or discharge the order allowing the applicants to continue to act as joint and several administrators, on appropriate notice being given. This will provide an additional safeguard to creditors in the event that any creditor subsequently believes it may have been prejudiced.

Application to extend the convening period for watershed meetings

Applicable law

[20]     Section 239AT(2) of the Act provides that the administrator must convene the watershed meeting within the convening period, which is the period of 20 working days after the administrators’ appointment date.  Under s 239AT(3) the Court has an unfettered discretion to extend the convening period on the administrators’ application.  Such application may be made before or after the statutory convening period expires.

[21]     Although  there  have  not  been  many  New  Zealand  cases  decided  under s 239AT, New Zealand Courts have in the past found assistance from Australian cases that were decided under their statutory equivalent (ss 439A(5)(a) and 439A(6) of the Corporations Act 2001 (Cth)).

[22]     For example in WGL Retail Holdings Ltd  Associate Judge Bell referred to Austin J’s non-exhaustive list of reasons for extensions in Re Riviera Group Pty Ltd namely:

(a)	size and scope of the business; (b)	substantial offshore activities;
(c)	large number of employees with complex entitlements;

(d)	complex corporate group structure and intercompany loans;

(e)	complex  transactions  entered  into  by  the  company  (for  example, securities lending or derivative transactions);

(f)	lack of access to corporate financial records;

(g)	the time needed to execute an orderly process of disposal of assets;

(h)	the time needed for a thorough assessment of a proposal for a deed of company arrangement;

(i)	where  the  extension  will  allow  sale  of  the  business  as  a  going concern;

(j)	more generally, additional time is likely to enhance the return for unsecured creditors.

[23]     The relevant time limits under the Act  are expressed strictly.   Therefore Courts are wary of applications for extension which may be made simply for the purpose of delay and extension of the moratorium period.   The general approach taken  is  to  strike  a  balance  between  the  expectation  of  a  relatively  speedy

administration and the need to ensure that undue haste does not prejudice sensible

and constructive actions to ensure that creditors’ returns are maximised.

[24]     WGL Retail Holdings appears to be the most recent New Zealand case in which administrators made an application for extension of the convening period under s 239AT.  That case involved the administration of the RED Group/Whitcoulls business.  Associate Judge Bell held that an extension of 180 days was appropriate on the facts of that case, which included the significant number of employees and the fact that the administrators’ view was that sale of the business would lead to the best outcome for the majority of creditors, but the sale process would take time.   In respect of the length of the extension (180 days), His Honour commented that this was “at the top end of the range” but nevertheless allowed it because:

(a)       the Australian Court had ordered an extension of six months for the Australian Companies in the Group and it was efficient for the New Zealand administration to be co-ordinated together with the Australian administration, including having common periods for convening watershed meetings; and

(b)     due to the scale and complexity of the administration, it was commercially unrealistic to require a shorter convening period.

[25]     In an earlier case (which was cited in WGL Holdings Group), Re Nylex

Heath J allowed an extension of approximately 4.5 months.  The facts of that case involved the administration of two New Zealand companies who were also part of a larger  Australasian  Group  that  was  in  the  business  of  producing  and  selling gardening equipment.  Heath J allowed the extension in recognition of the complex situation faced by the administrators and the potential for significant cross border issues arising due to the parent and related companies being Australian.

[26]     In this case the administrators seek an extension of 180 days in respect of the New Zealand companies.  I am satisfied that such an extension is justified, for the following reasons:

(a)       The  size  and  scope  of  the  business  (which  includes  substantial offshore operations) is significant.  The New Zealand companies are part of a group structure involving nine Australasian companies.  The Rosella Group Companies, as a whole, is a large and well known manufacturer of food products.   It owns substantial assets and owes significant debts to secured and unsecured creditors.

(b)       In  isolation,  the  New  Zealand  companies’  business  is  also  well known.    It produces and distributes Pitango branded organic readymade soups and other readymade meals.   It has a production factory and offices in Auckland where 32 employees are based.

(c)       The administrators have given detailed evidence as to why more time is required for investigation and preparation of a report.  Due to the size and scope of the business, the administrators have not yet been able  to  fully  investigate  the  Rosella  Group  Companies’ financial affairs in order to ascertain a number of crucial matters.   This information is required for the administrators to complete their report and statement to the creditors in advance of the watershed meetings, pursuant to s 239AU of the Act.

(d)       The administrators also require further time to liaise with the directors of Rosella Group Companies regarding the possibility of proposing a deed of company arrangement.

(e)       In addition, time is required in order to pursue a sale of the business, either as a going concern or by way of an orderly sale process if a piecemeal  sale  is  necessary. An  orderly  sale  process  is  obviously likely to result in the best returns for creditors.

(f)       On  18  December  2012,  the  Supreme  Court  of  New  South  Wales ordered that the convening period for the watershed meetings for the Australian Rosella Group Companies be extended by 180 days.   It will be more efficient and cost effective if there are common periods for convening watershed meetings for all of the Rosella Group Companies.

[27]     There appears to be no likely prejudice to creditors.  Creditors were informed at the first creditors meeting that the administrators were intending to apply to the courts in both New Zealand and Australia for an extension of the convening period of  180  days.    No  creditors  to  date  have  raised  any objections  to  the  proposed extension.  Nevertheless leave will be granted to any interested person to apply to modify or discharge the orders made.

[28]     If  the  convening  period  is  not  extended,  there  is  clearly  an  increased likelihood that the Rosella Group Companies will have to be placed into liquidation causing the business to halt immediately.  This would not be in the best interests of a wide range of interested parties including employees, landlords, suppliers and creditors.

Application   to  vary   the  requirements   for  service  of   the   documents  to accompany the notices of watershed meetings

[29]     The  applicants  also  seek  orders  varying  the  method  of  service  of  the documents accompanying the notice to creditors of the watershed meeting.

[30]     Section 239AU of the Act relates to the notice of the watershed meeting to be given to the companies’ creditors.  Usually, the notice has to be given not less than five working days before the meeting:

(a)       In  writing to  “as  many of the companies’ creditors  as  reasonably practicable”;

(b)	By advertising (to capture unknown creditors).

[31]     In  addition,  the  written  notices  are  to  be  accompanied  by the  following accompanying documents:

(a)       A report by the administrator about the company’s business, property, affairs, financial circumstances and any other matter material to the creditors’ decisions to be considered at the meeting;

(b)       A statement setting out the administrator’s opinions (with reasons) on whether it would be in the creditors’ interests for the company to execute a deed of company arrangement, or for the administration to end, or for the company to be placed in liquidation;

(c)       If a deed of company arrangement is proposed, a statement setting out the details of the same.

[32]     The applicants relied on Re Ansett Australia Ltd  in support of this aspect of their application.   In that case the Court ordered that the administrators were not required to send their report, statement and details of the proposed deed of company arrangement together with the notice of the watershed meeting.  Instead the meeting notice was to inform creditors that the relevant information that the administrators were required to provide:

(a)       Could be obtained by telephoning the administrators and requesting copies;

(b)	Could also be viewed and downloaded from two websites.

[33]     The applicants seek similar orders in this case.  The orders are sought on the basis that, given the number of creditors involved, it will be more cost effective.  The applicants further submit that creditors commonly have internet access, but those
that do not can request hard copies.

[34]     I  have  not  been  persuaded  that  a  departure  from  the  normal  practice  is justified  in  this  case.    The number  of unsecured  creditors  of  the New  Zealand companies is not particularly large (120) and the estimated cost savings are modest, being AUD$8,000 (plus GST).   It would not be unduly burdensome to provide creditors with hard copies of the relevant documents.

[35]     The administrators have also sought an order extending the minimum period between the date of the notice and watershed meeting from five working days (as required by s 239AU(2)) to eight working days.  Given the very lengthy extension to the convening period, eight working days is appropriate.

[36]     I accordingly make the following orders:

(a)       under ss 239F and/or 239ADO of the Companies Act 1993 (“Act”), David  John  Frank  Lombe  and  Vaughan  Neil  Strawbridge  may continue to act as joint and several administrators of:

(i)	Gourmet	Food	Holdings	New	Zealand	Limited

(Administrators Appointed ) (In Receivership); and

(ii)	Pitango	Innovative	Cuisine	Limited	(Administrators

Appointed ) (In Receivership)

(together,   “the   New   Zealand   Companies”)   notwithstanding   the

provisions of ss 239F and 280(1)(cb) of the Act;

(b)       under s 239AT(3) of the Act, the convening period for the watershed meetings for the New Zealand companies are extended by a period of
180 days, to 8 July 2013;

(c)       under s 239ADO of the Act, notices of the Companies watershed meetings under s 239AU of the Act (“Meeting Notices”) are to be given not less than 8 working days before the watershed meeting;

(d)	notice of these orders is to be:

(i)	made available on Deloitte’s website  www.deloitte.com.au ;

and

(ii)	advertised  once  in  both  the  New  Zealand  Herald  and  the

Dominion Post;

(e)       leave  is  granted  to  any  person  who  can  demonstrate  a  sufficient interest to apply to modify or discharge these orders on appropriate notice being given to the applicants; and

(f)       leave is reserved to the applicants to apply further, in respect of any ancillary issues arising out of the orders made.

Katz J