It has been two years since the decision in SFL/Piletech (EA) Pty Ltd  NSWSC 637 (Piletech) seemingly "increased" the hurdle for Administrators to overcome in seeking an adjournment of wind up proceedings pursuant to section 440A of the Corporations Act 2001 (Cth) (Act).
In the recent decision of i-Prosperity Capital Pty Ltd  NSWSC 1116 (i-Prosperity), the Court has again had regard to what will constitute an adjournment being "in the best interests of creditors".
The structure of entities and appointment of the administrators in i-Prosperity is not dissimilar to that in Piletech: i-Prosperity Capital Pty Ltd (IPC) who were one of 14 companies within the "i-Prosperity Capital Group" and the Administrators were appointed to 12 of the 14 companies within the group.
This is, however, where the similarities end. Wind up proceedings were commenced against IPC in May 2020. The proceedings were adjourned on two occasions: firstly, to allow evidence to be filed by IPC in support of an application, and secondly, to allow the initial terms of a settlement agreement to be performed.
IPC failed to perform the initial terms of the settlement agreement, and five days prior to the third return date, the Administrators were appointed.
The Administrators filed an application pursuant to section 440A of the Act, seeking that the wind up proceedings be adjourned for two weeks on the basis that the adjournment was "in the best interests of creditors".
Ordinarily the argument that an adjournment is "in the best interests of creditor" will be advanced on the basis that the continued administration will "likely result in a better return to creditors", such as by way of a DOCA proposal.
This was not the case in i-Prosperity. Instead, the Administrators submitted that the Court ought grant a brief adjournment as:
- The Administrators had been appointed over a number of companies (not just IPC), and the Court should not approach the application "with the skepticism usually reserved for last-minute appointments". 1
- By allowing the administration to continue for a brief period, the Administrators could investigate the affairs of IPC in a holistic manner. 2
- There was a need to investigate a number of payments and transfers made by IPC and other members of the group, and the continued administration would allow the Administrators to identify, secure and preserve assets for the benefit of creditors as a whole. 3
- There was no identifiable prejudice to the plaintiff in granting the adjournment. 4
These submissions were made notwithstanding the fact that the Administrators:
- did not propose a DOCA, or indeed allude to any information to satisfy the Court that a DOCA may be presented; 5 and
- acknowledged that the i-Prosperity Capital Group "had the flavour of a group that would collapse into liquidation" and that there may be "good reasons why it was appropriate" to appoint a liquidator in the future. 6
The Court was ultimately not persuaded that an adjournment would be "in the best interests of creditors", and ordered that IPC be wound up, as: 7
- the suggested benefit to creditors was "more intangible and unquantifiable in nature" as opposed to there likely being a "better return to creditors";
- there was an "air of inevitability about a liquidator being appointed in the short term future";
- there was no real prospect of a DOCA; and
- there was no good reason to delay the appointment of a liquidator in circumstances where the largest creditor of IPC sought that order.
The decision in i-Prosperity is yet another timely reminder for creditors and insolvency practitioners alike to carefully consider the criteria that the Court will have regard to when deciding if an adjournment pursuant to section 440A of the Act is appropriate. It is clear that the bar remains high and the evidence that is required to succeed with an adjournment must, at the very least, include detailed information about the future of the company, including the prospects of a DOCA.
1 i-Prosperity, at .
2 i-Prosperity, at .
3 i-Prosperity, at .
4 i-Prosperity, at .
5 i-Prosperity, at .
6 i-Prosperity, at  and .
7 i-Prosperity, at  to .
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