Construction Case Summary: Bailey, in the matter of Megacrane Holdings Pty Ltd (administrator appointed) [2022] FCA 733

On 15 June 2022 the Court ordered, pursuant to Section 447A(1) of the Corporations Act 2001 (Cth) (the Act), that the operation of Pt 5.3A of the Act be modified in relation to the administration of the Company, extending the administration period to enable the recovery of debts owing to the Company by the Company’s creditors through the Building and Construction Industry Security of Payment Act 1999 (SOPA).

 

Facts

Megacrane Holdings Pty Ltd (the Company) operated as the servicing entity within a corporate group providing crane and labour hire services to development sites across New South Wales.

On 9 March 2022, Mr Liam Thomas Bailey (Mr Bailey) was appointed as the administrator of the Company. In the course of the administration, Mr Bailey issued payment claims under SOPA to developers and made successful recoveries pursuant to those payment claims or associated adjudication applications.

The first meeting of creditors of the Company was held on 21 March 2022 and the second meeting of creditors was convened to be held on 14 April 2022.  The second meeting of creditors was adjourned to facilitate the Company’s collection of debts that could be claimed under SOPA as a number of pending SOPA actions were underway and further payment claims are expected to be made by the Company.

Under Section 32B of SOPA, a Company in liquidation cannot serve a payment claim or take action to enforce a payment claim or an adjudication determination and if an adjudication determination has not been finally determined prior to the liquidation, the adjudication application is taken to have been withdrawn on the date on which the company is placed into liquidation.

 

Issues for Determination – Administrators Application

Mr Bailey’s application was for an order under Section 447A of the Act that Pt 5.3A of the Act to permit a longer adjournment of the meeting of creditors, as the second meeting of creditors had already been convened and adjourned for 45 days permitted under Rule 75-140(3) of the Insolvency Practice Rules (Corporations) 2016.

Under this rule, any meeting convened under Section 439A of the Act must not be adjourned for more than the maximum period of 45 business days after the day on which the first meeting was held.

However, pursuant to section 32B of SOPA, if the Company were placed into liquidation, the legislation operates to cause any pending adjudication applications to be withdrawn and prevents the company from enforcing or issuing any further payment claims.

Mr Bailey referred in his evidence to the difficulties in recovering debts owing whilst in administration or liquidation, and the benefit of using the SOPA payment claims and adjudication processes.

 

The Court’s Findings

Justice Yates referred to the authority in Georges, in the matter of Vical N.S.W Pty Ltd (Administrators Appointed) [2018] FCA 1974 which provided for the operation of Section 447A(1) of the Act and Part 5.3A of the Act the Court may make orders as it thinks appropriate to essentially maximise the chance of the company and/or its creditors in comparison to if it were to proceed to winding up.

Further, the case of Diamond Press Australia Pty Ltd [2001] NSWSC 313 was referred to which provided that balance must be struck between the quick dealings of an administration and the actions to maximising the return to creditors and any return to shareholders in the administration.

Based on the administrators’ experience, the administrator’s assessment of the difficulties in recovering debts without the benefit of the SOPA process and the increased likelihood of a recovery through the SOPA process and the increased likelihood of a return to creditors as a result of an adjournment, Justice Yates granted the extension of the administration period to enable the recovery of debts owing to the Company.

Accordingly, Justice Yates allowed the adjournment of the meeting of the Company from 14 April 2022 to a day not later than 30 November 2022.

A link to the case can be found here.

 

Subsequent Applications

Subsequent applications for an extension of the administration period of the Company was sought on the same basis as above on 21 November 2022 and on 8 March 2023.

Under Section 447A(1) of the Act, on 21 November 2022, the Federal Court of Australia made orders permitting Mr Bailey to adjourn the Second Meeting to a date not later than 31 March 2023 and on 23 March 2023, the Federal Court of Australia made further orders permitting Mr Bailey to adjourn the Second Meeting to a date not later than 30 June 2023.

The above relief was sought to allow further time for the Company to recover any remaining debts owing to the Company to the benefit of the creditors as if Company placed into liquidation the recovery rights under SOPA would be lost.

The cases above shows that the Court will not have any difficulty applying orthodox principles to extend the voluntary of a Company to permit potential valuable recovery action under security of payment legislation to be taken.

 

*This article was prepared with the assistance of Priyanka Ram*