Many West Australians will be familiar with the Blue Cow Cheese Company Pty Ltd (“Blue Cow”). It was established in 1998 in Belmont with the vision to “introduce the people of Australia to the world’s best cheese, dairy and fine foods.”
On June 25, after 21 years of business, Blue Cow had administrators appointed. Such an outcome followed the company’s unfortunate state of insolvency. It was subsequently announced that European Foods Wholesales Pty Ltd (“European Foods”) acquired the assets of Blue Cow. European Foods is part of the Y Group of companies who executive chairman is Graeme Yukich, the founder of Entrust Private Wealth Management. Luckily for the employees at Blue Cow (and those of us who enjoy their artisan cheese range), the administrators have confirmed that no employees have been made redundant and it appears likely that the brand will remain but administration can often have much more dire consequences for a company.
The role of administration
If administration brings to mind the dying image of a company in debt, you are selling the process of administration short. According to its purpose, the administrative process does not necessarily facilitate the downfall of a company. Instead, administration acts as a process of fast-paced company management in which the future of the company is considered and directed by independent ‘administrators’. Cord Cordis’s Joseph Nipps and Clifford Rocke were appointed as the administrators of Blue Cow. They were directly responsible for taking control of Blue Cow for the purpose of determining its future. Blue Cow’s financial troubles hit in about 2017, when it expanded, but instead of financial growth, it saw losses.
Voluntary administration process
Where a company initiates a fast-paced administration process in order to understand the company’s finances and prompt routes against insolvency, a company is undertaking what is described as ‘voluntary administration’. A decision to appoint a voluntary administrator for a company can be made by:
- The directors;
- A secured creditor (with a security interest in all or substantially all of the company’s property); or
- A liquidator.
In Blue Cow’s case it entered administration pursuant to section 436A of the Corporations Act, which means it was a voluntary administration entered into by the company’s directors.
Voluntary administration is initiated by the appointment of an administrator who is approved by the meeting of the creditors, eight days following the appointment. If the creditors are dissatisfied with the administrator, the creditors can vote to replace the administrator and/or create a committee of inspection. The administrator undertakes the following tasks:
- Investigation of company affairs; and
- Construction of a report that is given to the creditors to recommend to the creditors whether the company should:
- Enter a deed of company arrangement;
- Go into liquidation; or
- Be returned to the directors.
Twenty five days following appointment, the voluntary administrator is required to hold a second meeting with the creditors. The administrator must provide an opinion and recommendations with regards to the creditors as set out above. Thankfully, for all at Blue Cow this didn’t become necessary.
Administration, good or bad?
A large degree of uncertainty arguably presides around the function and purpose of the process of administration. Possibly this stems from the inability of directors to use their powers while the company is in voluntary administration. Directors are effectively entirely at the mercy of the administrator and whatever may be demanded by them. For example, if a company is constrained by a deed of company arrangement, the director’s power are limited to the terms of the deed until it is complete. Upon completion of the deed, the directors may or may not regain full control, dependent on whether the company is facing liquidation. The only way in which the directors can regain control is if the creditors resolve that the company should be transferred back to the directors upon the conclusion of the voluntary administration.
To clarify however, administration effectively provides the company with a period of breathing room for several reasons. Unsecured creditors cannot begin, continue or enforce their claims against the company without an administrator’s consent or the court’s permission. Creditors, except in limited circumstances, cannot enforce their security interest in the company’s assets. A court application to place a company into liquidation, cannot be commenced and owners of the property used or leased by the company cannot recover their property.
Most importantly, a voluntary administrator is appointed to act fairly and impartially in order to establish the best possible course of action with regards to the company’s insolvency. The administrator is directly liable for any costs the company cannot fund from asset sales.
Not only has the result been positive for the Blue Cow’s employees and fans of the large range of food on offer by Blue Cow, but the acquisition of the assets by the Y Group of Companies makes it the largest specialty food and wine business in Western Australia – hopefully a happy ending for all.
If you would like to discuss the concept of voluntary administration, or require assistance with regards to the future of your company, or you find yourself a creditor of a company in administration, please contact Lynn and Brown on (08) 9375 3411.
About the authors:
Bianca Fletcher-Robinson is currently undertaking full time study at the University of Western Australia. Having completed a Bachelor of Arts, Bianca is now in the process of completing her Juris Doctor of Law. Jacqui is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in family law, mediation and estate planning. Jacqui is also a Nationally Accredited Mediator and a Notary Public.