Red Lea Group of companies was established in Blacktown in 1957 in Western Sydney by an immigrant from Croatia, John Velcich. According to the news article by Chung (2018), it was put into voluntary administration on 29th March, 2018. The administrators McGrath Nicol stated in an interview for Red Lea website that because of the economic position of the companies, the administrators were not able to operate the business and had no other option rather than carrying out a systematic winding-down of the operations. Hundreds of employees were informed that they will no longer have jobs in a 60 year old takeaway chicken brand (Koehn, 2018).
If a company is in economiccomplexity, it can be placed into voluntary administration. The main aim of the voluntary administration is to determine the future initiatives need to be taken by the company quickly, for which, independent and suitably qualified person is authorized as voluntary administrator to take full control of the company in order to find a way to protect either the company or its business (ASIC, 2017). In case, neither is possible, the objective is to manage the relationships of the company in a manner so as to provide better returns to the creditors than what they would receive in case of liquidation of company. The mechanism for achieving such aims is considered as a deed of company arrangement.
In case of Red Lea Group, the administrators were appointed pursuant to a resolution of sole director of each company Mr. Assad Asif. The administrators conducted the first meeting of the creditors on 12th April, 2018, wherein, a resolution was passed to form an inspection committee. The assembling period for next meeting of the creditor companies was to be organized on 7th May, 2018 but the administrators wanted an extension of the convening period. The reasons they provided for this were formalization of potential endeavour of company arrangement, i.e., DOCA, considering restructuring proposals, and to prepare advice for included in report to be provided to the creditors, necessary under the rule 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) in order to provide recommendations to the creditors regarding the future of the company.
The Section 439A of the Act states that the administrator of the company must summon meeting of creditors of the corporation within the convening period mentioned under subsection (5), after the day administration begins, before 25 business days or under subsection (6), on the date after extension is provided by the court.
Taking into consideration, the requirements for providing notice for the meeting with regard to s 439A established in rules 75-255 and 75-15 of Insolvency Rules, the court granted the extension of two months (Mcgrathnicol, 2018). As the administrators had already taken initiatives to refinance the creditors as well as the prospect that successful completion of the refinancing process would lead to the formalisation of a DOCA through which, all the secured creditors and employees will be paid entirely. It is appropriate because more than 400 employees in the company might presently be penniless at this point of time.
ASIC (2017) Voluntary administration: A guide for creditors [online]. Available from: https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/voluntary-administration-a-guide-for-creditors/ [Accessed 15 May 2018].
Chung, F. (2018) ‘You can’t make money from $8 chicken’: Cheap chooks, production woes blamed for Red Lea collapse [online]. Available from: https://www.news.com.au/finance/business/retail/you-cant-make-money-from-8-chicken-cheap-chooks-production-woes-blamed-for-red-lea-collapse/news-story/3c9d1416bc231d3506e3e6b733fd713c [Accessed 15 May 2018].
Koehn, E. (2018) Red Lea Chickens collapses into voluntary administration leaving 22 franchisees to find new suppliers [online]. Available from: https://www.smartcompany.com.au/business-advice/franchising/red-lea-chickens-voluntary-administration/ [Accessed 15 May 2018].
Mcgrathnicol (2018) Initial Information for Creditors [online]. Available from: https://www.mcgrathnicol.com/app/uploads/1.-TM049-Initial-information-for-creditors-VA_20180327_11_24.pdf [Accessed 15 May 2018].