Red Lea Group: Report on the Voluntary Administration Process

This report examines the voluntary administration of the Red Lea Group, a takeaway chicken brand established in 1957. The company entered voluntary administration on March 29, 2018, due to economic challenges. The administrators, McGrath Nicol, aimed to restructure the company or manage its assets to maximize returns for creditors. The report analyzes the legal processes, including the role of the voluntary administrator and the creditors' meetings. It discusses the application of Section 439A of the Corporations Act, which governs the meeting of creditors. The report highlights the potential for a Deed of Company Arrangement (DOCA) to refinance creditors and the impact on employees. The analysis draws on news articles and official documents to provide a comprehensive overview of the Red Lea Group's situation and the implications of its voluntary administration, including the impact on hundreds of employees.

Media Reflection Assignment

Summary
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).
Article Analysis
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.
References
ASIC (2017) Voluntary administration: A guide for creditors [online]. Available from:
http://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:
http://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:
http://www.mcgrathnicol.com/app/uploads/1.-TM049-Initial-information-for-creditors-
VA_20180327_11_24.pdf [Accessed 15 May 2018].