A recent case handed down in the New South Wales Supreme Court, In the matter of DH International Pty Limited (Administrators Appointed) ACN 143 461 849 [2013] NSWSC 1120 provides some useful guidance in circumstances where a company does not have a director ordinarily residing in Australia.
The proceedings in this case were commenced by the administrators of DH International Pty Ltd (Administrators Appointed) (Company). The administrators were appointed by resolution of the sole director of the Company who was a resident of Illinois in the United States of America at the time.
The administrators sought declarations that were twofold:
firstly, a declaration under section 447C(2) of the Corporations Act 2001 (Act) that their appointment was invalid; and
secondly, a declaration under section 447A of Act to the effect that the administration would continue to operate as if the administrators had been validly appointed, notwithstanding that their appointment as administrators of the Company was in breach of section 201A(1) of the Act.
Decision
The New South Wales Supreme Court found that the appointment of the administrators was actually valid. The Court noted that whilst there was a contravention of section 201A(1) of the Act, the appointment was not defective because the resolution of the board of directors of the Company was valid.
Brereton J noted that merely because a director ceases to be an ordinary resident in Australia, does not mean that they cease to be a director and thus the appointment of the administrators was valid.
Lavan Legal comment
In recent times there has been some uncertainty regarding the consequences of a company not having at least one resident Australian director, as a penalty is not provided by the Act.¹ Not only does this case provide some clarity as to the Court’s position on this issue, but it also highlights the importance of seeking an order pursuant to section 447A of the Act in circumstances where an administrator is in doubt as to the validity of their appointment.
Finally, the Court noted that the application in this case was not unnecessary and accordingly costs of the application were ordered to be costs in the administration of the Company.
