Is terminating the Administrator possible?

A recent decision of Douglas J in the Supreme Court of Queensland in Donglyn Trading Pty Ltd v Mannerling [2009] QSC 52 (Donglyn Trading) demonstrates that the courts will not terminate the administration of a company in circumstances where the majority of creditors have voted in favour of the ongoing continuation of the administration, unless there is good reason to do so.

Background facts

Donglyn Trading concerned an application by a group of minority creditors seeking the termination of the administration of Donglyn Trading, and the subsequent appointment of a liquidator. In support of their application the minority creditors alleged that the administrator's conduct in the administration was improper, in that the administrator:

1. moved too slowly in conducting his investigations;
   
   
2. failed to answer questions on a range of issues at the second creditors' meeting;
   
   
3. did not attend the second creditors' meeting in person (he attended by way of a telephone hook-up);
   
   
4. improperly allowed two proxies to be included for voting purposes at the creditors' meeting; and
   
   
5. failed to take into account the significance of the transfer of shares to a related company (Share Transfer).

In addition to the above, the minority creditors claimed that any liquidator appointed would have strong insolvent trading claims as a consequence of the Share Transfer was likely.

At the second creditors' meeting, the majority of the creditors of the company voted to adjourn the meeting for 45 days. The minority creditors did not consider that the continuation of administration was in their best interests and applied to court seeking orders that the administrator be stood down, and the company be placed into liquidation.

Court findings

Douglas J dismissed the applicants' claims for the following reasons:

1. the conduct of the administrator was not altogether improper so as to warrant the termination of the administration;
   
   
2. the company did not have sufficient funds to investigate, and pursue insolvent trading claims (and litigation);
   
   
3. there was a real possibility that a deed of company arrangement would emerge for the consideration of creditors;
   
   
4. the applicants were not willing to fund the liquidator's (or administrator's) investigations into the insolvent trading claims or the insolvent trading litigation; and
   
   
5. that as the majority of creditors voted in favour of the adjournment, there was no persuasive reason to terminate the administration and appoint a liquidator.

This decision provides administrators with some comfort that the courts are unlikely to terminate their appointment because dissident minority creditors are not satisfied with the administration, unless there are persuasive reasons to do so.  Obviously, the facts in each case will be relevant as to whether those persuasive reasons exist.

If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Dean Hely on 9288 6772 or Joseph Abberton on 9288 6765 respectively.