Appointment of voluntary administrator adjourns winding up application?

The recent Federal Court decision ofGRD Building Pty Ltd v Total Development Supplies Pty Ltd (Administrators Appointed) [2008] FCA 2017  concerned the effect of the appointment of an administrator on an application to wind up a company in insolvency.

On 6 February 2008, two days prior to the hearing of an application to wind up Total Development Supplies Pty Ltd (Total), Messrs Stephen Duncan and Christopher Powell were jointly and severally appointed as administrators of Total (Administrators) by resolution of Total's director.

Where an administrator has been appointed to a company, section 440A(2) of the Corporations Act 2001 (Cth) requires the Court to adjourn a winding-up application if it is satisfied that it is in the interests of the company's creditors for the company to continue under administration as an alternative to proceeding with the winding-up.

In this instance, Reeves J was not satisfied that it was in the interests of Total's creditors for the administration to continue because:

  1. Total had ceased trading;

  2. there was insufficient evidence that there was any real possibility of a genuine deed of company arrangement proposal;

  3. there was evidence before the Court that raised questions as to whether the director of Total had intentionally misled the Administrators in order to gain access to Total's assets through a misuse of the administration process; and

  4. he had already granted two short adjournments (in order to allow Total and the Administrators an opportunity to provide evidence as to whether it was in the interests of Total's creditors for the company to remain in administration which evidence was insufficient).

In particular, Reeves J noted several key facts that were missing from the Administrators' affidavit that should have been disclosed to the Administrator by the director and included in the Administrators' affidavit.

This case serves as a useful reminder to insolvency practitioners that Courts will not adjourn winding-up applications simply because of the appointment of administrators, and that administrators of companies subject to winding-up applications must provide the Court with tangible and other detailed evidence that there is a real possibility that the administration process would result in a return to creditors greater than a liquidation scenario.

If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Alison Robertson on 9288 6872,  Simon Majteles on 9288 6763 or Joseph Abberton on 9288 6765.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.