Court intervenes to validate appointment of administrator failing a quorum of directors

In HPI Australia Pty Ltd [2008] NSWSC 1106 , the court was asked to validate the appointment of the administrator to the various companies comprising the Bridgecorp Group. 

These companies had only one director, however, the constitution of each company provided that there cannot be less than two directors, and that two directors shall constitute a quorum.

Also, two of the companies, Ce'Nedra Pty Ltd and North Ryde Hotel Pty Ltd, had provisions in their constitutions prohibiting directors from acting if their number was below the number fixed for a quorum of two directors, except in the case of emergency, for the purpose of filling vacancies or to convene a general meeting. 

Barrett J was 'satisfied that a company faced with a need to take action to appoint administrators because of insolvency or expected insolvency should be regarded as facing a situation of "emergency".'  

An order was made pursuant to section 447C of the Corporations Act 2001 (Act) validating the appointment of the administrator.

The constitutions of another two companies, HPI Australia Pty Ltd and HPI Parramatta Pty Ltd, did not provide that a director may act alone in a situation of emergency. 

A similar situation existed with respect to North Ryde Property Pty Ltd.  Whilst the company's constitution was not made available to the Court, Barrett J assumed that it would either have a constitution similar to that of the previous two companies or if there was no constitution, the replaceable rules would apply.  In both instances, a quorum of at least two directors is required to validly appoint an administrator. 

HPI Australia, HPI Parramatta and North Ryde Property were considered together by Barrett J who held that in each case, the appointment of the administrator was, 'clearly enough, desired by the one person who was in office as a director at the time - the person who had been left by the members to be the sole director.' 

There was no evidence before the court to suggest the appointment represented anything other than the corporate will of each company. 

In each of these three cases, orders were made under section 477A of the Act to validate the appointment of the administrator. 

The decision shows that where there are not enough directors to constitute a quorum, a court may validate the appointment of an administrator if it is made by a director in good faith.    

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, Tim Coyle on 9288 6761 or Brad Sandover on 9288 6724 respectively.

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.