Courts Support Administrators During COVID-19 Lockdown

Recent cases have confirmed that the courts are willing to use their powers under the Corporations Act and Schedule 2 of the Corporations Act1 to assist administrators in carrying out their duties having regard to the impact of the COVID-19 pandemic and the social restrictions imposed by the Federal and State governments.  Although there are now a number of such cases, the decisions highlighted in this note are:

  • Eagle, in the matter of Techfront Australia Pty Ltd (administrators appointed) [2020] FCA 542 (Techfront Case); and
  • Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571 (Virgin Case).

In both of these cases, the administrators led evidence as to the impact of the COVID-19 restrictions on the conduct of the administrations, including the ability to conduct the relevant investigations within the time periods contemplated by the Corporations Act, and applied to the Federal Court seeking orders for:

  • approval to send notices to creditors via email;
  • approval to hold creditors’ meetings via video-link or telephone; and
  • extensions of time to give notice to disclaim leased equipment and property. 

Decision - Notice and Meetings

In the Techfront Case, Farrell J found that:2

The COVID-19 pandemic and the steps taken by the State and Federal Governments to respond to it have delayed the administrators’ conduct of the administration.

The administrators’ staff at KPMG have been required to operate remotely with limitations on persons being able to work in close proximity to each other…

In these circumstances, Farrell J went on to hold that in relation to the orders sought regarding electronic communication:3

…it is clearly desirable that such orders be made to facilitate the voluntary administration of the Companies.

As Perram J said in Capic v Ford Motor Company of Australia Limited (Adjournment), it is apparent that public institutions such as the Court must do all they can to facilitate the continuation of the economy.4

In the Virgin Case, Middleton J considered the evidence of the administrators regarding the impact of the COVID-19 restrictions and held that:5

…the COVID-19 pandemic, and the consequent restrictions on the movement and behaviour of people, is a reason to apply flexibility in the application (and perhaps adaption) of existing laws.

In my view, there is no practical impediment to meetings of creditors (including the First Meeting) being held by electronic means and it is appropriate (if not necessary) that this occur.

Decision - Extension of time to disclaim leases

In the Techfront Case, the Court accepted the administrators’ evidence that they had acted promptly in communicating with the lessors to obtain information regarding the leased equipment and property but had not been able to obtain sufficient information to make a decision as to all of the leased property in time due to the physical distancing requirements.6

In the Virgin Case, the Court also accepted the administrators’ evidence as to the increased time required for investigating the company’s leases and held that:7

I accept that the Administrators will require further time to consider the ongoing value to the Virgin Companies of the various property the subject of the leasehold interests and, accordingly, that the extension of time is designed to assist in identifying and retaining assets that are necessary to preserve and enhance the value of the Virgin Companies’ operations as part of a positive restructure of the business.

In both cases the Court found that it was appropriate to extend the time to disclaim the leased property, meaning the administrators were relieved of personal liability during the period of the extension.

Lavan comment

These cases confirm that the Courts are willing to assist administrators in overcoming the legal and practical difficulties that may be experienced in carrying on an administration due to the social distancing requirements imposed by the Federal and State governments.

If you consider that similar court orders will assist you in the conduct of an administration, Lavan’s Reconstruction, Recovery and Insolvency team will be able to assist.

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.