The recent decision of Re Australian Property Custodian Holdings Ltd (Administrators Appointed) (Receivers and Managers appointed) [2010] VSC 492 (Proceedings) concerned the appointment of the administrators to Australian Property Custodian Holdings Ltd (the Company).
The administrators were appointed to the Company by a secured creditor pursuant to section 436C of the Corporations Act 2001 (Cth) (the Act). At a meeting on 18 October 2010 (the Meeting), the board resolved to appoint the administrators to the 18 wholly owned subsidiaries of the Company pursuant to section 436A of the Act.
The directors of the Company did not pass resolutions appointing the administrators to the Company as they had already been appointed by the secured creditor.
The appointment of the administrators to the Company was found to be invalid by reason of the fact that the secured creditor’s charge was not found to be over the whole, or substantially the whole, of the Company’s property.
The administrators sought orders pursuant to section 447A and section 1322(4) of the Act to cure their appointment.
Sifris J considered that if the appointment by the secured creditor had not been made, the board of directors would have passed a resolution to appoint administrators in accordance with section 436A of the Act as they had done in relation to the wholly owned subsidiaries. It was reasonable to infer that the directors were of the same opinion in relation to the solvency of the Company as it was with regard to the subsidiaries. The only reason why the board did not pass such a resolution at the Meeting was because the secured creditor had already done so.
His Honour noted that section 447A of the Act has been interpreted very broadly by the courts. The section has been used in many different contexts, both procedural and substantive, including curing defective appointments.
His Honour did not think this was an appropriate case for recourse to section 1322(4) of the Act which is of more general application in relation to procedural irregularities.
Sifris J commented that it may well be that section 447A of the Act is broad enough to overcome the defect in the appointment in relation to section 436C of the Act arising out of the limited charge. His Honour expressed some reservations about using section 447A of the Act to overcome an express statutory pre-condition to appointment.
Ultimately, Sifris J made orders that the administrators were validly appointed to the Company by resolution of the board of directors of the Company at the Meeting pursuant to section 436A of the Act. His Honour stated the order merely regularises what was always intended and what the parties thought the situation to be.
His Honour was of the opinion that section 447A of the Act can be used to cure a defective appointment which is probably void ab initio and that it should be used in circumstances such as these, where an appointment was intended and indeed assumed to have taken place. The order in effect validates the conduct of the Administrators engaged in since the Meeting.
Lavan comment
The decision should provide a degree of comfort to insolvency practitioners acting as administrators where there is doubt about technical aspects of their appointment. A significant body of case law now demonstrates that section 447A of the Act will be applied liberally by the courts for the benefit of administrators. Absent the orders by Sifris J in this case the appointment of the administrators would have been void ab initio. The administrators may well have been personally liable with respect the liabilities and debts incurred and would have had no recourse in respect their fees and remuneration. With benefit of ‘the magic’ section 447A of the Act, administrators can collectively breathe a sigh of relief.
For more information please contact Alison Robertson, Partner on (08) 9288 6872 / alison.robertson@lavanlegal.com.au.
