In the recent case of Mansfield (Liquidator), In the matter of NR Complex Pty Ltd (In Liquidation) (Receivers and Managers Appointed)  FCA 614, the Federal Court of Australia considered an application by the liquidator (Liquidator) of NR Complex Pty Ltd (In Liquidation) (Receivers and Managers Appointed) (NRC) to be appointed as voluntary administrator of NRC pursuant to section 436B(2)(g) of the Corporations Act 2001 (Cth) (Act).
During the liquidation of NRC, the Liquidator received a proposal for a deed of company arrangement and subsequently applied for orders appointing himself as the voluntary administrator of NRC so that the deed proposal could be considered by the creditors of NRC. The Liquidator also sought a suite of orders staying the winding up of NRC and truncating the voluntary administration of NRC.
In his decision, Justice Halley provided a useful refresher of the principles relating to the ‘reversal’ of an insolvency company out of liquidation into voluntary administration.
NRC was incorporated on 3 March 2011, and was a developer of residential and commercial properties. NRC was placed into receivership on 3 December 2020 and was subsequently wound up by the Court on 7 December 2022.
The unsecured claims in the liquidation of NRC exceeded $22.8 million, and the Liquidator concluded that there were insufficient funds in the liquidation to permit the declaration of a dividend to any class of creditor. Any future dividend would depend on recoveries, but the Liquidator considered these to be uncommercial to pursue. There was also no funding in the liquidation of NRC.
Subsequently, on 29 May 2023, the Liquidator received a proposal for a deed of company arrangement (DOCA) and received $450,000 from the deed proponents to:
The Liquidator reviewed the proposal and formed the view that the effectuation of the DOCA would see a better return to participating unsecured creditors by circa 2.51% to 2.63% than if NRC was wound up.
The Liquidator then applied to the Court for, amongst other things, the following orders:
The Deputy Commissioner of Taxation (DCT), being the principal creditor of NRC, was represented at the hearing of the application. Save for proposing some amendments to the orders sought by the Liquidator, the DCT did not oppose any of the orders sought in the application.
Section 436B(1) of the Act provides that a liquidator or provisional liquidator of a company may, by writing, appoint an administrator of the company if he or she thinks that the company is insolvent, or is likely to become insolvent at some future time. However, section 436B(2)(g) provides that a liquidator or provisional liquidator of a company must not appoint himself or herself as administrator unless the appointment is made with the leave of the Court.
Justice Halley cited numerous case authorities dealing with applications of this kind and reaffirmed that the following matters are relevant to the granting of leave pursuant to section 436B(2)(g) of the Act:
Justice Halley ultimately granted leave for the Liquidator to appoint himself as voluntary administrator of NRC. In reaching that conclusion, his Honour made the following observations:
Overall, Justice Halley was satisfied that there was an advantage to the efficient administration of NRD in maintaining continuity between the liquidation and voluntary administration of NRC.
The Liquidator sought orders under section 447A to alter the conduct of the proposed administration, including:
Section 447A(1) of the Act empowers the Court to make any orders it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company. Justice Halley cited the prevailing case authorities of Strawbridge, In the matter of Virgin Australia Holdings Limited (Administrators Appointed) (No 2)1 and Australasian Memory Pty Ltd v Brien2 and reaffirmed that:
Justice Halley made the orders sought by the Liquidator under section 447A to alter the conduct of the administration of NRC because the orders sought would facilitate the administration of the business, property and affairs of NRC in a way that may well result in a better return for its creditors than would result from an immediate winding up. Justice Halley noted that this was consistent with the object of Part 5.3A of the Act.
Section 482(1) of the Act provides that on an application by a party with standing (pursuant to section 482(1A)), a Court may, at any time during the winding up of a company, make an order:
Justice Halley cited In the matter of Equiticorp Australia (In Liquidation) and Ors3 and Hughes, In the matter of Vah Newco No.2 Pty Ltd (In Liquidation)4 and reaffirmed that the stay of a winding up upon the appointment of an administrator “may be appropriate where it is designed to facilitate the proposed restructuring transaction and finalise the external administrations (rather than restore the company to ordinary trading operations)”.
His Honour was satisfied that the winding up of NRC should be stayed on the basis that a continuation of the liquidation in parallel with the voluntary administration would be “duplicative and wasteful”. By ordering a stay of the winding up, the Court retained the discretion to consider whether it would be in the creditors’ interests for the termination of the liquidation to occur at a later point in time.
This case serves as a reminder that a liquidator can reverse a company out of liquidation into voluntary or deed administration if he or she forms the view that the interests of the creditors and the company would be best served by avoiding a winding up and allowing the company to enter into a deed of company arrangement.
The decision provides a useful example of the orders that should be sought by a liquidator for the transition of an company from liquidation into voluntary or deed administration.
If you have any questions regarding the transition of a company from liquidation into voluntary or deed administration, the experienced Lavan team is here to help.
  FCA 717,  (Middleton J).
 (2000) 200 CLR 270,  (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ).
  NSWSC 143.
  FCA 1121.