Pleash use caution: Clarity on an administrator’s obligations before accepting appointment from a secured creditor

In the case of Patel v Pleash [2025] FCA 77, the Federal Court of Australia considered an application commenced by the directors of Jubilee Infrastructure Pty Ltd (Jubilee) against the voluntary administrator of Jubilee.

Section 436C of the Corporations Act 2001 (Cth) (Act) authorises a person who is entitled to enforce a security interest in the whole of a company’s property to appoint an administrator if the security interest has become and is still enforceable.

In this case, the directors claimed that the administrator’s appointment to Jubilee was not within the confines of section 436C of the Act on the basis there was no relevant and enforceable security interest.

The facts

The plaintiffs, Mr Patel and Mrs Lakhani, were directors of Jubilee. Jubilee entered into a contract with the City of Port Adelaide Enfield to purchase and develop particular property in South Australia (Property).

The directors asked a Mr Khoja (a director of Jubilee, the purchaser nominated by Mr Khoja) to make enquiries about obtaining finance in the amount of $10 to $15 million to assist Jubilee to purchase and develop the Property.  The directors were informed that Mr Salim, who was the sole director of iLend Capital Pty Ltd (iLend), a loan broking business, would be able to obtain the loan on behalf of Jubilee.

On 11 February 2022, the directors entered into a brokerage agreement with iLend (Agreement).  It was a term of the Agreement that the directors would have to provide security.  iLend subsequently sent the directors an offer of finance.  The terms of the offer were lower than what the directors had sought as well as a higher interest rate.  Subsequently, the directors rejected the offer.

On 31 October 2022, an email was sent to the directors alleging that they were “in default” of their “payment to iLend Capital”.  On the same day, iLend registered an AllPAP security interest against Jubilee on the PPSR (Security).  At that point in time, iLend had not provided any finance offer to Jubilee.

On 2 December 2022, iLend appointed Mr Pleash as administrator (Administrator) over Jubilee pursuant to section 436C of the Act.

On 16 December 2022, the Federal Court ordered that the administration over Jubilee end. In the proceedings the directors made further claims, which included claims for a declaration that the Administrator’s appointment over Jubilee was invalid.

Relevantly, one of the issues considered by the Court was whether the appointment of the administrator to Jubilee was valid.

Statutory provisions

Section 435A states that the object of Part 5.3A of the Act is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

• maximises the chances of the company, or as much as possible its business, continuing in existence; or
• results in a better return for the company’s creditors and members than would result in an immediate winding up of the company.

Section 436C(1) of the Act provides that a person who is entitled to enforce a security interest in the whole, or substantially the whole, of a company’s property may by writing appoint an administrator of the company if the security interest has become, and is still, enforceable.

The appointment of an administrator under this provision is not part of the process of enforcing a security, nor is it an alternative to the statutory demand process to recover a debt.  The statutory power to appoint an administrator pursuant to s 436C must be exercised for the purpose for which it is conferred, meaning the power must be exercised consistent with the object of Part 5.3A.

The Decision

The Court noted that in the context of section 436C, the requirement for an administrator to consent to an appointment acts as a “guardrail” on a secured creditor’s ability to appoint an administrator to a company over which the creditor holds security.¹

It was further noted that an administrator also has an obligation to take steps to satisfy themselves of the validity of their appointment.  In this regard, the Court also addressed some of the limitations to an administrator’s obligations.  For example, where an appointment has been made by directors of a company, an administrator is not required to undertake “some form of independent verification of the factual basis on which the directors proceed in that appointment”.²

The Judge held that an administrator’s statutory function under section 436C of the Act extends to taking reasonable steps to being satisfied based on the information available to the administrator that the secured creditor is entitled to make the appointment before the administrator gives its consent to act.³  The reasonable steps required will depend on the facts of the case.

In this case, Mr Salim sought advice from Mr Pleash on the administration process as a means of debt recovery.   Accordingly, the Administrator understood that the main purpose of his appointment was to recover a debt from Jubilee which Mr Salim contended was due to iLend.   The Administrator also contended that in order to accept the appointment, he had to be sure that there was a debt due and payable and unless he was satisfied of those circumstances, he would not have accepted the appointment.

The Judge noted that the Administrator relied on the information he was given by Mr Salim and iLend, without scrutinising the integrity of that information.  The documents provided had included the Agreement, a copy of the offer of finance that was rejected by Jubilee, and the PPSR tax invoice for the Security.  It was also noted that Mr Pleash had accepted two earlier appointments referred from Mr Salim that also related to the recovery of debts.

Mr Pleash did not query any of the documents provided to him before accepting the appointment as administrator of Jubilee and did not make any further enquiries despite identifying anomalies on some of the documents.  Further, no instructions or information was sought from Mr Salim as to whether any other offers of finance had been provided by iLend to Jubilee.  Consequently, the Judge found that Mr Pleash failed to take appropriate steps to satisfy himself that iLend was entitled to appoint him as an administrator under section 436C.

In addition, the deed of appointment did not make any express reference to any charge over real property.  It was also the case that the Security was not registered within the time required by section 588FL(2)(b) of the Act, the result of which any security interest that arose under the Agreement vested in Jubilee on the date of Mr Pleash’s appointment.  Therefore, the Security was not available as a basis for the appointment.

The Judge noted that the circumstances of Mr Pleash’s appointment clearly showed that iLend and Mr Salim were acting for an “extraneous and impermissible purpose”.⁴  Even if debt recovery fell within the scope of the purpose of section 435A, Mr Pleash did not satisfy himself of whether Jubilee did, in fact, owe the debt claimed by iLend.

The appointment was accepted principally on the basis of the Security.  If Mr Pleash had reviewed the documents provided by iLend, Mr Pleash would have found that, amongst other things, the purported Security had not been perfected and could not be relied upon to support his appointment and iLend was not entitled to appoint an administrator.

The Judge confirmed that the use of the power under section 436C to appoint an administrator for debt recovery was an abuse of process analogous to using the statutory demand procedure as a lever to obtain payment of a debt which is in a bona fide dispute.⁵

The Judge held that iLend did not have an enforceable security interest to use section 436C and that Mr Pleash’s appointment as administrator arose from an abuse of the legislative scheme and the power granted by section 436C.  Accordingly, a declaration was granted under section 447C of the Act that Mr Pleash’s appointment was not valid.

Lavan Comment

This case is an important cautionary tale for registered liquidators to take care and use reasonable steps to make enquiries and satisfy themselves that there is a proper basis for an administrator appointment under section 436C of the Act.

If an administrator does not exercise such caution in determining whether section 436C of the Act has been properly enlivened, he or she risks having his or her appointment declared invalid.

The case also highlights the importance for secured creditors and registered liquidators to ensure that the appointment of an administrator is within the scope of the object of Part 5.3A of the Act.

If you have any questions regarding this decision or the matters in this paper, the experienced Lavan team is here to help.

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.

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