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Lecture

8.1 Voluntary Administration

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Department
Law
Course
JSB171
Professor
All Professors
Semester
Spring

Description
Voluntary Administration: Pt 5.3A = Administration of a company‘s affairs with a view to executing a deed of company arrangement Object—Corporate Rescue  Maximise the chance of the company to remain in business: s435A(a); or  Failing that, to manage the business to allow for better results for creditors and members than winding up: s435A(b) Start of voluntary administration When an administrator appointed: s 435C(1)(a) (under s436A, 436B or 436C) Appointor Only three methods of appointment—cannot be appointed by the court: Board of directors by resolution in writing: s436A(1) Board must be of view that— 1. company is insolvent or likely to insolvent at future time: s436A(1)(a) o Insolvent: someone who is not solvent: s95A(2) o Solvent: where someone can pay all of their debts, as and when they become due: s95A(1) o Cashflow test preferred over balance sheet test [→Liquidation] 2. administrator should be appointed: s436A(1)(b)  Cannot be done if already under liquidation (can if under receivership): s436A(2)  Must get consent of administrator Liquidator or provisional liquidator in writing: s436B  Where the company is insolvent, or likely to become insolvent: s436B(1)  If appointing themselves or an associate—require leave of the court: s436B(2)  Narrow—Generally only granted where not too close a connection w company & in best interests of creditors: Re Depsun per Young J  Broad—Depends on whether in public interest & administrator an appropriate person: Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994)  ←eg w Consent of creditors: Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) (liq obtained consent of all secured creditors & 82% of unsecured creditors—had no association w corporation  leave granted) o Rationale—Interests & duties of positions may compete so not ideal: Re Cobar Mines Pty Ltd (receiver and manager appointed in liquidation) Chargee (secured creditor) by writing: s436C  chargee who is entitled to enforce a charge on the whole or substantially the whole of the company's property (s 436C) o Not if the company is already in liquidation o Charge = means a charge created in any way and includes a mortgage and an agreement to give or execute a charge, whether on demand or otherwise: s9 o Does not require an opinion that the company is insolvent ↔ ss436A and B  BUT rare—secured creditors=chargees more likely to go with their security Andrew Trotter LWB334 Corporate Law Eligibility to be Administrator Qualifications Required Registered liquidator only can consent to being appointed as an administrator: ss448B(1)&(2) ((1) person must not consent & (2) does not apply if registered liq)  Registered liquidator = someone registered under s1282(2): s9  Requirements— (s1282(2)) o Educated  member of the Institute of Chartered Accountants in Australia or the Australian Society of CPAs (or equivalent to satisfy ASIC): s1282(2)(a)(i);  university qualifications (or equivalent to satisfy ASIC): s1282(2)(a)(ii);  equivalent to satisfaction of ASIC: s1282(2)(a)(iii); o experienced: s1282(2)(b) o capable: s1282(2)(c)  Offence of strict liability for another person to consent Disqualifications Require leave of court where—  Debtor of >$5000 (debtor or a body corporate they have a holding → company being wound up or related company): s448C(1)(a)  Creditor of > $5000 (creditor → company being wound up or related company): s448C(1)(b)  Related to company o Officer or employee of company: s448C(1)(c) (other than being the liquidator) o Officer or employee of mortgagee: s448C(1)(d) o Auditor of company: s448C(1)(e) o Partner or employee of company auditor: s448C(1)(f) o Partner or employer or employee of company officer: s448C(1)(g) o Partner or employee of employee of company officer: s448C(1)(h) o Insolvent under administration: s448D  Court may also disqualify for lack of independence: Commonwealth of Australia v Irving (1996) (professional relationship as solicitor—personal relationship beyond that as well  professional relationship not a problem, but personal relationship disqualified them) Accepting the administrator’s position Consent must be in writing: s448A(a); and has not withdrawn consent: s448A(b) Removing an administrator  Peron cannot revoke being appointed as administrator: s449A  On application of the ASIC or creditor, court can: o Remove person: s449B(a); and o Appoint someone else: s449B(b). Notification of appointment  ASIC—Lodge a notice of the appointment before the end of the next business day after the appointment: s450A(1)(a)  Public— o Must publish within 3 business days of appointment:  a national newspaper: s450A(1)(b)(i); or  daily newspaper in State or Territory: s450A(1)(b)(ii); o Phrase ‗administrator appointed‘ at the end of the company: s450E(1)  Can be remedied through s1322(4) + Re Vanfox Pty Ltd (1994)  Company—(where appointed by charge under s436C) → in writing as soon as practicable, and in any event no later than the close of the next business day: s450A(2)  Chargees over whole of property—in writing as soon as practicable, and in any event no later than the close of the next business day: s450A(3)(a) (Charge over substantially all property) | s450A(3)(b) (More than one charge, adding up to be over substantially all property) Andrew Trotter LWB334 Corporate Law Failure to give notice as described below does not affect validity of any act done unless court orders: s450F Functions of administrator  Administrator is taken to be acting as an agent of company: s437B Take control & figure out what to do—  Take control of company from directors  Investigate company‘s business, property, affairs & financial circumstances: s438A(a)  Administrator must form opinion about whether in interests of creditors— o to execute DCA: s438A(b)(i) o for administration to end: s438A(b)(ii) o for company to be wound up: s438A(b)(iii)  After forming view—call second creditor‘s meeting under s439A(1) Directors Reporting to Administrator Directors must—  As soon as practicable— o Deliver all books that relate to the company to the administrator: s438B(1)(a); and o If the directors knows where other books are—tell the administrator where they are: s438B(1)(b)  Books—includes register; any other record of information; financial reports or records; document: s9  Within 7 days—give to the administrator a statement about the company‘s business, property, affairs and financial circumstances: s438B(2) Duty to report breaches of law Administrator must lodge report about (s438D(1)(c)) & give ASIC information and access to facilities & documents as ASIC requires (s438D(1)(d)) if—  Past or present employee, officer, member or company have been guilty of an offence: s438D(1)(a)  Person taken part in formation, promotion, administration, management or winding up of company; o Has misappropriated or retained, or become liable or accountable for money or property of the company: s438D(1)(b)(i); or o May have been guilty of negligence, default, breach of duty or trust: s438D(1)(b)(ii); Powers of administrator  All powers of officers: s437A(1)(d). o To control company‘s business, property and affairs: s437A(1)(a); o Carry on business and manage that property and those affairs: s437A(1)(b); o Terminate or dispose of all or part of business, and may dispose of any of that property: s437A(1)(c);  Whatever else necessary for purposes of part: s442A(d) o Remove a director from office: s442A(a) o Appoint a person, such as a director, to fill vacancy or not: s442A(b) o Execute a document, bring or defend proceedings, or do anything else in the company name and on its behalf: s442A(c)  To sell everything before the creditors meeting if required: Brash Holdings Ltd v Shafir (1994)  Court reluctant to interfere w commercial decisions: Patrick Stevedores No 2 Pty Ltd v Maritime Union of Australia Andrew Trotter LWB334 Corporate Law Administrator’s liabilities and right of indemnity Administrator personally liable for ← makes them act conservatively | creditors can have confidence in company  Services rendered: s443A(1)(a);  Goods bought: s443A(1)(b);  Property hired, leased, used or occupied: s443A(1)(c). o This is to take effect despite agreement to contrary: s443A(2). Right to indemnity Can get from company money indemnity for— o debts incurred in Part A (s443A is part of part A): s443D(a); and o Remuneration under s449E: s443D(b)  Administrator‘s right to indemnity is a ―priority payment‖ in winding up, so get paid before unsecured creditors: s556(1)(c)  Policy = to encourage trading Meeting requirements First creditors meeting: s436E  Duty to convene: s436E(1)  Time—within 5 business days after the administration begins: s436E(2) Notice requirements  Time—At least 5 days before meeting: s436E(3)  Form of notice—both— a. Written notice to as many creditors as possible: s436E(3)(a) b. Public notice—  Notice to be published in a national newspaper: s436E(3)(b)(i); or  Daily state newspaper: s436E(3)(b)(ii) At the meeting  Whether a committee of creditors is to be appointed: s436E(1)(a) & determine the members if one is created: s436E(1)(b). o Functions—consultative role  Committee can—  Consult about matters relating to administration: s436F(1)(a) and  Consider and receive reports of administrator: s436F(1)(b)  can require the administrator to report to the committee on matters relating to administration: s436F(3)  Cannot give directions to creditors: s436F(2) o Membership—following can be a member—  Creditor: s436G(a);  Attorney of creditor before of general power of attorney: s436G(b);  Anyone authorised by creditor in writing: s436G(c).  Can also consider whether to remove the administrator (s436E(4)(a)) and appoint a different one: s436E(3)(b) o Doesn‘t happen very often but does happen: Ansett Curing procedural defects Court order can cure procedural defects: s1322(4) & Re Vanfox Pty Ltd (1994) (calling meeting 8 days too late  validated)  If first creditors meteing not held at all → abuse of provisions & administration should end: s447A(2)(b) on application of coy, creditor, ASIC: s447A(4) Andrew Trotter LWB334 Corporate Law Second meeting  Must call meeting after forming view (s439A(1)) about whether in interests of creditors— o to execute DCA: s438A(b)(i) o for administration to end: s438A(b)(ii) (virtually never happens) o for company to be wound up: s438A(b)(iii) Time  within 5 business days before or after the end of the convening period: s439A(2) o not before end of 5 days: Australasian Memory Pty Ltd v Brien (2000) (where meeting held before end of convening period—everyone assuming it was ok, getting on with business  corrected w 447A)  BUT court can remedy: Australasian Memory Pty Ltd v Brien o not after end of 5 day period  Convening period o Calculated from day when the administration began or next business day  Generally—20 business days: s439A(5)(b)  If called in December, or 25 business days before Good Friday—25 business days: s439A(5)(a) o Calculating convening period—include the day the administrator was appointed: Cawthorn v Keira Constructions Pty Ltd (1994)  Start counting from day after appointment (eg 10 Nov—start counting 11 Nov Extensions  Court can extend the period on application ―as the case requires‖: s439A(6) (generally for 3 or 4 months—longest ever 18 months): ABC Learning Centres o Can apply even after convening period has finished: s439A(7) o Speed for its own sake should not be paramount—important thing is to have proper investigation: Re Tracker Software (Australia) Pty Ltd (Administrator Appointed) (1997) (needed more time to make recommendations—committee of creditors supported extension  extension allowed) o Requires some degree of particularity but no special ground: Re Levi (1996) (supplementary affidavit provided by administrator) o For example—  Complex investigations required into business: Re Tracker Software (Australia) Pty Ltd (Administrator Appointed) (1997) (needed more time to make recommendations—committee of creditors supported extension  extension)  To allow for complex negotiations to finalise: Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor (2000) (negotiations with prospective purchaser—difficulties ascertaining accurate financial position of company  extension allowed—increased to 45 days)  Where doing his best but would not have enough material to give full and accurate position of company at meeting: Mann v Abruzzi Sports Club Ltd (1994) (no prejudice to creditors or members—administrator doing the best he could  extension granted) o Where creditors consent: Re Tracker Software (Australia) Pty Ltd (Administrator Appointed) (1997) (needed more time to make recommendations—committee of creditors supported extension  extension allowed); Re Geraldton Building Co Pty Ltd (Administrators Appointed); ex parte Trevor (2000)  OR creditors can adjourn the meeting for up to 45 business days after the first meeting was held: s439B(2) (must actually hold the meeting, but just for the sake of adjourning it) o Court can further extend the 60 day time limit under s447A; Re Taylor (1995) (auditor did not have time to learn financial affairs—would not materially prejudice  extended) Non-compliance  the administration ends: s435C(3)(b)(i)  However, this can be remedied by s447A: Australasian Memory Pty Ltd v Brien (2000) Andrew Trotter LWB334 Corporate Law Place  Where a majority of creditors (in number not in value) are situated: Reg 5.6.14; M&G Oyster v Nonchalont Notice  At least 5 business days before the meeting: s439A(3)  Notice requires the phrase ‗administrator appointed‘ at the end of the company: s450E(1) o Can be remedied through s1322(4) + Re Vanfox Pty Ltd (1994) o In any case does not affect validity: s450F Written notice to as many of the company‘s creditors as possible: s439A(3)(a);  Notice must contain reports – such as report by administrator about the company‘s business, property, affairs and financial circumstances: s439A(4)(a); and o Statement of administrator‘s opinion & reasons on best interests of creditors—  Execute a deed of arrangement: s439A(4)(b)(i);  And where this is proposed – a statement setting out its details: s439A(4)(c);  End administration: s439A(4)(b)(ii);  Wind up company: s439A(4)(b)(ii); Publishing a notice  In a national newspaper: s439A(3)(b)(i); or  In a daily newspaper in each state or territory where the corporation‘s registered office is: s439A(3)(b)(ii)  Include options: DCA / end / wind up: 439C Outcomes  Creditors must resolve to do one of three things: o Company must execute a deed of company arrangement: s439C(a); o Administration should end: s439C(b); o Company was to be wound up: s439C(c)  Any of these decisions will make the administration end: s435C(1)(b) & s435C(2)(a), (b), (c)  Options an irregularity → withdraw notice & apply for extension (439A(6)) or apply for order validating (447A(1), 1322(4)) During Administration Must Note (administrator appointed)  All public documents & negotiable instruments must state (administrator appointed) after co name: s450E(1). o ‗Publi
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