Application by newly appointed Administrators to adjourn winding up application.
There have been numerous cases in recent years in which the Supreme Court of New South Wales has given judgments regarding the factors to be taken into consideration when there is an application pursuant to section 440A of the Corporations Act2001 (Cth) by Administrators of a company who are seeking to adjourn the hearing of a plaintiffs winding up application. In many instances, these applications are brought just prior to the hearing of the winding up application and sometimes only days after an Administrator has been appointed. Whilst Brereton J has considered section 440A in many judgments in recent years, notably in Re Bobos Engineering Australia Pty Ltd, there continues to be expansion upon the factors relevant to a Court in considering such an application.
In the matter of Dan Phillips Holdings Pty Ltd and Anor, this was an instance where Black J was required to consider such an application in circumstances where the Administrators had been appointed the business day prior to the hearing of the winding up application which in itself had been on foot for a significant period of time.
The plaintiff in the proceedings, Interleasing (Aust) Limited, had brought an application in the Supreme Court of New South Wales to wind up Biglift Cranes and Heavy Haulage Pty Ltd and Dan Phillips Holdings Pty Ltd on 11 January 2017.
The defendants had previously sought to argue that they were both solvent and the Court had previously made Orders for the service of evidence by the parties which included leading expert accounting evidence as to the companies solvency.
However, on or shortly after 31 March 2017, and prior to the listed hearing date of 3 April 2017, the defendants appointed Administrators to the companies. It is particularly relevant to note that the Administrators were purportedly appointed on the Friday in which the hearing was scheduled to take place on the following Monday.
Applications pursuant to section 440A will require the Court to be satisfied that it would be in the interest of the company’s creditors for the company to continue under administration rather than be wound up. Section 440A(2) states: -
The Court is to adjourn the hearing of an application for an Order to wind up the company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
In his Honour’s earlier decision in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd  NSW SC47, Black J noted that where an Administrator had only recently been appointed to a company, the extent of proof required to obtain the necessary adjournment of the winding up application may be less than would arise if an Administrator had been in office for a longer period of time.
In the current matter, Black J also noted, citing Brereton J in Re Bobos, that further factors to consider include whether there are a significant number of creditors opposing the winding up application and whether evidence had been lead of a real prospect of a Deed of Company Arrangement proposed by the company’s director being available.
The matters that raised concern for Black J in the current case, were: -
- That the Administrators were appointed on the eve of the winding up application;
- That an adjournment had previously been granted to the defendants to lead evidence of solvency;
- There seemed to be confusion surrounding the identities of the directors of the companies at various points in time; and
- There appeared to be potential differences between the value of the companies assets recorded in their accounts and the value of fixed assets now disclosed by the companies to the Administrators.
In circumstances where there was no clear proposal for a Deed of Company Arrangement or the identification by the Administrators of some advantage that the creditors would receive by the companies continuing under administration, Black J was not satisfied to adjourn the winding up application and proceeded to wind the companies up.
In particular, Black J noted that section 440A requires the Court to be satisfied of the continued administration being in the interests of the companyies creditors. This “requires a sufficient possibility, and not mere speculation, that the creditors interests will be advantaged by the adjournment”. His Honour noted that the threshold for demonstrating such an advantage is lower for a newly appointed Administrator but that nevertheless there still needed to be “some plausible basis to identify an advantage for the continuation of the administration”.
Matters to Consider
Whilst Black J was covering areas of the law that had previously been determined in the cases mentioned above, the judgment does provide some guidance that is useful for Administrators in situations where they are receiving an appointment to a company which is already subject to a winding up application. We note that the following matters are important for Administrators to consider when taking an appointment in such circumstances: -
- Ensure that you are aware of any Court dates and winding up applications on foot
- Considering if there is sufficient time for you to be able to obtain “real evidence” sufficient to obtain a section 440A adjournment;
- Perform searches of the company ideally on the day of appointment, or if not as close to it as possible, to ensure that the identity of those appointing the Administrator is not controversial;
- Speak to the company’s directors as soon as possible and determine whether there are prospects of a Deed of Company Arrangement proposal being put to creditors. If it is the case that this is a possibility, ensure processes are in place to streamline preliminary evidence of such a proposal including confirmation of the director’s asset position and ability to obtain any funds to be injected into the company pursuant to the Deed.
A submission was also made by the plaintiff’s counsel regarding the impact of the Insolvency Law Reform Act 2016 (Cth) regarding the change of the relation-backdate should the administration continue. The Court declined to consider the submission, however, this will no doubt be a prominent area of the law to be reviewed in the coming months as the relevant Act and Regulations come into force.
It is also worth noting that the Court was at no stage critical of the Administrators actions in this matter and in particular Black J stated “I do not doubt that the Administrators are capable of taking control of the company’s affairs, and would properly administer the company’s affairs in accordance with their duties”.
By Jason Green