Was the administrator validly appointed?
A recent Supreme Court of NSW matter considered whether an administrator was validly appointed.[1]
The facts
The director’s resolution to appoint the administrators because the company was insolvent or likely to become insolvent was:
- made when the sole director did not reside in Australia; and
- the sole director who signed the resolution purported to resign shortly before the resolution was passed.
The administrators made an application to the Court to confirm their appointment.
Issues
Issue 1 – the sole director did not reside in Australia
Section 201A(1) of the Corporations Act 2001 (the Act) provides that a company must have at least one director who ordinarily resides in Australia – in this case the director did not reside in Australia at the time of the resolution.
Courts have not previously expressed a concluded view as to whether this renders the appointment of voluntary administrators ineffective.
The Court in this case considered that section 201A(1) does not affect the ability of the company to function and therefore does not affect its ability to appoint an administrator.
Issue 2 – the resignation of the sole director prior to the resolution appointing the administrators
Section 203AB(1) of the Act says that the resignation of a company does not take effect if, at the end of the day that resignation is to take effect, the company does not have at least one director. This means that resignation of the director was not effective.
The Act
The Act gives the Court the power to correct irregularities and declare the administrators’ appointment valid. This is only if:
(a) the relevant act is “essentially of a procedural nature”;
(b) the persons concerned acted honestly; or
(c) it is just and equitable for the order to be made.
Conclusion
If there are potential irregularities in the appointment of an administrator, it is always prudent to seek Court approval.
[1] Hutton, in the matter of Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48
