Consideration
18 The principles to be applied on the present application are helpfully summarised in the plaintiffs' written submissions. I do not propose to survey those principles in any detail in these reasons. They are not controversial.
19 There is no doubt that the power under s 90-15 of the Insolvency Practice Schedule (Corporations) extends to the giving of judicial advice and direction. However, this power is not appropriately exercised where the Court is being asked to do no more than sanction the making and implementation of a business or commercial decision in respect of which no particular legal issue is raised or in respect of which there is no potential to bring into question the propriety or reasonableness of the decision. As explained by Goldberg J in In the matter of Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; 115 FCR 409 at [65] - [66] in relation to the former s 447D(1) of the Act (which conferred the power to give directions):
65 … the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment.
66 The administrators may be correct in their submission that there is no rule of law and no fixed principle that a consideration of commercial issues is precluded, as the jurisdiction of the Court to give directions under provisions such as s 447D and s 479(3) of the Act is discretionary. The exercise of that discretion will vary depending upon the nature and novelty of the matters and issues which are brought before the Court. From time to time, the Court is necessarily drawn into a consideration of commercial issues where there is a matter giving rise not only to the need to make a business or commercial decision, but also to issues of propriety, power, reasonableness of conduct, contested issues of legal principle or procedure or challenges to the decision made by the liquidator or administrator. Such a situation arose, for example in Re Codisco Pty Ltd (supra), Sanderson v Classic Car Insurances Pty Ltd (supra) and Re Addstone Pty Ltd (in liq) (supra). Nevertheless, there is the well-established principle to which I have referred, namely that a court will not give directions approving of a commercial or business decision made by a liquidator or administrator where the decision is within the power of the liquidator or administrator, and there is no challenge to it or other issue arising in relation to it such as propriety or reasonableness, or calling for the exercise of legal judgment.
20 Speaking more recently, Farrell J summarised the Court's approach in the following terms in Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167 at [42] - [44]:
42 Section 90-15(3)(a) confers a broad power on the Court to make "an order determining any question arising in the external administration of the company". Where judicial advice is sought in the context of an administration, the only statutory constraint on the exercise of that power is the need to consider whether or not the provision of that advice advances the objects of Part 5.3A set out in s 435A of the Corporations Act and is not inconsistent with the objects of the IPSC set out in s 1-1(2) with respect to administrations.
43 Courts commonly take some guidance from principles applied to the provision of judicial advice under previous regimes. It is uncontroversial that powers of this kind are intended to facilitate the performance of an external administrator's functions and should be interpreted widely to give effect to that intention where it is advantageous to the administration, but Courts will generally be reluctant to give directions concerning the making or implementation of a business or commercial decision: see In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 (Black J) at [9]. Further, the protection afforded by such an order must be predicated on the external administrator having made full and fair disclosure of all relevant facts and circumstances to the Court: see Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 at [44] (Goldberg J).
44 Some care should be taken with the application of principles derived from the statutory predecessors of ss 90-15(1) and (3)(a) to ensure that the power conferred by those provisions is not constrained by limitations imposed by no longer enacted requirements. As noted by Gleeson JA in In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355 at [8], unlike the now repealed ss 479(3) and 511 of the Corporations Act, s 90-15(3)(a) accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties. Having said that, as I remarked in GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [33]: "despite the breadth of s 90-15(1), it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration".
21 The exercise of a power of sale necessarily involves a "business and commercial decision". However, courts have been prepared to sanction, by direction (such as now sought), an administrator's exercise of that power where there is the potential for issues of "propriety or reasonableness" to be raised with respect to the making of the decision: Re Eisa Ltd (administrators appointed) [2000] NSWSC 940; (2000) 35 ACSR 394; Re Advanced Medical Institute Pty Ltd (administrators appointed) [2011] NSWSC 574; Killer, in the matter of North Coast Wood Panels Pty Ltd (administrators appointed) [2011] FCA 776, per Greenwood J at [58]; Re Keystone Group Holdings Pty Ltd (administrators appointed) [2016] NSWSC 1604, per Black J at [6] to [7]; and Reidy, in the matter of eChoice Ltd (administrators appointed) [2017] FCA 1582. Such is the present case.
22 The administrators have applied to the Court because they are concerned that the sale of the business has occurred in circumstances where: (a) they have not publicly advertised the business for sale; (b) the period in which the business has been offered for sale has been limited; (c) BidCo is a company owned and controlled by two directors of the company; (d) the company's creditors have not had the opportunity to vote on the sale of the business; and (e) the sale of the business is not proposed as part of a deed of company arrangement. They have thus exercised their power of sale in "unusual circumstances", and those circumstances might raise issues about the "reasonableness and propriety" of that sale. This is particularly so where it appears that there are, and remain, matters in dispute between Mr Omoniyi, on the one hand, and the other directors of the company, on the other, as to the conduct of the company's affairs.
23 In addressing the circumstances of the sale, the administrators submit that, in order to preserve the value of the business, they would have had to continue its operation until the business was marketed and sold. However, the company does not have the cash available for that to occur. They concluded that, unless the business was sold very quickly, its value would be completely lost and the company's creditors would receive nothing.
24 Thus, it was not possible for the administrators to conduct a sale of the business in the usual way; there were no cash resources to fund the usual advertising and marketing campaign, and they simply did not have the time to conduct such a campaign because of their inability to fund the continued operation of the business.
25 Although the administrators would have preferred to negotiate with arms-length purchasers, this was also not possible. In the unusual circumstances that confronted them, the administrators decided that the best - in fact, the only reasonable - course available to them was to try to sell the business to the company's directors and shareholders because those parties were best placed to appreciate and understand the value of the business, and they were necessary stakeholders for the business' continued operation.
26 Moreover, because BidCo's offer would expire at 12.00 pm on 1 November 2021, the administrators did not have the luxury of making "no decision".
27 The sale of the business to BidCo necessarily precludes the potential for a deed of company arrangement. The administrators submit that this is, perhaps, of little significance because, consistent with the other objectives set out in s 435A of the Corporations Act, the sale of the business to BidCo maximises the chances of the business continuing in existence, albeit in the hands of BidCo, and otherwise results in a better return to creditors than an immediate winding up of the company. I agree.
28 Section 437A(1)(c) of the Act confers power on the administrators to sell the company's business. The administrators exercised their commercial judgment in that regard and have sold the business to BidCo in the circumstances described above. Through Mr Goyal's affidavit, the administrators have explained the commercial rationale for accepting BidCo's offer. By their present application, the administrators are not asking the Court to approve or sanction their exercise of judgment for accepting that particular offer. Rather, they are seeking the Court's direction as to the appropriateness of completing the sale, to which they have already agreed, where, in other circumstances, the sale process would have occurred differently. In other words, they seek the Court's protection for conducting the sale process in the way they have.
29 Having regard to the explanation provided, and to Mr Goyal's affidavit, I am satisfied that the decision taken by the administrators to sell the business at the present time, and the steps taken by them in relation to the sale process, in the difficult circumstances confronting them, was reasonable and justified, and that it is appropriate to make the order they seek under s 90-15 of the Insolvency Practice Schedule (Corporations).
30 As to the making of orders under s 37AF of the Federal Court of Australia Act 1976 (Cth), I am prepared to make the orders that the administrators seek, provided they are limited in time to the completion of the sale to BidCo. I see no justification for the orders beyond that time. The administrators have agreed to this limitation.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.