Orders 1 and 2: modification of s 443A in respect of personal liability
16 In view of the size of the transaction and the sums involved, the administrators are not willing to incur personal liability in relation to the CDE Contract, or an unlimited personal liability in relation to the EFIC Loan. However, notwithstanding the exclusion and limitation of personal liability under the CDE Contract and the EFIC Loan, by entering into those transactions, the administrators will incur personal liability in respect of debts arising under those agreements by operation of ss 443A(1) and (2) of the Act. Sections 443A(1) and (2) of the Act provide as follows:
(1) The administrator of a company under administration is liable for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator, for:
(a) services rendered; or
(b) goods bought; or
(c) property hired, leased, used or occupied, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods; or
(d) the repayment of money borrowed; or
(e) interest in respect of money borrowed; or
(f) borrowing costs.
(2) Subsection (1) has effect despite any agreement to the contrary, but without prejudice to the administrator's rights against the company or anyone else.
17 Accordingly the administrators sought a modification of the operation of s 443A of the Act to exclude personal liability for the debts incurred arising out of or in connection with the CDE Contract and the EFIC Loan. It is undoubted that the Court has the power under s 447A to make the orders sought which would have the effect of limiting the administrators' personal liability for the debts incurred under the CDE Contract and the EFIC Loan that would otherwise attach by operation of s 443A and there is authority that such an order in appropriate cases will be made. These authorities were considered in Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (administrators appointed) (ACN 008 667 285) and Another (2010) 82 ACSR 142. At [28]-[34] Gilmour J stated as follows:
[28] It is well established that the Court has power under s 447A of the Corporations Act to order an indemnity where the indemnity available to the administrator under s 443D is insufficient or in doubt, in order to satisfy the debts for which the administrator is personally liable pursuant to s 443A: Mentha, Re Spyglass Management Group Pty Ltd (2004) 51 ACSR 432; [2004] FCA 1469.
[29] It is also well established that the Court has power under s 447A of the Corporations Act to make orders to limit the administrators' personal liability under s 443: Hayes Re Estate Property Group Ltd (admins apptd) [2007] FCA 1393; Re Malanos [2007] NSWSC 865 (Re Malanos); Re View Gold Pty Ltd, View Resources Ltd & View Nickel Pty Ltd; Ex Parte Saker [2008] WASC 241 (Re View); Re Great Southern Infrastructure Pty Ltd; Ex parte Jones [2009] WASC 161 (Re Great Southern); Carter, Re SFM Australasia Pty Ltd (admin apptd) [2009] FCA 360; and Vision (Brisbane) Pty Ltd (admins apptd) [2010] FCA 186.
[30] The principles governing the granting of an application for orders under s 447A to vary the liability of administrators under s 443A can be summarised as follows:
(a) the proposed arrangements are in the interests of the company's creditors and consistent with the objectives of Part 5.3A of the Corporations Act: Re Great Southern at [13].
(b) typically the arrangements proposed are to enable the company's business to continue to trade for the benefit of the company's creditors: Re Malanos at [9] and Re View at [17].
(c) the creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement: Re View at [18], and also Re Application of Fincorp Group Holdings Pty Ltd [2007] NSWSC 628 at [17].
(d) notice has been given to those who may be affected by the order: Re Great Southern at [12].
[31] Most of the cases where the courts have exercised its power under s 447A to vary the administrator's personal liability under s 443A have involved administrators borrowing funds during the period of the administration. The orders typically sought have the effect of limiting recourse of the counterparty to the administrator personally to the extent to which he or she is able to be indemnified from the assets of the company.
[32] However, Re Cook Cove Pty Ltd (admins appt) [2009] NSWSC 620 (Re Cook) was a case which involved the administrators entering into various post appointment construction related contracts. In that case, orders were made to limit the administrators' potentially significant personal liability under the post appointment contracts to the extent that they were able to be satisfied out of the property of the company.
[33] In Re Cook at [40], Austin J considered the practical utility of the administrators' statutory indemnity as being a crucial factor in favour of granting the orders sought.
[34] Austin J in Re Cook at [37] also made the following comments:
[37] One can envisage cases in which it would not be appropriate to make an order limiting the normal liability of an administrator under Pt 5.3A for post-appointment debts: for example, where the administrator proposes to enter into many business transactions in the course of carrying on the company's business, contracting with suppliers and service providers for relatively small amounts in circumstances where those with whom the administrator contracts would not be aware of the court's order and would be entitled to assume that the normal liability provisions of Pt 5.3A were applicable. But the decided cases are of a different kind.
The administrators in that case were in the process of selling the company's coal mining business on a going concern basis and formed the view that to maximise the outcome of the sale process, the company needed to apply for new mining leases and licences. The purpose of the orders sought was to make the administrators personally liable only for such debts in connection to the new mining leases and licences as were accrued and were attributable to the administration. Gilmour J was prepared to make an order under s 447A of the Act limiting the administrators' personal liability under s 443, concluding that the order was consistent with the objectives of Part 5.3A of the Act.
18 In Re Nexus Energy Limited [2014] NSWSC 1041, Black J also made an order under s 447A of the Act limiting the administrators' personal liability in respect of borrowings under a facility agreement which the administrators proposed to enter into to enable the holding company to be placed in a position so that it could support its subsidiaries and avoid the risk of their failure. The administrators had led evidence that the entry into the funding agreement was in the best interests of creditors by permitting the corporate group to continue to trade, so as to maximise the prospects that a satisfactory sale price would be achieved for the company's assets. At [14], after referring to Mentha Re Griffin Coal Mining Company Pty Ltd, Black J stated as follows:
…Turning to the relevant factors in this case, it seems to me that the proposed arrangements to limit the administrators' liability are necessary to the proposed funding arrangements, because they could not be expected to personally accept liability for a substantial borrowing in these circumstances, and the borrowing itself is in creditors' interests and consistent with the objectives of Pt 5.3A of the Corporations Act so far as it seeks to maximise the recoveries that are likely to be made from the sale of the Company's assets, and indeed preserve an opportunity to sell those assets which might otherwise be lost to the Company. It does not seem to me that there is significant prejudice or disadvantage to creditors of the Company from entry into the arrangement. The secured lender obtains security, as might be expected, for the additional moneys that are advanced, but that does not give rise to prejudice to other creditors, so long as those moneys are likely to generate at least the value which is the subject of that security, as is established in the present case so far as they preserve an opportunity for the sale of the Company's assets. It seems to me that notice has been given to those who are affected by the order, both by drawing attention to it at the first creditors' meeting and by a subsequent release to Australian Securities Exchange Ltd, albeit that notice has been given shortly prior to this application, given the urgency of the application. In any event, the administrators have indicated that they have no objection to the Court making an order reserving liberty to other interested persons to apply.
These considerations aptly apply in the present case.
19 In this case, it is the administrators' view that the installation and commission of the Beneficiation Plants is critical to the longer term viability of the OneWhyalla business and arresting the current loss making situation and to achieve this, funding is required which EFIC has agreed to provide. It is reasonable that they not be required to accept personal liability for those debts arising out of the CDE Contract and the EFIC Loan, and the orders are appropriate to be made, particularly as both counterparties have agreed to modify the administrators' personal liability so that liability under the CDE Contract is excluded and the administrators' personal liability under the EFIC Loan is limited to the sale proceeds of the OneWhyalla business, if any.