Re Australian Art Investment Pty Ltd (admins apptd) [2012] VSC 18 (20 January 2012)

Pty Ltd ("AAI") for orders under s 447A of the Corporations Act 2001 (Cth) ("the Act") that Part 5.3A of the Act is to operate in relation to AAI as if they, and the original administrators that they replaced by resolution of the creditors of AAI at a meeting pursuant to s 436A(1) of the Act, had been validly appointed to the company.

2 The issue about invalidity stems from the appointment of the original administrators on 14 December 2011 by the then sole director of AAI, Mr Toovey, when the constitution of the company fixed the minimum number of directors at two. The company had two directors until 13 December 2011 when the other director, Mr Stafford, resigned. As Mr Toovey was of the opinion that AAI was insolvent, or likely to become insolvent, he passed a resolution as sole director on 14 December 2011 that the company be placed into administration. Mr Toovey however could not act under the constitution to pass that resolution as sole director as there was no power in the constitution for a single director to act in the case of emergency.

3 The defect in the appointment became known to the original administrators before the first meeting of creditors on 28 December 2011. At that meeting, the original administrators told the creditors that there may be a defect in appointment and that an application would be made to the Supreme Court to determine the validity or otherwise of their appointment. At the same meeting, the creditors voted to replace the original administrators with the current administrators.

4 I am satisfied on the evidence before me that the appointment of the original administrators was invalid because Mr Toovey could not pass a resolution under

s 436A of the Act as sole director. I am also satisfied on the evidence before me that it is appropriate for the Court to make an order under s 447A of the Act.

5 The Court's power under s 447A of the Act is not only a power to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Part 5.3A of the Act.[1] The power is a broad power to make orders which alter the way in which Part 5.3A is to operate in relation to a particular company and there have been a number of cases where s 447A has been used to overcome a deficiency in the appointment of an administrator, including when a resolution appointing the administrator was invalid.[2]

6 The focus of the Court when making an order under s 447A is the position of the company at the time of making the order and what is best for the company in the future.[3] The exercise of discretion should be exercised however having regard to all those who have an interest in the matter and would be affected by the granting of relief. One relevant consideration is whether substantial injustice would be caused by validating an otherwise invalid appointment.[4]

7 Although there is a temporal element in the wording of s 447A of the Act, it does not preclude the making of an order with future effect, but in respect of past matters or events.[5] This includes making an order that Part 5.3A of the Act is to operate in relation to the company as if the original administrators had been validly appointed.[6]

8 There are a number of reasons warranting the making of the order in this case. First, the initial investigations of the current administrators indicate that AAI is insolvent and likely to have been insolvent from at least March 2011, which may result in an insolvent trading claim.

9 Secondly, the evidence showed that the committee of creditors is fully aware and supportive of the application and no creditor has appeared to oppose the application.

10 Thirdly, the current administrators are not aware of any person that would be subject to any particular prejudice by the validation of their appointment. There is a charge holder whose charge will be void as against the administrators by reason of

s 266 of the Act if the order is made but the evidence before the Court is that the charge holder does not intend to enforce the charge.

11 Fourthly, the current administrators are well advanced into preparing a report to creditors and they anticipate that ultimately a deed of company arrangement will be proposed to creditors.

12 Fifthly, the administrators' current view is that there is no potential claim against a third party that could only be pursued if the date of administration were

13 In the circumstances, it is appropriate in my view to grant the relief sought under

s 447A.

[1] Australasian Memory Pty Ltd & anor v Brien & anor (2000) 200 CLR 270 at [17]-[18], [24], [26].

[2] Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47, 53 [36]; Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 156 FLR 453; Sutherland v Robert Bosch (Aust) Pty Ltd [2000] NSWSC 32; (2000) 33 ACSR 680; Shirlaw v Graham [2001] NSWSC 612; Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428; (2003) 21 ACLC 842; McIntosh v CMX Technologies Pty Ltd [2005] NSWSC 1282; (2005) 56 ACSR 283; Re Pasdonnay [2005] FCA 335; 53 ACSR 717; Re HPI Australia Pty Ltd [2008] NSWSC 1172; (2008) 26 ACLC 1, 230.

[3] Xie v Crisp [2011] VSC 154, 222 (Ferguson J).

[4] Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47, 53 [37].

[5] Australasian Memory v Brien (2000) 200 CLR 270, 282 [26].

[6] Re Wintech Group Ltd [2011] VSC 273, 9 (Davies J).