Administrators' application to the court for directions

In the case of Killer, in the Matter of North Coast Panels Pty Ltd (Administrators Appointed) [2011] FCA 776, administrators successfully sought directions from the Court pursuant to s 447D of the Corporations Act 2001 (Cth) (Act) confirming their decision to enter into a contract for the sale of North Coast Panels Pty Ltd (Company).

Facts

The Company, an authorised representative of the AXA Group (AXA), provided financial planning advice.  The administrators offered to sell the Company to AXA, and were keen to do so quickly due to concerns about the deteriorating value of the Company’s assets (being its client base and client relationships) since going into administration.

The administrators were advised by an experienced financial planning business valuer and broker to sell the Company for reasons including the following:

• at least one client of the Company had already been approached by a competitor;
• AXA’s offered purchase price was of greater value than the value attributed to the Company’s business; and
• none of the Company’s creditors objected to the sale.

However, the administrators had not fully tested the market and the sale was brought about in a very short period of time.  As such, the administrators sought directions from the Court as to whether they could properly and justifiably enter into the sale agreement.

Judgment

Referring to the decision of Goldberg J in Re Ansett (No. 3) (2002) 115 FCR 409 (Re Ansett), Greenwood J held that it is not for the Court to second guess the merits of a commercial decision of administrators.  According to His Honour, “the character, scope and content of the commercial arrangements the administrators seek to perform and whether doing so is prudential in a business sense is fundamentally a matter for the administrators.”

Part 5.3A of the Act expressly vests in administrators the power to enter into agreements, despite the Court not having the express power to “approve” administrators entering into such agreements.  Although s 447A of the Act empowers the Court to make appropriate orders, Greenwood J agreed with Goldberg J in Re Ansett that a Court is generally not qualified to make or approve business decisions.  Nevertheless, the Court may exercise its discretion depending on the nature and novelty of the directions sought.

In this case, Greenwood J was satisfied that, taking into account the interests of the Company and the creditors, the sale of the Company to AXA was reasonable and proper in all the circumstances.

Comment

It is not the Court’s role to make business decisions for administrators, and the Court will be reluctant to provide such directions.  However, it appears that the Court may make orders affirming a commercial decision to determine whether administrators have acted reasonably and properly.