TGIF 16 May 2025 – Providing urgent funding to a company in external administration: do you lose your seat at the COI table?

This week’s TGIF considers a recent decision concerning the voluntary administration of a Christian school, where the Court gave advice regarding an urgent funding package and questions arising in relation to the Committee of Inspection.

In Marsden, in the matter of Brindabella Christian Education Limited (administrators appointed) [2025] FCA 456, Derrington J gave judicial advice to the effect that the voluntary administrators were justified in:

• having entered into certain urgent funding transactions; and
  
  
• in forming a Committee of Inspection (COI) via a ballot process, including where the committee comprised a lender who might derive a profit or advantage from the company’s external administration.

This case is an important reminder that technical non-compliance with the Corporations Act 2001 (Cth) (Act) may be justified in the broader interests of the creditors and to preserve the continued operation of the company.

Key takeaways

• There may be circumstances where voluntary administrators must obtain urgent funding to preserve a company as a going concern. Voluntary administrators can apply to the Court after the fact in appropriate cases to obtain the court’s imprimatur that their conduct was justified and to seek relief from personal liability.
  
  
• A ballot process to establish a Committee of Inspection may be appropriate in a given case, and a court may excuse voluntary administrators for not forming a Committee of Inspection at the first meeting of creditors despite the requirements of the Corporations Act 2001 (Cth).
  
  
• Just because a creditor might derive a profit or advantage from the external administration of a company, does not automatically disentitle the creditor from being part of a Committee of Inspection. In fact, it may be entirely appropriate and beneficial for the efficient conduct of the administration for such a creditor to be involved.

Background

Brindabella Christian Education Limited (the School) operates a Christian school in the ACT.

Administrators were appointed to the School on 5 March 2025. At about this time, the School owed approximately $23.8 million to creditors, including a debt of $9.3 million to a secured lender.

To ensure the continued operation of the School, the administrators secured urgent funding, including funding to pay employee entitlements and to cover ongoing operational expenses. Regarding employee entitlements, the books and records of the School did not clearly identify the employee entitlements that were owing and, accordingly, this was something the administrators intended to investigate after the funding had been secured.

The conduct of the administrators

The administrators gave evidence that the loans were reasonably commensurate with readily available alternative options and, ultimately, in the best interests of the School. This view was readily accepted by Derrington J given the only realistic alternative to these measures was to close the School, which would torpedo its value and adversely affect both the creditors and the education of the students.

Further, Derington J considered no criticism whatsoever could be made of the administrators entering into the agreements almost immediately after their appointment and only seeking judicial advice ex post facto. In fact, Derrington J considered that the administrators were to be commended in taking the action which they did, which has, to date, preserved the School’s ongoing operation.

Staff payments

The administrators also sought judicial advice that, despite the concern that staff were being underpaid and the unreliability of the financial records of the School, they were justified in continuing to pay the wages of the employees of the School that they had previously been paid.

Derrington J considered, although such an order was slightly unusual, this approach was reasonable in the circumstances, recognising the administrators' efforts to ensure the School's continued operation while investigating, and seeking to remedy, allegations of underpayment.

The Committee of Inspection

There were two issues that arose with the COI.

Firstly, at the first meeting of creditors on 17 March 2025, the creditors voted in favour of appointing a COI, however the constitution of the committee was determined through a subsequent ballot, rather than at the first meeting, as required by section 436E(1) of the Act.

Nonetheless, Derrington J considered this was a mere technical disregard of the Act, and that the expediency to which the administrators constituted the COI meant no criticism could be levelled at them.

The second concern was the secured lender’s appointment on the COI as one of seven creditors from a total of 19 nominations. Although the lender was entitled to be represented given that it held in excess of 10% of the value of all creditors, its participation was in potential breach of s 80-55(1) of the Insolvency Practice Schedule (IPS), which prevents participants from “directly or indirectly deriv[ing] any profit or advantage from the external administration of the [C]ompany”.

Despite this, Derrington J found that the lender’s presence on the COI was unlikely to prejudice the creditors and, in fact, was more likely to benefit them, as they were an important stakeholder in the administration. Also, if they were to be excluded from the COI, this might impact on the bank’s willingness to continue to fund the School’s operation.

Comment

This case provides useful guidance for voluntary administrators as it considers the not uncommon scenario of voluntary administrators having to seek urgent funding to preserve the ongoing operation and value of a company.

As this case demonstrates, provided the voluntary administrators have acted reasonably, they will be able to seek the protection afforded by judicial advice from a court that their conduct is justified, even if that judicial advice is sought after the funding is obtained.

This case also makes clear that, where a lender provides financial support to a company in administration, that of itself will not preclude the lender from participating in the administration of the company as a member of the COI.

Corrs acted for, and continues to act for, the administrators in this matter.