For the central bank, there is the uncomfortable position of having made a loss. Being public institutions, central banks are subject to scrutiny from the media and from the government itself.

Obligations and Powers of a Voluntary Administrator

Obligations and Powers of a Voluntary Administrator

A voluntary administrator’s primary obligation is to administer the company in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence.
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Saturday, 27 June 2020
By James Cook

An Overview of Voluntary Administration

Section 435A of the Corporations Act 2001 (Cth) (“the Act”) states that the objects of the administration provisions of the Act are to provide for the business, property and affairs of an insolvent company to be administered in a way that:

  1. Maximises the chance of the company, or as much as possible of its business, continuing in existence; or
  2. If it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

Administrator’s Obligations:

Pursuant to section 435A of the Act, a voluntary administrator’s primary obligation is to administer the company in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence (“Primary Consideration”).

The legislative intent behind the current provisions for external administration is to facilitate the rehabilitation of insolvent companies wherever possible. Any decisions as administrator must therefore aim to facilitate the rehabilitation and ongoing existence of the company or much as possible of its business wherever possible. This may include an outcome where even though the company does not continue in existence, the business or some part of it continues and is run by some other entity.

Therefore, whilst an administrator’s role is to investigate the financial position of the company with a view to making a recommendation to creditors as to the future of the company, this role must be construed in the context of Part 5.3A of the Act as a whole and the intention for the company or its business to continue in existence.

Section 435A(b) of the Act refers to administering the company in a such a way that results in a better return for company creditors and members than would result from an immediate winding up, however it should be noted that this is a secondary consideration (“Secondary Consideration”).

The courts have confirmed that it is only if the ongoing existence of the company or its business is not possible that the secondary consideration of the best return to creditors comes about.

Administrator’s Powers:

Voluntary administrators hold significant powers, which can include having the power to terminate or dispose of all or part of the business and may dispose of any of the company’s property pursuant to section 437A(1)(c) of the Act. Section 437A of the Act allows an administrator to act unilaterally and to sell the company’s business without first obtaining the consent of creditors or court approval. An objective business judgment must be applied to the proposed sale and the sale must be:

  1. reasonable;
  2. for value; and
  3. not tainted with impropriety.

Whilst administrators have immense powers, the courts have reinforced that these powers exist only for the purpose of carrying Part 5.3A of the Act into effect. This means that an exercise of power by an administrator will only be justifiable if it relates to some aspect of the proper discharge of the Part 5.3A functions of an administrator. That is, the power must be exercised so as to:

  1. maximise the chances of the company, or as much as possible of its business, continuing in existence; or
  2. if it is not possible for the company or its business to continue in existence; results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

Given the time restraints imposed on administrators, courts have recognised that a sale of the assets may be the only realistic option which maximises the chances of a business continuing in existence, whilst also maximising the chances of creditors being repaid. Voluntary administration is a regime under which decision-making is confined to the administrator and, as to certain matters and in certain ways, the creditors. Therefore, whilst it is creditors who make the decision on the company’s future, it is the administrator who is charged with making decisions as to the sale of assets.

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De Facto Directors: Explained

De Facto Directors: Explained

The issue of De Facto Directors highlights the importance of transparency in corporate governance and accountability for decision-making.
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Wednesday, 27 May 2020
By James Cook

A De Facto Director (commonly referred to as a “Shadow Director”), is a person who is not validly appointed as a director of a company but is a person who the appointed directors of the company are accustomed to following instructions from.

The Corporations Act 2001 (Cth) (“the Act“) defines a De Facto Director as:

  • a person who is not validly appointed as a director if:
    they act in the position of a director; or
  • the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

When determining whether someone is a De Facto Director a Court will typically apply a substance over form approach and will look beyond the records held by the ASIC or written agreements entered into by the corporation and the related entities, to uncover a party’s true position within the corporate organisation (see Featherstone v D J Hambleton as liquidator of Ashala Pty Ltd).

When forming a view on whether a person may have been acting as a De Facto Director of a company, the elements of de facto directorships that have been outlined in the cases of Deputy Commissioner of Taxation v Austin [1998] FCA 1034 and Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129 have included:

  1. Whether those outside the company considered the person to be a director;
  2. The duties that would be expected to be performed by a director in the relevant company (namely, top-level management functions);
  3. The duties actually performed by the person;
  4. Whether others in the company considered the person a director;
  5. Whether the company held out the person as a director; and
  6. Whether the person held themselves out as a director.

It should therefore be noted that a De Facto Director attracts all of the legal obligations, duties, responsibilities and liabilities that attach to any other validly appointed director of a company.

Specifically, De Facto Directors have duties to:

    • To act in the best interests of the company and not for an improper purpose or to gain an advantage for themselves;
    • To exercise powers and duties in good faith;
    • Avoid conflict of interest; and
    • Not improperly use information of the company or their position and ensure it does not trade insolvently.

Like validly appointed directors, De Facto Directors can also be held personally liable for debts incurred by the company while trading insolvent, however it should be noted that whilst De Facto Directors can apply to have the Company wound up under section 459P of the Act, De Facto Directors do not have the authority to appoint an administrator.

If a Court is satisfied a De Facto Director breaches their duties, then the Court can make a declaration pursuant to Section 1317E of the Act and:

    • impose a fine of up to $200,000.00; and
    • disqualify the person from being a director or from managing companies; and
    • If the company has suffered, or is likely to suffer, loss and damage as a result of the breach, the Court on the application of ASIC or a person nominated by ASIC, or an Administrator or Liquidator, can order the payment to the company of money, or transfer of property to the company, or payment of the amount of its lost or damage to the company.

If you are concerned that you or a client may be acting in a De Facto Director capacity to a company and would like assistance or more information regarding the possible implications, please get in touch with our of our qualified and experienced experts.

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