Section 90-15 of the Insolvency Practice Schedule (the IPS) confers on Courts wide powers to adjust rights related to companies in external administration. Here, the administrators of a mining group obtained orders approving their entry into a deed to fund the ongoing operation of the group pending sale and limiting their liability under the deed to the company’s assets. The Court accepted the administrators’ evidence that this funding was urgently required to continue the Group’s operations pending a sale, the prospects of which were thereby maximised.
The Adaman Group (the Group) operates the Kirkolocka Gold Project at Mt Magnet, WA. The applicants were the Group’s administrators (the Administrators).
The Administrators were appointed on 1 May 2021. They quickly formed the view that continuing to trade the Group would maximise the value to be achieved for the assets and return to creditors. They also concluded that significant funding was urgently required to do so. It was evident that approximately $1million in additional funding would be required on 8 June 2021. The Administrators identified a source of funding, being Rivet Finco Pty Ltd (the Lender). They informed the Court that no other viable source of funding was available in the timeframe. On 28 May 2021, the Administrators entered into a funding deed with the Lender (the Deed).
The Deed provided for funding of $20million at 13% per annum, secured by all present and after-acquired property under a PPSA-registered security interest and the Administrators’ right of indemnity and lien under sections 443D, 443E and 443F the Corporations Act 2001 (Cth) (the Act).
Under section 443A(1) of the Act, the Administrators were liable for debts incurred in performance or exercise of any of their functions and powers, including the repayment of moneys and interest borrowed and borrowing costs. They would therefore be liable for the $20million principal and the interest at 13%, as well as costs of $400,000.
The Administrators sought orders under section 447A of the Act and section 90-15 of the IPS limiting their liability under the Deed to the assets of the Group under section 443D of the Act.
Due to the urgency of the application, notice was not provided to all interested parties (although it was provided to the Lender amongst others).
The Lender, and those other interested parties that did express a view and did not oppose the Administrators’ entry into the Deed.
The Court noted that it has wide powers to make orders under section 447A of the Act and section 90-15 of the IPS, but such orders must be made in pursuit of the objects of Part 5.3A of the Act as set out in section 435A of the Act.
Section 435A provides that the objects of Part 5.3A are to administer the business, property and affairs of the company in a way that:
The Court also noted that it is well established that Courts have power under section 447A of the Act to limit an administrator’s liability under section 443A. The principles governing the granting of an application are:
The Court was satisfied that the Administrators entering into the Deed was in the interests of the Group’s creditors, for several reasons:
The Court was also satisfied that the Administrators had made full disclosure of all relevant facts and circumstances to the Court.
The Court accordingly made the orders sought by the Administrators.
Administrators can use the wide powers to adjust rights related to companies in administration under section 90-15 of the IPS to mould orders that maximise the chances of the company or its business continuing in existence or a better return for creditors than would result from immediate winding up.
If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.
Scott Couper, Partner
Craig Melrose, Associate