AFIC SCHOOLS (SA) LTD (ADMINISTRATOR APPOINTED) - [2017] SASC 97

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
AFIC SCHOOLS (SA) LTD (ADMINISTRATOR APPOINTED)
[2017] SASC 97
Reasons for Decision of Judge Dart a Master of the Supreme Court
30 June 2017
CORPORATIONS - WINDING UP - APPLICATIONS FOR WINDING UP BY COURT - GENERALLY
Company applies to be wound up - company in voluntary administration - whether in the interest of the creditors that the company be wound up.
Held: Order the company be wound up in insolvency.
Corporations Act 2001 (Cth) s 436A, s 440A, s 447C, s 459P; Fair Entitlements Guarantee Act 2012 (Cth), referred to.
Thomas International Ltd v Humantech Pty Ltd (Subject to Deed of Company Arrangement) and Others [2015] FCA 1333, applied.

AFIC SCHOOLS (SA) LTD (ADMINISTRATOR APPOINTED)
[2017] SASC 97
JUDGE DART:

This was an application by a company in administration. The company is AFIC Schools (SA) Limited (“AFIC”). It was placed in administration on 14 June 2017. I have already made an order for the winding up of AFIC. These are my reasons for doing so.
Validation of appointment of Administrator
The first issue decided related to the appointment of the Administrator. The Administrator identified a party who was prepared to take over the conduct of the Islamic College of South Australia at West Croydon, which was operated by AFIC. The Administrator was negotiating with the party. There was some urgency, as the College had been shut for a few days and its students were being disadvantaged. The party which proposed to take over the conduct of the College and, in effect, buy the business of AFIC, wished to ensure that the Administrator was validly appointed before concluding any agreement.
The College has approximately 420 pupils. It had been in dispute with the Commonwealth government for a period of time. On 15 February 2017 the Commonwealth notified the College of its decision to both revoke the approval necessary to run the College, and also future funding, effective 13 April 2017. The College applied for a review of the decision of the Commonwealth government. That review was completed on 15 June 2017, at which time the College was advised that the review had confirmed the decision to revoke the College’s approval.
The Constitution of AFIC requires directors meetings to have a quorum of five directors. At the beginning of this month it had only two directors. The Constitution, at clause 18.6, provides that continuing members of the Board may act for the purpose of increasing the number of members of the Board to the number required as the necessary quorum. The two directors resolved on 13 June 2017 to appoint three additional directors. The resolution made on 14 June 2017 by the directors of AFIC to appoint an administrator was a resolution made by five directors.
The Corporations Act 2001 (“the Act”) in s 447C provides as follows:
447CCourt may declare whether administrator validly appointed
(1)If there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid, the person, the company or any of the company’s creditors may apply to the Court for an order under subsection (2).
(2)On an application, the Court may make an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground.
I am satisfied that the resolution appointing the Administrator was a valid resolution and the requirements of s 436A of the Act were satisfied. There is no proper basis to question the validity of the appointment.
Application to wind up the company
The principal purpose of the application was to wind up AFIC notwithstanding the fact that it was in administration. The Act in s 459P sets out the persons who may apply for a winding up order. The listed applicants include the company itself. An Administrator is not one of the named applicants in this section and has no standing in his own right to bring an application to wind up AFIC.
In Thomas International Ltd v Humantech Pty Ltd (Subject to Deed of Company Arrangement) and Others[1] Rares J held that an administrator had standing to apply in the name of a company to seek its winding up.[2] I made an order joining AFIC as a plaintiff, to avoid any controversy on the issue of standing.
[1] [2015] FCA 1333.
[2] Thomas International Ltd v Humantech Pty Ltd (Subject to Deed of Company Arrangement) and Others [2015] FCA 1333 at [44].
The Court may, of course, order that a company be wound up in insolvency.[3] The evidence before the Court was such as to satisfy the Court that AFIC was insolvent. The Administrator’s investigations revealed that the liabilities of AFIC exceeded its assets by approximately $4 million. With Commonwealth funding stopped, AFIC had no capacity to pay its debts. The staff at the College are owed just less than $1 million in employee entitlements.
[3] Section 459A of the Corporations Act 2001.
Ordinarily a court would adjourn a hearing for the winding up of a company under administration if it was satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up. The object of Part 5.3A of the Act is to maximise the chance of a company continuing to exist, or at least provide a better return to creditors than would be the case in a winding up.[4] The object is facilitated by s 440A of the Act, which provides as follows:
440AWinding up company
(1)A company under administration cannot be wound up voluntarily, except as provided by section 446A or 446AA.
(2)The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
(3)The Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than have a provisional liquidator appointed.
[4] Section 435A of the Corporations Act 2001.
The matter came on for urgent hearing. The urgency was because of the need to have another party come in, purchase the assets of the College and immediately re-commence the conduct of its functions. As laudable as that aim is, that in itself was not a sufficient reason to have wound up AFIC. The interests of the creditors were the primary consideration of the Court, as s 440A of the Act demonstrates.
I was satisfied that it was in the interests of the creditors of AFIC that it be wound up for two reasons. The first was that there was no suggestion that AFIC intended to or was able to propose any terms for a deed of company arrangement (“DOCA”). It was not a trading business; it was a College. It had no shareholders; it was a company limited by guarantee. The purpose of administration is to give creditors an opportunity to determine whether a company should be wound up or whether they should compromise their debts with the company and enter into a DOCA. Where no DOCA was to be proposed, it was inevitable that AFIC would be wound up at the end of the process.
The second reason was that a substantial body of AFIC’s creditors were the teachers and other staff at the College. There was no capacity to pay the staff. The staff entitlements are able to be paid if recourse can be had to the Fair Entitlements Guarantee Act 2012 (Cth) (“FEG Act”). The provisions of the FEG Act allow the Commonwealth to pay advances, in a winding up, on account of unpaid employment entitlements in circumstances where the employer is insolvent. The scheme of the FEG Act provides that the Commonwealth can prove for monies advanced in the winding up. The FEG Act only applies to companies being wound up in insolvency. The staff creditors will only be paid if the FEG Act is applicable. It has no application to companies in administration.
The potential purchaser of the business, Australian Islamic Colleges Limited (“AIC”), made an offer to acquire the assets of AFIC and intends to make offers of employment to teachers and staff previously employed by that company, so as to enable the College to resume operations forthwith. It was a requirement of Australian Islamic Colleges Ltd that the unpaid entitlements of staff are met pursuant to the FEG Act. The evidence of the Administrator was that the offer from AIC was for an amount that significantly exceeded the value of the assets of AFIC.
In all of the circumstances, the interests of the creditors of AFIC were best served by the winding up of AFIC.