Crimmins v Glenview Home Units Pty Ltd

The case of Crimmins v Glenview Home Units Pty Ltd involved the shareholders of a company holding a residential building requiring substantial repairs. The company, unable to fund these repairs and also incurring legal costs from litigation with a shareholder, faced potential insolvency. The directors resolved that the company was likely to become insolvent and placed it in voluntary administration under section 436A of the Corporations Law. The court was tasked with determining whether the directors could consider debts or liabilities that were not actual or contingent when assessing the likelihood of future insolvency, and whether the resolution to place the company in voluntary administration was valid. Additionally, the court examined whether the possibility of avoiding liquidation was a prerequisite for appointing a voluntary administrator.

The legal issues before the court included the interpretation of the term "likely to become insolvent at some future time" and whether directors could consider debts or liabilities that were not actual or contingent. The court held that directors could consider debts or liabilities that they actually foresaw were likely to be incurred, provided a competent and reasonable director would say there was a probability, or a real, not remote, chance that it would be incurred. Regarding the validity of the resolution to place the company in voluntary administration, the court found that the resolution was valid as it was genuinely and in good faith formed, considering both subjective and objective elements, particularly relevant given the company's sole business was holding a residential building.

In assessing the resolution's validity, the court took into account factors such as the company's business nature, the shareholders' inability to fund repairs and legal costs, and the directors' genuine belief in the likelihood of future insolvency. The court concluded that the resolution was valid and that the directors had acted appropriately in placing the company in voluntary administration. Furthermore, the court clarified that while the possibility of avoiding liquidation was beneficial, it was not a necessary condition for appointing a voluntary administrator under sections 435A and 436A of the Corporations Law. The court's decision supported the directors' actions and the validity of the resolution, ensuring the company could potentially avoid liquidation through voluntary administration.