Prior & Basedow As Joint & Several Administrators Of ACN 125 531 428 P/L (Administrators Apptd) ACN 125 531 428 & ORS - [2018] SASC 148

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PRIOR & BASEDOW AS JOINT & SEVERAL ADMINISTRATORS OF ACN 125 531 428 P/L (ADMINISTRATORS APPTD) ACN 125 531 428 & ORS
[2018] SASC 148
Reasons of Judge Dart a Master of the Supreme Court
25 September 2018
CORPORATIONS - VOLUNTARY ADMINISTRATION - ADMINISTRATOR - APPOINTMENT - OTHER MATTERS
Application for directions - perception of bias - consideration of s 90-15 Schedule 2 Insolvency Practice Schedule (Corporations) - whether Court should determine the appropriateness of the Administrators continuing to act.
Held: Appropriate for the Administrators to continue to act in that capacity.
Corporations Act 2001 s 436A, s 447D, s 448C, s 90-15 & s 90-35 Schedule 2 - Insolvency Practice Schedule (Corporations), referred to.
Re Ansett Australia Limited (No 3) (2002) 115 FCR 409; Bovis Lend Lease Pty Ltd v Wily [2003] 45 ACSR 612; Re Monarch Gold Mining Limited; Ex Parte Hughes [2008] WASC 201, considered.

PRIOR & BASEDOW AS JOINT & SEVERAL ADMINISTRATORS OF ACN 125 531 428 P/L (ADMINISTRATORS APPTD) ACN 125 531 428 & ORS
[2018] SASC 148
JUDGE DART:

The first two plaintiffs are the appointed joint and several administrators of two separate companies. Each of the companies has now changed its name to its Australian Company Number. The third plaintiff was formerly known as Ottoway Engineering Pty Ltd (“Engineering”) and the sixth plaintiff was formerly known as Ottoway Fabrication Pty Ltd (“Fabrication”).
The Administrators were appointed by each of the companies on 11 July 2018 as a consequence of resolutions passed by the directors of each. The provisions of s 436A of the Corporations Act 2001 (“the Act”) provide that a company may appoint an administrator if its board resolves that the company is or is likely to become insolvent.
These reasons deal with an application for directions and orders made by the Administrators. Formerly under the Act, an application for directions was made pursuant to s 447D of the Act. That section was repealed effective 1 March 2017 when Schedule 2 – Insolvency Practice Schedule (Corporations) came into operation. This application seeks orders pursuant to s 90-15 of the Schedule, which has replaced s 447D.
The Administrators sought directions out of an abundance of caution. The application was made because of a concern expressed by the Deputy Commissioner of Taxation (“ATO”) that the Administrators may lack the independence, or at least the perception of a lack of independence, to act as the administrators of the two companies. The issue arose by reason of the fact that another partner of the Administrators’ accountancy firm, Pitcher Partners, provided tax advice over a period of years to Mr Vartuli, a director of the two companies. Those services did not relate to the taxation affairs of the two companies in administration. The two Administrators deposed to the fact that they were not involved in any of the tax advice work and that neither can recall ever having met Mr Vartuli prior to their appointment as Administrators.
The application was served on the ATO and also on ASIC. ASIC take no position in respect of the application. The ATO has now reconsidered its position following the provision of further information from the Administrators. It does not press the Court to make any finding that the Administrators lack independence.
It is accepted there was no breach of the ARITA Code of Professional Conduct. There is no suggestion that the circumstances of this matter bring into consideration the automatic disqualification from acting set out in s 448C of the Act which provides as follows:
448CDisqualification of person connected with company
(1)Subject to this section, a person must not, except with the leave of the Court, seek or consent to be appointed as, or act as, administrator of a company or of a deed of company arrangement if:
(a)the person, or a body corporate in which the person has a substantial holding, is indebted in an amount exceeding $5,000 to the company or to a body corporate related to the company; or
(b)the person is, otherwise than in a capacity as administrator or liquidator of, or as administrator of a deed of company arrangement executed by, the company or a related body corporate, a creditor of the company or of a related body corporate in an amount exceeding $5,000; or
(c)the person is a director, secretary, senior manager or employee of the company; or
(d)the person is a director, secretary, senior manager or employee of a body corporate that is a secured party in relation to property of the company; or
(e)the person is an auditor of the company; or
(f)the person is a partner or employee of an auditor of the company; or
(g)the person is a partner, employer or employee of an officer of the company; or
(h)the person is a partner or employee of an employee of an officer of the company.
The original concern of the ATO was of the perception of bias rather than any actual bias. In Re Ansett Australia Limited (No 3) Goldberg J explained the requirement in respect of an application for directions pursuant to s 447D of the Act: [1]
There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised.
[1] (2002) 115 FCR 409 at [65].
The same approach should be adopted with respect to the operation of s 90‑15, which is drafted in broader terms than s 447D. In Bovis Lend Lease Pty Ltd v Wily Austin J was considering the independence of administrators and said as follows: [2]
Part 5.3A does not expressly state that the administrator is required to be independent of the directors and any creditors during the administration, or that he or she must act impartially in the discharge of the statutory responsibilities. However, even a cursory review of the scope and objects of Part 5.3A would establish that voluntary administrators have implied duties of independence and impartiality, which are part of the very marrow of voluntary administration system. It has therefore been held that the principles of independence and impartiality developed and applied to liquidators are equally applicable to voluntary administrators (see, for example, Commonwealth of Australian v Irving (1996) 19 ACSR 459, at 462) - although differences in the circumstances in which they are required to work (especially the speed at which the administrator must work) may affect the standard required to be observed in particular circumstances.
[2] [2003] 45 ACSR 612 at [133].
Re Monarch Gold Mining Limited; Ex Parte Hughes[3] Master Sanderson was dealing with similar issues. In respect of the decision in Bovis Lend Lease Pty Ltd v Wily the Master set out the principles he took from that case and summarised them as follows:[4]
[3] [2008] WASC 201.
[4]    Re Monarch Gold Mining Limited; Ex Parte Hughes [2008] WASC 201 at [15].
15In Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612, Austin J set out three separate duties of independence, impartiality and avoidance of conflict which apply to administrators. (His Honour was actually dealing in that case with the duties of a liquidator rather than an administrator. However, he makes it plain that the same principles will apply equally to administrators - see [133]). Summarised, these duties are:
(a)    administrators must be, and be perceived to be, independent of the company, its directors and shareholders, and individual creditors;
(b)    administrators must act, and be perceived to act, impartially in discharge of the duties and responsibilities of their office; and
(c)    administrators must ensure they do not place themselves in a position where there is, or might be, a conflict between their duty to creditors and their personal interest.
…
19The court is not required to assess whether the administrators will act independently, but only to assess whether there is a reasonable apprehension based on existing or past events that the administrators will not act independently. The authorities show that a mere theoretical possibility of conflict is not sufficient. Independence must be assessed by reference to such things as whether the appointee administrators have, prior to their appointment:
(a)     performed professional services of a sufficiently material nature on behalf of a principal creditor of the company to suggest that there is a reasonable apprehension they will not act independently;
(b)     provided professional services of such a degree of magnitude to the company over a long period and of such a nature as to put in doubt their capacity to independently discharge their office;
(c)     acted as auditor of the company;
(d)     acted with clear evidence of bias in the conduct prior to the application being made;
(e)     a close personal relationship with interested parties;
(f)    a close relationship with a creditor such that there was a clear tendency to prefer the interests of that creditor.
…
23At this point it is appropriate to mention three points which, in my view, strongly favoured the orders sought being made. First, a significant amount of work has already been completed by the administrators. If fresh administrators were appointed, it would take them some time to become familiar with the Companies' affairs. That necessarily affects the assets available to the creditors. Given the whole point of administration is to maximise returns to creditors and in the rare case to shareholders, expenditure of funds duplicating work already undertaken is to be avoided if at all possible.
Here we are not dealing with any of the s 448C matters that automatically disqualify a person from acting as an administrator. We are simply dealing with a possible perception of a lack of independence. There is nothing on the material before the Court to suggest that any of the criteria referred to by Master Sanderson arise. The fact of the provision of tax advice to Mr Vartuli was disclosed in writing to the creditors at an earlier stage of the administration. The creditors at all times retain the ability to remove an administrator.[5] No‑one has sought to do so.
[5] Schedule 2 – Insolvency Practice Schedule (Corporations) s 90-35.
In my view, there is really no issue at all that arises in this matter. If the matter had been finely balanced, the fact that the administration of these two companies are very complex and that considerable work has been undertaken by the Administrators would have been a significant consideration. The burdening of the creditors with further costs of new Administrators getting themselves up‑to-speed with the administration is unjustifiable unless absolutely unavoidable.
In the circumstances, I determined that it would appropriate for the Administrators to continue to act in the administrations and I made orders to that effect.