Ross & Anor As Joint & Several Administrators Of GNC Homes P/L (Admin Apptd) v GNC Homes P/L (Admin Apptd) - [2015] SASC 168

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ROSS & ANOR AS JOINT & SEVERAL ADMINISTRATORS OF GNC HOMES P/L (ADMIN APPTD) v GNC HOMES P/L (ADMIN APPTD)
[2015] SASC 168
Reasons of Judge Dart a Master of the Supreme Court
23 October 2015
CORPORATIONS - VOLUNTARY ADMINISTRATION - ADMINISTRATOR - APPOINTMENT - BY COMPANY
Validity of appointment - indoor management rule - Sections 128 and 129 of the Corporations Act - company prevented from denying validity of appointment of Administrators - Section 447A of Corporations Act - discretion to validate an otherwise invalid appointment.
Building Work Contractors Act 1995 (SA) s 34; Corporations Act 2001 (Cth) ss 95A, 128, 129, 135, 141, 203C, 249A, 436A, 438C, 447A, 447C and Part 5.3A, referred to.
Australasian Memory Pty Ltd & Anor v Brien & Anor (2000) 200 CLR 270; Deputy Commissioner of Taxation v Portinex Pty Ltd & Ors [2000] NSWSC 99; Xie v Crisp and Ors [2011] VSC 154, applied.
Correa v Whittingham [2014] NSWCA 263; In the matter of Live Board Holdings Ltd (administrators appointed) [2014] NSWSC 161; Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd & Ors [2005] SASC 335, considered.

ROSS & ANOR AS JOINT & SEVERAL ADMINISTRATORS OF GNC HOMES P/L (ADMIN APPTD) v GNC HOMES P/L (ADMIN APPTD)
[2015] SASC 168
JUDGE DART:

On 20 July 2015 Mr David Ross and Mr David Ingram were appointed as the Administrators (“the Administrators”) of GNC Homes Proprietary Limited (“the Company”). They were appointed following the passing of a resolution by, the sole director of the Company, Mr Che Garry Burrows (“Burrows”). The resolution was in a form that complied with the requirements of s 436A of the Corporations Act 2001 (“the Act”). The Administrators had undertaken, on the day of appointment, a search of the Australian Securities and Investments Commission’s (“ASIC”) records in respect of the Company. That search confirmed that Burrows was the sole director of the Company. The appointment seemed straightforward and orthodox. It has turned out to be anything but.
About four days after their appointment the Administrators were contacted by solicitors acting on behalf of the two shareholders of the Company. One of the shareholders is Mr Gidon Brott (“Brott”), the second defendant. The other shareholder is a company called The Pipas Pty Ltd, the third defendant. Brott’s brother is the director of the corporate shareholder. The Administrators were advised that the shareholders had resolved on 16 June 2015 to remove Burrows as the sole director of the Company. Accordingly, they asserted that Burrows had no authority to appoint administrators to the Company.
The Administrators made application to this Court for clarifying and / or remedial orders. By the Second Originating Process the Administrators seek:
1.A declaration from the Court confirming the validity of the appointment of the First Plaintiff and Second Plaintiff as Administrators of the Defendant under the provisions of section 447C of the Corporations Act 2001 (Cth) (“the Act”).
2.In the alternative to order 1 above, an order pursuant to section 447A of the Act, such that the appointment of the First Plaintiff and Second Plaintiff as Administrators of the Defendant is deemed to be valid.
2A.Further and / or in the alternative to order 1 and 2 above, pursuant to section 447A (4) of the Act, the First Plaintiff and Second Plaintiff be appointed as joint and several Liquidators of the Defendant.
The Company and some relevant history
The Company constructs residential buildings. It conducted its business in a significant way, having commenced operations in 2010. Its work came from referrals from other companies in The Pipas Group of Companies. Burrows was a director from the outset. For a very short period Brott was also a director.
Burrows appears to have had the conduct of the day-to-day operation of the Company. He is a licensed builder. The turnover of the Company for the financial year ending 30 June 2013 exceeded $11 million.
The Company’s registered office was the office of its accountants who are based in Sydney. Its original principal place of business was 94 Coromandel Drive McCracken, in South Australia. That remained the Company’s principal place of business until early 2013 when the Company commenced operating from 18 Twin Figs Court, Encounter Bay. That is also Burrow’s residential address.
The ASIC search at all material times showed the McCracken address as the principal place of business. Mr Burrows was cross-examined on his affidavits. He says that, in late 2012, he told the Company accountants of the change of address and requested that they alter the records at ASIC. It appears that Brott was aware that the principal place of business was the Encounter Bay address, as he deposed to that fact in his first affidavit.[1]
[1] Affidavit of Gidon Yehoshua Brott sworn 3 September 2015, FDN6 at [21].
It also appears from the evidence that Burrows conducted the day-to-day operation of the Company, but that he dealt with Brott on a reasonably regular basis in relation to the affairs of the Company. They principally communicated by email and occasionally by telephone. The evidence shows that the Company got into financial difficulties by at least early 2015.
Separately, a search warrant was executed by SAPOL at the Encounter Bay address in February 2015. It appears police were investigating issues relating to the obligation of the Company, pursuant to the Building Work Contractors Act 1995 (SA),[2] to obtain a policy of insurance in respect of each residential property under construction. It appears that either the required insurance was not obtained or that there was some falsification of documents in respect of insurance.
[2] Section 34.
It is not a matter that needs to be resolved on this application and the police investigation is ongoing. It is suffice to say that the shareholders say that Burrows was acting in an unauthorised fashion in respect to the insurance obligations. Burrows says that at all times he was acting on the instructions of Brott.
Brott says that he had no knowledge of any of the issues in respect of the insurance policies. He says he was shocked by Burrows’ conduct. Notwithstanding being shocked by Burrows’ conduct, the shareholders took no steps at that time to remove Burrows as director, as might have been expected in the circumstances. Apparently they decided that his continued cooperation in the conduct of the Company was required.
In March 2015 the Commissioner for Consumer Affairs directed the Company to cease construction work. The Company had more than 70 homes under construction. Again, despite the stopwork order issued by the Commissioner for Consumer Affairs, the shareholders did not take any steps to remove Burrows as a director. The construction work in respect of the incomplete houses was transferred to another building company. The Company ceased trading by June 2015.
The evidence of Burrows on cross-examination was that by early 2015 the Company was not in a position to pay its creditors as and when its debts fell due. A number of payment arrangements were entered into with the Company’s creditors. The Company was finding it difficult to maintain compliance with the payment arrangements. Burrows’ evidence was that he spoke to Brott on numerous occasions seeking additional funds to ensure the Company was in a position to pay its creditors. Those funds, Burrows says, were not forthcoming.
Burrows became concerned about his personal position. As the sole director of the Company, he gave numerous guarantees to the suppliers of the Company. He gave evidence that a number of the Company’s creditors had lodged caveats on his property at Encounter Bay.
What appears to have brought matters to a head was that the Company bank account was frozen in July 2015. Burrows gave oral evidence that on 17 July 2015 he was attempting to operate the Company’s bank account and it became apparent that it was blocked. He says that he rang the bank and was advised by a bank officer that it had been informed that steps were being taken to remove him as a director of the Company and, for that reason, the bank had put a block on use of the account. This was the first time that Burrows became aware that there was any issue in respect of his ongoing directorship of the Company.
Thereafter he took professional advice about the position which ultimately led to the appointment, three days’ later, of the Administrators. There is no suggestion that Burrows was aware, as at 20 July 2015, that he had been removed as a director of the Company. I accept his evidence that he was not so aware.
Was Burrows removed as a director of the Company?
The ASIC search in respect of the Company, conducted on 20 July 2015 by the Administrators, recorded Burrows as the sole director of the Company.
The Court was advised that the Company does not have a written constitution. The Company relies on the replaceable rules contained in the Act.[3] One issue that arises in respect of the alleged removal of Burrows is whether the shareholders followed the appropriate procedure in removing him.
[3] See ss 135 and 141 of the Act.
The relevant replaceable Rule is found in s 203C of the Act, which provides as follows:
203CRemoval by members—proprietary companies (replaceable rule—see section 135)
A proprietary company:
(a)may by resolution remove a director from office; and
(b)may by resolution appoint another person as a director instead.
The shareholders say that, in compliance with the provisions of s 203C, a resolution was passed on 16 June 2015 removing Burrows as director and replacing him with Brott. No formal meeting of shareholders was convened for the purpose of passing the resolution, so it is also necessary to have regard to s 249A of the Act, which provides as follows:
249ACirculating resolutions of proprietary companies with more than 1 member
(1)This section applies to resolutions of the members of proprietary companies that this Act or, if a company has a constitution, the company’s constitution requires or permits to be passed at a general meeting. It does not apply to a resolution under section 329 to remove an auditor.
(2)A company may pass a resolution without a general meeting being held if all the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Each member of a joint membership must sign.
(3)Separate copies of a document may be used for signing by members if the wording of the resolution and statement is identical in each copy.
(4)The resolution is passed when the last member signs.
It is the shareholders’ case that a resolution was circulated between the two shareholders on 16 June 2015 and executed on that date. The resolution was passed when the last shareholder signed. The objective evidence before the Court is that the director of the corporate shareholder signed the resolution on 16 June 2015 and emailed a copy to Brott. There is no objective evidence of when Brott signed the resolution, other than his say-so, that he executed the document on 16 June 2015 upon receipt of the email containing the partly executed resolution.
Brott agrees that by June 2015 the Company had ceased trading. Accordingly, there seems to have been no need to keep Burrows on side in respect to the ongoing operations of the Company. Notwithstanding that, no steps were taken, even on the shareholders’ case, to advise Burrows for at least a month that he had been removed as a director.
In the interim, Burrows was left in the position of dealing with the Company’s creditors and continuing to act, for all intents and purposes, as the sole director of the Company. The affidavit evidence discloses that Brott continued to communicate with Burrows, by email, in July 2015 in respect of the affairs of the Company. None of the emails mention that Burrows had been removed as a director.
An ASIC Form 484 appears to have been prepared by the Company’s solicitors on or about 15 July 2015 recording the fact that a resolution had been passed removing Burrows as a director and appointing Brott. Curiously, the ASIC form stated the operative date of the resolution was 14 July 2015. Why that is so in respect of a resolution said to have been passed on 16 June 2015 is not clear.
A valid Form 484 does not appear to have been provided to ASIC until 29 July 2015. That is despite the solicitor saying on 15 July 2015 in an email to Brott that they had already lodged the form at ASIC. Some explanation is provided in respect of that, but the fact remains that the document lodged on 29 July 2015 is the document ASIC acted on to amend the records of the Company to record the resolution removing Burrows as director effective 16 June 2015.
No explanation is provided as to why Burrows was not informed of his removal as a director at the time the resolution was said to have been passed. Nor is there any explanation as to why the solicitors who prepared the Form 484 on 15 July 2015 recorded the operative date of the resolution as 14 July 2015 if, at that time, they had before them a resolution dated 16 June 2015. Nonetheless, in the circumstances, I propose to proceed on the basis that, prior to 20 July 2015, the members of the Company had passed a resolution substituting Brott as director in lieu of Burrows.
Some relevant statutory provisions
In the circumstances, it is necessary to consider the provisions of ss 128 and 129 of the Act which are the codified form of what, at common law, was called the “indoor management rule”.
Section 128 of the Act provides as follows:
128Entitlement to make assumptions
(1)A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(2)A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(3)The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4)A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect.
[Emphasis added.]
The Act then goes on to provide in s 129 the assumptions that, pursuant to s 128, a person is entitled to make. Section 129 provides as follows:
129Assumptions that can be made under section 128
Constitution and replaceable rules complied with
(1)A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.
Director or company secretary
(2)A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.
Officer or agent
(3)A person may assume that anyone who is held out by the company to be an officer or agent of the company:
(a)has been duly appointed; and
(b)has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.
Proper performance of duties
(4)A person may assume that the officers and agents of the company properly perform their duties to the company.
Document duly executed without seal
(5)A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Document duly executed with seal
(6)A person may assume that a document has been duly executed by the company if:
(a)the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and
(b)the fixing of the common seal appears to have been witnessed in accordance with that subsection.
For the purposes of making the assumption, a person may also assume that anyone who witnesses the fixing of the common seal and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
Officer or agent with authority to warrant that document is genuine or true copy
(7)A person may assume that an officer or agent of the company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that the document is genuine or is a true copy.
(8)Without limiting the generality of this section, the assumptions that may be made under this section apply for the purposes of this section.
[Emphasis added.]
The interaction between the Administrators and the Company in respect of their appointment is a relevant dealing with the Company. The applicable assumption is the assumption in s 129(2) that the Administrators were entitled to assume, as a result of the ASIC search, that Burrows was the duly appointed director with authority to act and perform the duties customarily performed by a sole director of the Company. A resolution appointing administrators is a part of a director’s usual duties.
The position of the Administrators is that, having been entitled to make the assumption, as they undoubtedly were, the appointment is valid and remains valid. The contrary position put by the shareholders is that the assumption only has operation until the Administrators became aware of the fact that the assumption was incorrect. It is submitted that the indoor management rule, whether at common law or as stated in ss 128 and 129, does not operate to validate an invalid appointment of an administrator.[4]
[4] Defendant’s submissions at [54].
It is not suggested that s 128(4) has any role to play. Further, s 128(1) provides that the Company is not entitled to assert in a proceeding in relation to the relevant dealing that the assumption is incorrect. This is a proceeding in relation to the dealing.
The operation of the indoor management rule is instructive in respect of how the statutory provisions are to operate. In Northside Developments Pty Ltd v Registrar-General[5] Brennan J, when discussing the operation of the indoor management rule, said as follows:[6]
To found an estoppel as to the authority of an officer or agent who is engaged in a transaction for the purposes of the company's business or otherwise for the company's benefit and who is purporting to exercise an authority which an officer or agent in that position would ordinarily be expected to have, the mere carrying on of the company's business with officers and agents performing particular functions on its behalf and in its interest is a sufficient representation by the company. Although such representations by the company seem a slender foundation on which to build an estoppel, the indoor management rule treats them as sufficient unless the party relying on the rule is put on notice to inquire into the authority of the officers or agents to do what they did in the transaction.
[5] (1990) 170 CLR 146.
[6] Supra, at 178.

In my opinion, the statutory provisions are intended to operate in the same way. An estoppel is created against the company. The estoppel arises because s 128(1) provides that the company is not entitled to assert in a proceeding in relation to a dealing that an assumption is incorrect. Thus, between a company and a party dealing with the company an incontrovertible set of facts are imposed whether those facts are correct or not. The legal result is to be ascertained from those facts.
In Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd & Ors[7] Gray J was dealing with a situation in which it was asserted that a contract entered into by a company was invalid because the directors, who had extended the contract, had been removed prior to its execution. In the result, his Honour found that the directors had not been so removed. However, in the alternative his Honour said that, because of the operation of the provisions of ss 128 and 129, he would have found the contract to be valid. The third parties entering into the contract were entitled to assume that the contract had been validly entered into. The contract was, because of the operation of the assumptions, a valid corporate act.[8]
[7] [2005] SASC 335.
[8] Supra, at [185].
The position of the defendants is that the effect of ss 128 and 129 do not make an invalid act valid. In my opinion, that is not a correct analysis of the operation of the provisions. The provisions provide that a party dealing with a company is entitled to proceed on a set of assumptions. The assumptions become incontrovertible facts. The question of whether or not any particular corporate act is valid can only be considered by a court based on those incontrovertible facts.
No submission was put that the shareholders of the Company stand in any different position to the Company in respect of the operation of ss 128 and 129. In this case the shareholders were the people who could have corrected the ASIC record. For unexplained reasons five weeks after they say they resolved to remove Burrows as a director, the record at ASIC had not been corrected. It would be surprising if the shareholders could deny the assumptions that arose because of their own inactivity or own inaction.
It follows that, in the particular circumstances of this matter, the appointment of the Administrators must be taken as valid because the Company is not entitled to dispute the fact that Burrows was the sole director validly exercising powers customarily exercised by a director.
The Administrators seek a declaration in respect of whether or not they have been validly appointed. They do so pursuant to the provisions of s 447C of the Act, which 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.
The provisions of s 447C are declaratory, not curative.[9] The purpose of the provision is simply to provide certainty in situations where there is uncertainty. The plaintiffs are entitled to a declaration that their appointment was valid.
[9] In the matter of Live Board Holdings Ltd (administrators appointed) [2014] NSWSC 161 at [4].
The operation of s 447A of the Act
The parties made significant submissions in respect of the operation of s 447A. In light of my finding that the appointment of Administrators was a valid act of the Company, I do not need, strictly, to consider the alternative put forward on behalf of the plaintiffs that the Court should, in any event, exercise its discretion to validate an otherwise invalid appointment. I do so as a matter of completeness, should this matter go further.
The provisions of s 447A of the Act provide as follows:
447AGeneral power to make orders
(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2)For example, if the Court is satisfied that the administration of a company should end:
(a)because the company is solvent; or
(b)because provisions of this Part are being abused; or
(c)for some other reason;
the Court may order under subsection (1) that the administration is to end.
(3)An order may be made subject to conditions.
(4)An order may be made on the application of:
(a)the company; or
(b)a creditor of the company; or
(c)in the case of a company under administration—the administrator of the company; or
(d)in the case of a company that has executed a deed of company arrangement—the deed’s administrator; or
(e)ASIC; or
(f)any other interested person.
The provisions of s 447A provide broad powers to the Court to make orders as to how Part 5.3A of the Act is to operate. In Australasian Memory Pty Ltd & Anor v Brien & Anor the High Court said:[10]
The power is not cast in terms of a power to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Parliament 5.3A. Its operation is not confined to such cases. Nor is there anything on the face of s 447A(1) that suggests that it should be read down. In particular, the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Parliament 5.3A before application is made under s 447A(1).
[10] (2000) 200 CLR 270 at [17].
In Deputy Commissioner of Taxation v Portinex Pty Ltd & Ors[11] the court was dealing with the failure of a corporation to validly resolve to appoint administrators. Accordingly, there was no resolution for the purpose of s 436A. In that case Austin J said:[12]
I conclude that the High Court’s judgment in Australasian Memory is consistent with the use of s 447A to overcome the consequences of a defective resolution to appoint an administrator.
[11] [2000] NSWSC 99.
[12] Supra, at [32].
In Xie v Crisp and Ors[13] Ferguson J had to consider a situation not dissimilar to the situation before the Court here. His Honour found that persons who purported to act as directors were not validly appointed as directors. His Honour found that they were defacto directors, but were not entitled, in that capacity, to pass a resolution to appoint administrators, which they had done. His Honour said:[14]
On behalf of Ms Xie, it was submitted that s 447A cannot be invoked to validate what was an illegal act by directors utterly without power. Although the events that led to the appointment of the administrator and the intentions of the various interested parties are not irrelevant, the court’s focus when making an order under s 447A (such as that which is sought) is the position of the company at the time of making the order and what is best for the company in the future.
[13] [2011] VSC 154.
[14] Supra, at [222].
His Honour went on to exercise the discretion provided by s 447A to permit the company to continue in administration notwithstanding the invalidity of the appointment. I am satisfied that the provisions of s 447A permit the making of an order for the administration to continue in the circumstances of this matter. It is of course a discretionary matter.
In Correa v Whittingham[15] the Court of Appeal in New South Wales was considering the operation of s 447A. Gleeson JA said:[16]
The factors relevant to the exercise of a court’s discretion may vary from case to case. Relevant considerations include the stage that the administration has reached, the financial position of the company, whether the business could continue if returned to the control of the directors, whether the continued administration would be in the interest of creditors, the purpose of Pt 5.3A and whether that purpose will be served by the making of orders sought, and whether there are any better options available to deal with the company’s future.
[15] [2014] NSWCA 263.
[16] Supra, at [210].
One of the relevant considerations in respect of the exercise of the discretion given to the Court pursuant to s 447A of the Act is whether the company in question is insolvent. The uncontested oral evidence of Burrows is that, for a period of quite a few months, the Company was not in a position to pay its creditors and had, for that reason, entered into a number of extended payment arrangements with creditors. His further evidence was that the Company did not have sufficient monies to comply with the extended payment arrangements.
The preliminary investigations by the Administrators reveal that the Company has unpaid creditors in an amount exceeding $2 million. At the commencement of the administration the Company had approximately $18,000 in its bank account. There is no offer from the shareholders to recapitalise the Company. It is not seriously contended that the Company is solvent.
The contentions of the Administrators are contested by the accountants for the Company. They say that the financial records relied upon by the Administrators are incomplete and do not give a true picture of the financial position of the Company.
The Administrators have been restricted in their ability to investigate the affairs of the Company by reason of the refusal of the accountants to provide the Company’s books and records to them.
The provisions of s 438C provide as follows:
438CAdministrator’s rights to company’s books
(1)A person is not entitled, as against the administrator of a company under administration:
(a)to retain possession of books of the company; or
(b)to claim or enforce a lien on such books;
but such a lien is not otherwise prejudiced.
(2)Paragraph (1)(a) does not apply in relation to books of which a secured creditor of the company is entitled to possession otherwise than because of a lien, but the administrator is entitled to inspect, and make copies of, such books at any reasonable time.
(3)The administrator of a company under administration may give to a person a written notice requiring the person to deliver to the administrator, as specified in the notice, books so specified that are in the person’s possession.
(4)A notice under subsection (3) must specify a period of at least 3 business days as the period within which the notice must be complied with.
(5)A person must comply with a notice under subsection (3).
(6)Subsection (5) does not apply to the extent that the person is entitled, as against the company and the administrator, to retain possession of the books.
Note:A defendant bears an evidential burden in relation to the matter in subsection (6), see subsection 13.3(3) of the Criminal Code.
(7)An offence based on subsection (5) is an offence of strict liability.
Note:For strict liability, see section 6.1 of the Criminal Code.
The Administrators of the Company are entitled to possession of the books and records of the Company. The accountants have declined to provide the books and records of the Company to the Administrators, saying that their refusal is based on legal advice. The advice apparently was that they were not required to provide the books and records until the validity or otherwise of the appointment is established. Such legal advice might properly be described as brave. It is a strict liability offence to fail to comply with a notice given pursuant to s 438C(3) of the Act. The Administrators have written to the accountant a number of times requesting the books and records. Whether the written requests are notices for the purposes of s 438C(3) is a matter for another day.
The Administrators have done the best they can in restricted circumstances. There can be no criticism of the Administrators for having an incomplete understanding of the financial position of the Company.
The shareholders squabble about whether or not the Company is insolvent but, on the evidence before the Court, the Company is insolvent, having regard to the definition in s 95A of the Act.
Another relevant factor is the Company does not trade. There is no utility in returning the Company to the control of its director, as it does not trade and has not done so for a considerable period of time. There is no suggestion that the Company is to resume trading.
Along with the question of solvency, the other principal consideration is the position of the creditors. The purpose of a voluntary administration under Part 5.3A of the Act is to obtain a better return for creditors than would result in a winding up of the Company. If the Company remains in administration, the options available to the Company, and therefore its creditors, are much broader than otherwise available. It is appropriate to leave the Company in administration at the moment and allow the creditors, in due course, to determine how the affairs of the Company should be dealt with.
I also have regard to the fact a number of significant creditors have filed affidavits supporting the ongoing administration of the Company.
In all the circumstances, the best option for the Company, given that it is insolvent, is not trading and has significant creditors, is to remain in administration. It is for that reason I would have made orders under s 447A of the Act validating the appointment of the Administrators, if it had been necessary to do so.