Supreme Court of South Australia
(Civil)
VISCARIELLO v MACKS
[2014] SASC 189
Judgment of The Honourable Chief Justice Kourakis
9 December 2014
CORPORATIONS - VOLUNTARY ADMINISTRATION - ADMINISTRATOR - FUNCTIONS, POWERS, RIGHTS AND LIABILITIES GENERALLY
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - FIDUCIARY AND RELATED STATUTORY DUTIES - OF CARE, SKILL AND DILIGENCE
TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - DUTY OF CARE - SPECIAL RELATIONSHIPS AND DUTIES - PROFESSIONAL PERSONS
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS
The plaintiff is a director, principal shareholder and creditor of two Companies, Bernsteen Pty Ltd and Newmore Pty Ltd (the Companies), which are in liquidation. The defendant was appointed an administrator of the Companies on 5 December 2001. On 21 December 2001 the Companies’ creditors voted to wind the Companies up and appoint the defendant as the liquidator. Plaintiff alleged defendant, as administrator of the Companies, wrongfully failed to negotiate and put in place a Deed of Company Arrangement which would have allowed the Companies to continue to trade under a changed ownership structure. Plaintiff claims damages for loss of employment and having to honour personal guarantees he gave to the Companies’ creditors.
Held:
1. As between a voluntary administrator on the one hand and the creditors, contributories and directors of the company on the other, an administrator does not engage in trade or commerce in exercising his or her statutory functions, powers and duties under Part 5.3A of the Corporations Act.
2. It is manifestly inconsistent with the statutory regime of the Corporations Act regulating the duties of voluntary administrators to superimpose up on it a common law duty of care owed by the administrator to individual creditors, directors or shareholders to protect them from financial loss by the exercise of reasonable care in discharging his or her statutory powers. That inconsistency is at its greatest when an administrator must form an opinion and frame a recommendation to the creditors, about whether to trade on, enter into a deed of company arrangement, sell the business and/or wind up the company.
3. There was no evidence that the valuations undertaken by the defendant as administrator were inadequate. Nor was evidence adduced as to the values which would have been assigned to the business and stock if other steps had been taken.
4. The winding up of the Companies was inevitable. The proposed Deeds of Company Arrangement were doomed to failure when major secured creditor of the Companies refused to agree to them.
5. The defendant’s conduct was not causative of the failure of the companies to enter into the proposed Deeds of Company Arrangement and his decision to recommend that the Companies be wound up was reasonable in the circumstances.
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES…
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- Viscariello v Macks [2014] SASC 189
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- [2014] SASC 189
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CaseChat Overview and Summary
The court had to determine whether the voluntary administrator's role involved engaging in trade or commerce, which would implicate specific statutory duties and liabilities. The court examined the statutory framework for voluntary administration, particularly the objectives of Part 5.3A of the Corporations Act, which aim to maximise the chances of the company continuing or, failing that, to provide a better return to creditors and members than immediate winding up would. The court also considered the qualifications and regulatory standards for voluntary administrators, their fiduciary duties, and the implications of their appointment on the company's operations and relationships with creditors and members. Additionally, the court addressed whether a voluntary administrator could be held liable for negligence to the company's members, focusing on the scope of their duty of care and the special relationship that might exist between an administrator and the company’s members.
The court concluded that a voluntary administrator does not act in trade or commerce when discharging their duties, as their role is primarily administrative and not commercial. The court found that while voluntary administrators have fiduciary duties to the company's creditors and members, these duties do not extend to owing a general duty of care to the members in the context of negligence claims. The court emphasised the importance of the administrator's independence and impartiality, highlighting that their role is to manage the company's affairs in the interests of creditors and members, not to engage in commercial activities on behalf of the company. The decision underscored the statutory and regulatory framework governing the appointment and responsibilities of voluntary administrators, reinforcing the principle that their duties are primarily fiduciary and not commercial in nature.
The court made orders affirming the limited scope of the voluntary administrator’s duties and clarifying that they do not owe a general duty of care to the company’s members in the context of negligence claims. This ruling provides important guidance on the role and responsibilities of voluntary administrators under the Corporations Act, clarifying the boundaries of their duties and the nature of their relationship with the company and its members.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Before turning to the evidence bearing on those claims, it is convenient to address the question of law whether an administrator acts in trade or commerce in discharging his or her duties. To that end it is first necessary to consider the statutory scheme for the voluntary administration of corporations.Voluntary administration – the statutory scheme I will refer to the provisions of the Corporations Act extant between 5 and 21 December 2001 (incorporating amendments up to Act No. 119 of 2001). Part 5.3A of the Corporations Act establishes a regime for the voluntary administration of a corporation. Section 435A of the Corporations Act states that the object of Part 5.3A is to maximise the chances of the company, or its business, continuing in existence, and if that object is not possible to provide a better return to the company’s creditors and members than would result from an immediate winding up of the company. Part 5.3A is calculated to provide an expeditious and inexpensive response to corporate insolvency. The office charged with responsibility to achieve those ends is that of a voluntary administrator. The independence, impartiality, skill and diligence of the voluntary administrator is the “very marrow” of Part 5.3A.[1] A company may appoint an administrator if its board resolves that in its opinion the company “is insolvent, or is likely to become insolvent at some future time” and that an administrator should be appointed.[2] A voluntary administrator must be a registered liquidator.[3] Section 1282 of the Corporations Act provides a regulatory regime for the registration of liquidators and in particular prescribes minimum tertiary qualifications, a level of experience and competence and that the person is “a fit and proper person to be registered as a liquidator”.[1] Brovis v Lenleys Pty Ltd & Wily (2003) 45 ACSR 612 at [133].[2] Section 436A Corporations Act.[3] Section 448B Corporations Act. It is an offence for a person to give or promise any valuable consideration to a member or creditor of a company in order to obtain an appointment as a voluntary administrator.[4] The voluntary administrator must prefer the interests of the creditors and members of the corporation over the interests of the appointor and must not give a contrary appearance.[5] A creditor of the company for an amount exceeding $5,000 commits an offence by taking an appointment as the voluntary administrator unless he or she first obtains the permission of the Court[6] but the appointment itself is not thereby invalidated.[7] Leave may be given nunc pro tunc.[8][4] Section 595(1)(b) and s 1311 and schedule 3 item 143 Corporations Act.[5] Smarter Way (Aust) Pty Ltd v D’Aloia (2000) 35 ACSR 595 at 601.[6] Section 448C, s 1311, schedule 3 item 126 Corporations Act.[7] Cusson v Signature Resorts Pty Ltd (2000) 18 ACLC 341.[8] Section 448C(1) Corporations Act. The voluntary administrator must convene a first meeting of creditors within five days of his or her appointment.[9] The creditors may remove the voluntary administrator at the first meeting and appoint another but the power to do so does not subsist beyond that first meeting[10] unless with the approval of the court given pursuant to s 449B of the Corporations Act.[9] Section 436E(1) and (2) Corporations Act.[10] Section 436E Corporations Act.