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Commercial Litigation & Insolvency News Alert: Challenge to Secured Creditor's Appointment of Administrator

News Alert 29 April 2015

Photios v Cussen & Senatore (in their capacity as joint administrators of Beechworth Land Estates Pty Limited (Administrators Appointed)) [2015] NSWSC 336

An interesting decision

This decision, given in curious circumstances, concerns the validity of the appointment of administrators under s436C of the Corporations Act.  This section empowers a secured creditor to appoint administrators over a company where they possess a security interest in relation to the whole or substantially the whole of the company’s assets.

The decision is interesting because in New South Wales there are conflicting authorities as to whether stamping a previously unstamped document results in the document acquiring validity retrospectively.  This decision appears to ends that conflict.

What happened in the case?

The proceedings took the form of an application pursuant to s447C of the Corporations Act for declarations that the Administrators were invalidly appointed over 2 companies, Beechworth Land Estates Pty Limited (Beechworth) and Griffith Estates Pty Limited (Griffith).

The Administrators were appointed pursuant to s436C by a secured party holding documents granting it a security interest in substantially the whole of the assets of Beechworth and Griffith.  One of the grounds of challenge to the Administrators’ appointment was the non-payment of stamp duty.  The Administrators sought orders under s447A to perfect their appointment.

What are the Judge’s findings?

In this case, the Judge concluded that the late payment of duty renders a document valid and enforceable from the date of execution, not from the date of payment of duty.

The Judge also concluded:

  1. if duty is part-paid in relation to an instrument at the time of the appointment of administrators, but not fully paid, the instrument remains enforceable and the appointment of administrators will not be invalid for that reason;
  2. s436C must be applied consistently so that instruments otherwise partially enforceable in different States pursuant to State law are enforceable for all purposes for the Commonwealth Corporations Act; and
  3. each case must be considered individually, however in this case, it was appropriate for the Court to perfect the Administrators’ appointment so far as was necessary due to non-payment of mortgage duty by using the power available in s447A.

What's the lesson learnt?

Although the non-payment of duty was not fatal, the case serves as a reminder to practitioners to check the requirements for payment of duty on instruments pursuant to which appointments are made under s436C.


Kirsten Farmer, Partner
Sydney

Guy Moloney, Senior Associate
Sydney

News Alert 29 April 2015
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