Administrators appointed despite invalid directors meeting

In the matter of Ulan Quarry Products Pty Ltd (in administration), an urgent application was made to the Supreme Court of NSW by the voluntary administrators to clarify their appointment after being put on notice that a director believed their appointment was invalid. As a result, the administrators sought either orders under s 447A(1) or a declaration under s 447C(2) of the Corporations Act 2001 (Cth) (Act) that their appointment be validated.

Background

Ulan Quarry Products Pty Limited (UQP) operates a quarry at Ulan in New South Wales.

On 31 January 2022, major lender B61 Pty Ltd (B61) and UQP entered into a loan agreement. In late 2023, B61’s directors were to be appointed as directors of UQP to ensure oversight of UQP, who by this stage had an acknowledged liability to B61 in the sum of approximately $2m.

Thereafter, the directors of UQP were:

1. the B61 Directors, and
2. the Shareholder Director.

By late 2025, the B61 Directors had concerns that UQP may be insolvent. Although the Shareholder Director provided assurances that UQP was solvent, by March 2026 these concerns came to a head when key personnel resigned, alleging financial mismanagement by the Shareholder Director, the entity that provided employees to UQP (that is related to the Shareholder Director) went into liquidation, and the liquidator issued a demand in the sum of over $500,000. Meanwhile, no payments had been made towards the debt to B61 for many months.

Appointment of Administrators

On 23 March 2026 at 9:30am a directors meeting was held between the B61 Directors with the Shareholder Director absent (Directors Meeting). During this meeting, the B61 Directors resolved to appoint Joshua-Lee Robb and Jason Porter, of SV Partners, as voluntary administrators of UQP (Administrators).

On 1 April 2026, the Shareholder Director’s solicitors wrote to the Administrators alleging that their appointment was invalid because the Directors Meeting had not been convened in accordance with the UQP’s Constitution, which required that each director ’must be given at least one Business Day notice of the meetings of directors’. The Shareholder Director asserted that he had not been given appropriate notice, as notice was provided on Friday 20 March 2026 at 3:43pm and the meeting took place on Monday 23 March 2026 at 9:30am.

As soon as questions regarding the validity of their appointment were ventilated, the Administrators approached the Supreme Court for urgent orders to clarify their appointment.

Relief sought by the parties

The Administrators sought either a declaration pursuant to s 447C(2) or an order under s 447A(1) of the Act that the appointment of the Administrators was valid on 23 March 2026.

It is important to note that relief under s 447C is declaratory, not curative. As such, it rests on a finding of fact from the evidence provided, that the appointment of Administrators is valid. This means that the Court must conclude that the resolution passed by the directors was valid pursuant to s 436A of the Act.

Relief under s 447A is curative. When making an order under s 447A(1), the Court must have regard to all the circumstances of the case, whether the purposes of Part 5.3A would be best served by the making of an order, and what is best for the company in the future.  A key question is whether the company was insolvent, or was likely to become insolvent, when the appointment was made. 

Findings

In relation to the question raised on inadequate notice, Brereton J held that the requirement that ’each Director must be given at least one Business Day notice of meetings of Directors’ means that each director must have the benefit of at least one clear Business Day between the notice and the meeting. As a result, the Directors Meeting was not conducted in accordance with the Constitution and was not a valid meeting of directors. This means that relief cannot be granted under s 447C(2) because the appointment of the Administrators was not valid. As such, consideration was given to s 447A of the Act.

The Courts affirmed, in reliance on Hayes v Doran (No 2) [2012] WASC 486 and Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham (No 3) [2012] NSWSC 526, that the discretion to validate an appointment under s 447A of the Act rests significantly on whether a company was insolvent or was likely to become insolvent when the appointment of Administrators was made.

In applying s 447A, the Court viewed the solvency of UQP a central and determinative issue. The Court held that:

1. the evidence filed suggested insolvency
2. there was poor maintenance of books and records
3. there was no certainty as to the control of the company if the appointment of the Administrators was invalidated, and
4. the directors had a duty to take into the best interests of creditors at the Directors Meeting.

Brereton J also noted that, whilst the Shareholder Director was deprived of being able to persuade the B61 Directors not to appoint Administrators at the Directors Meeting on the basis of solvency, he made minimal effort in the proceedings to provide any evidence to support the contention that UQP was solvent.

As such, the appointment of Administrators was validated pursuant to s 447A of the Act despite the invalidity of the Directors Meeting.

Although the Shareholder Director was critical of the Administrators’ conduct, Brereton J rejected that criticism, noting that the Administrators approached the Court the same day as questions regarding the validity of their appointment were raised.

Key takeaways

This case reaffirms that the solvency of a company is central to the Court’s consideration when assessing the validity of  the appointment of administrators, and a defective meeting is not enough to persuade the Court to invalidate an appointment over an insolvent entity. The case also serves as a reminder to administrators that, if there is a question as to the validity of their appointment, clarification must be sought form the Court without delay.

Note: Sparke Helmore acted for the Administrators in the proceedings.