Court affirms Administrators' right to more time
22 February 2024
Cummins, in the matter of New Wilkie Energy Pty Limited (Administrators Appointed) [2024] FCA 1
It was a busy start to the new year for the Federal Court, with an early decision on the personal liability of voluntary administrators. In Re Cummins, in the matter of New Wilkie Energy Pty Limited (Administrators Appointed) [2024] FCA 1, the Court accepted an application to extend the Administrators decision-making period under s 443B of the Corporations Act 2001 (Cth) (Corporations Act). The Administrators brought this process before the Court as they were concerned they had not had sufficient time to assess the financial and operational viability of the insolvent company prior to the acceptance of the personal liability of any rents or other payments for property leased by the company.
The Court was satisfied that the Administrators had not had satisfactory time to conduct the investigations, and the extension under s 443B (8) of the Corporations Act would increase the chances of the Administrators realising the companies’ assets and maximising returns for creditors.
Facts
On 27 December 2023, Andrew Cummins, Stefan Dopking, Peter Krejci and Jonathon Keenan (the Administrators) were appointed as joint and several administrators of New Wilkie Energy Pty Limited, that operates the Wilkie Creek Coal Mine (the Mine), as well as six other associated entities. The Mine had suffered poor operational and financial performance with significant funding being withdrawn on 22 December 2023, leading to the appointment of the Administrators.
The Administration occurred during the summer vacation period when staff, clients, and business contacts were largely on leave and uncontactable. Since the commencement of the administration, the Administrators attended the Mine site and conducted an urgent inventory of the coal stockpiles amongst other assets and assessed the financial position in as much detail as possible with the information available, the accessibility of which was limited due to holiday period.
Under normal circumstances, s 443B of the Corporations Act provides that voluntary administrators have a five business day ‘decision-making period’ to investigate the company’s affairs, in particular those agreements under which the company leases or occupies for payment property of another entity. If the administrators fail to provide notice that they don’t intend to exercise rights over that property, they will become personally liable for the rents and other monies payable (for which they are generally indemnified from the company’s assets).
In their application to the Federal Court, the Administrators sought a three week extension of this decision-making period to gain a better understanding of the business and establish if they should exercise rights in respect of the property in order to improve the return to creditors through the voluntary administration.
Ruling
The Administrators’ application was made under s 443B(8), which grants a court the power to extend the decision-making period, as well as s 447A, which is the general statutory provision under which voluntary administrators can seek relief from a court.
Justice Lee considered that, in the current circumstances, the usual decision-making period would be inadequate for the Administrators to conduct the necessary investigations and determine which rights should be exercised and, therefore, what liabilities should be assumed.
Justice Lee considered that extensions been granted previously by other courts for periods far greater than the period sought by the Administrators, and was satisfied that the extension proposed by the Administrators was appropriate for the following reasons:
- The extension would maximise the chances of the companies continuing in existence and/or generating a maximised return for creditors (as it would facilitate the continuation of mining operations in the short term).
- Due to the complexity of leasing arrangements of the companies, an extension would allow the Administrators to accurately identify the leasing obligations and empower an educated assessment of whether it was beneficial to continue trading.
- Should the extension be denied, the Administrators would be required to immediately issue notices under s 443B(3)[1] which may be to the detriment of creditors and impede the prospects of sale or restructuring of the business.
Accordingly, the Court made orders that the words “within five business days after the beginning of the administration”, as contained within s 443B(3)[2], instead read “by 24 January 2024”, removing the Administrators’ personal liability during the period of 5 January 2024 to 24 January 2024 inclusive.
Key takeaways
This decision serves to reinforce that administrators have a right to seek orders extending the initial period during which the administrators are relieved from personal liability for lease/rental payments, in order to accurately assess the position of insolvent companies before accepting any liability.
His Honour’s decision also emphasises that administrators must take sufficient time to conduct the necessary investigations and gain a proper understanding of the business in order to ensure that decisions are made in the best interests of creditors, and with the priority of maximising the return to creditors.
Sparke Helmore acted for the Administrators in this matter.
[1] Corporations Act 2001 (Cth)
[2] Corporations Act 2001 (Cth)
