Limiting an Administrator's Liability- Section 447A of the Corporations Act

Although section 443A(1) of the Corporations Act ("the Act") provides that Administrators are liable for the debts they incur in the performance of their functions as Administrators, a recent Western Australian judgment discusses how orders under section 447A of the Act can limit that liability. In that case, the Administrators needed funds to pay operating costs and wages, in order to maintain the business for sale as a going concern and/or to give the Administrators time to investigate alternative restructuring options. Accordingly, the Administrators entered into a loan agreement for the provision of $200,000 in funds. The loan was on a limited recourse basis (limited to the assets of the company), however, section 443A(2) states that an Administrator's liability under section 443A(1) "has effect despite any agreement to the contrary" (although the Administrators indemnity against the company is preserved). To ensure that the loan remained, legitimately, a limited recourse loan notwithstanding the operation of section 443A(2), it was a condition subsequent of the loan agreement that application be made to the court for orders modifying the effect of section 443A(2) and permitting the Administrators to contract out of the full extent of the liability. The application was made under section 447A(1) which provides that the "court may make such order as it thinks appropriate about how this part [ie Part 5.3A] is to operate in relation to a particular company".

' Master Sanderson noted that:

• the section confers "upon the court an extremely wide to make any order considered appropriate for the operation of the regime"
• the power conferred by the section is not to be read down
• the power is not confined to curing defects or remedying the consequences of departures from the other provisions and
• the section is not confined to filling in gaps in the legislative scheme.

The Master also referred to the judgment of the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, in which it was established that:

• the term "how this part is to operate" means "how every provision within Part 5.3A is to operate"
• although sub-section 447A(2) provides examples of its operation they "cannot be taken as exhaustive of the scope, or as controlling the meaning of section 447A(1) and
• it is clear from the examples that an order under section 447A(2) "may alter the operation of other provisions of" Part 5.3A.

As the administration was in its early stages, and because the funds would facilitate continued trading, Master Sanderson concluded that the orders sought by the Administrators offered the best prospect of maximising returns to all parties.'  Accordingly, the orders were made.

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[1] Saker & Jones as joint and several administrators of Conquest Crop Protection Pty Ltd (Administrators Appointed) v Farmwork Merchandise (Administrators Appointed) [2012] WASC 473 (5 December 2012)