The Court in ASIC v Planet Platinum Ltd (in liq)  VSC 120 (Platinum Planet) considered the validity of the appointment of an administrator under section 463A of the Corporations Act 2001 (Cth) (Act). Section 463A provides that the board of a company may appoint an administrator if they have passed a resolution to the effect that they believe the company is insolvent, or is likely to become insolvent.
In Planet Platinum, ASIC made an application to the Court to wind up Planet Platinum Ltd (Company) under section 461(1)(k) of the Act on just and equitable grounds and to appoint a provisional liquidator to wind up the affairs of the Company.
One of the directors sought legal advice, and it was suggested that the Company appoint an administrator as a way of addressing both the AISC action and issues with the minority shareholders of the Company. The lawyer referred the Company to an administrator, who was later appointed by a resolution of the board.
At the first creditors meeting, the board indicated it believed the Company was solvent and that the purpose of the appointment was to defeat the ASIC action. The administrator was aware of this and accepted his appointment anyway. Further, the only enquiry the administrator made as to the Company’s solvency was whether the Company was in a position to immediately repay a loan it held with NAB. The response to which was no however, this was a loan that had been customarily renewed with limited issues.
Although it is an advantage of voluntary administration that a company is provided with statutory protection from legal action, that protection is only afforded where an administrator is validly appointed. In Planet Platinum, the Court assessed the validity of the appointment of the administrator by reference to the prerequisite that directors believe the company is insolvent or about to become insolvent.
Accordingly the Court held the appointment of the administrator was:
- Invalid as the directors did not have a genuine belief that the Company was insolvent or about to become insolvent; and
- For an improper purpose, as the appointment was intended to defeat the ASIC action.
The administrator should have taken steps to verify the validity of his appointment. It is not enough that an enquiry was made with respect to a single loan facility that the Company held with NAB. Further, the directors of the Company stated that they did not believe the company was insolvent and that the purpose of the appointment was to defeat the ASIC action.
Take home message
To validly appoint an administrator under section 436A of the Act, the board must hold a genuine belief that the company is insolvent or about to become insolvent. After all, the purpose of voluntary administration is for a company to appoint a qualified administrator with a view to improve the company’s financial position.