There have been a number of important decisions that were made during COVID-19 that have seen the Courts assist administrators by creating flexibility in the application of the Act to allow administrators to comply with their duties under the Corporations Act 2001 (Cth) (Act) during the global pandemic. A number of these cases saw Administrators apply for orders seeking to review the following:
- Sections 447A and 443B of the Act; and
- Rules 75-15, 75-30, 75-35 and 75-75 of the Insolvency Practice Rules (Corporations) 2016.
This article focuses on the decisions of Middleton J in Strawbridge (Administrator), in the matter of Virgin Australia Holdings Ltd (Administrators appointed) & Ors [2020] FCA 571 (‘Virgin’) in response to COVID-19.
Power of the Court under section 477A
Under section 447A of the Act, the Court is provided the power to make orders as they see appropriate in respect of the manner in which voluntary administrations operate. Middleton J in Virgin sought to exercise this power as it was held that making modifications to the sections of the Act “…maximizes the prospect of preserving the business of Virgin Companies with a view to a sale or restructure of the business as a going concern…”.
Section 443B
Section 443B of the Act stipulates that an administrator is personally liable for payments for property a Company used, occupied, or is in possession of during the administration. In this particular case, this included aircrafts. The usual practice would be for within 5 days of the commencement of the administration, an administrator would determine whether they intended to exercise its rights in relation to the property, under s 433B(2) of the Act. However, given the substantial size of property in Virgin’s possession and the federal and state government-imposed travel restrictions, 5 days was determined by the Administrators as a limited period of relief from that liability given the extenuating circumstances. Accordingly, the Court accepted that an “extension of time is designed to assist in identifying and retaining assets that are necessary to preserve and enhance the value of the Virgin Companies’ operations as part of a positive restructure of the business.” In this instance, the Court granted an extension from 5 days to 4 weeks.
This rationale was taken from the case of Silvia v FEA Carbon Pty Ltd (admins apptd) (recs and mgrs. Apptd) (2010) 185 FCR 301 in which Finkelstein J outlined a number of factors which were relevant to making an order to extend s 443B of the Act. Finkelstein J held that a number of examples included:
“a large amount of paperwork to review; factual uncertainty in relation to the leases; or the administrators’ inability to form a view within the five business days allowed by the section as to whether it was necessary or desirable to exercise rights over the relevant property for the purposes of maximizing the chances that some or all of the members of the companies can continue in existence or maximizing the return to creditors.”
In the matter of Eagle, in the matter of Techfront Australia Pty Limited (administrators appointed) [2020] FCA 542, Farrell J extended the relief period for the administrators for 14 days.
While COVID-19 created a rife of new challenges and difficulties for administrators, the discussions surrounding extensions to s 443B were being had prior to March 2020, as the Courts had determined modifications would occur in circumstances which require it.
Insolvency Practice Rules (Corporations) 2016
Rules 75-15, 75-30, 75-35 and 75-75 of the Insolvency Practice Rules (Corporations) 2016, were considered by the Court in the case of Virgin. These rules deal the manner in which meetings are to be held, how notice of meetings is to be given to creditors and the process for electronic meetings.
In the Virgin case, Middleton J confirmed that the identification of the Administrators’ office was sufficient to satisfy the “place” requirement of rule 75-15 in a notice of a meeting, even if the meeting was held to by way of electronic means. Middleton J held that given the restrictions of COVID-19:
“In my view, there is no practical impediment to meetings of creditors (including the First Meeting) being held by electronic means and it is appropriate (if not necessary) that this occur.”
Brereton J in Re BBY Ltd [2015] NSWSC 974 observed that,
“Courts have become increasingly willing to make orders such as those sought in this case in respect of the manner in which notices may be given of meetings of creditors of companies under external administration, both to save costs and to save time…”
In the matter of Re Creative Memories Australia Pty Ltd (admins apptd) [2013] NSWSC 732, the Court held that while the emails of the creditors which were readily available to the company were not provided for the purposes of receiving notice of meetings, it was held to be the most effective way in the timeframe.
These cases show the Court’s progressive position for making practical orders that will best prioritise the creditors of companies in administration and provide the company with the best chances of restructuring the business by the administrators. Given the case law that was decided prior to the Virgin case, it appears that the Courts were making a slow transition to a semi-electronic system (in the circumstances it was in the best interests of the company or creditors and complied with the current legislation) and the COVID-19 restrictions caused this transition to be accelerated, so as to not cause any prejudice to creditors or detriment to a company whilst in the midst of a global pandemic.