On 5 October 2011, the NSW Supreme Court upheld an application
pursuant to s 440D(1) of the Corporations Act 2001 (Cth)
(the Corporations Act) for leave to bring and
continue proceedings against a defendant under voluntary
administration. In Larkden Pty Limited v Lloyd Energy Systems Pty
Limited  NSWSC 1305, Hammerschlag J found that the discretion
granted under the Corporations Act was not limited by the
assumption that it would be rarely exercised and, further, that the
exceptions to recognition and enforcement of awards under s 36 of
the Commercial Arbitration Act 2010 (NSW) (the Arbitration
Act) were narrow and specific so as not to include the
voluntary administration of an arbitrating party.
Larkden Pty Limited (Larkden) and Lloyd Energy
Systems Pty Limited (Lloyd) were parties to arbitration proceedings
in July and August 2010 that had arisen out of a dispute about the
ownership of patent applications the subject of an earlier licence
agreement. In what were described by the arbitrator as "draft
reasons", the arbitrator found in favour of the plaintiff,
Larkden. Whilst the parties were preparing consent orders, the
directors of Lloyd resolved that the company enter into voluntary
administration. Shortly thereafter the arbitrator published further
reasons and orders in favour of Larkden (the
The enforcement proceedings
The issue for determination before Hammerschlag J was whether or
not to provide Larkden leave under s440D(1) of the Corporations Act
to pursue orders for the recognition and enforcement of the Award
pursuant to s35(1) of the Arbitration Act.
His Honour found in favour of Larkden for the following
Arbitral proceedings are not a "proceeding in a
court" as contemplated by, and within the meaning s 440D(1)
and accordingly no stay of orders is brought about by the
appointment of an administrator: Auburn Council v Austin Australia
Pty Ltd (2004) 22 ACLC 766.
An arbitral award may only be refused in the circumstances
defined within s 36 of the Arbitration Act. Neither the
administration of an arbitrating party, nor a stay of proceedings
against an arbitrating party, are considered within the prescribed
circumstances allowing for refusal of an award under the
The distraction value and cost to the administrators is
Larkden was seeking to vindicate rights of an essentially
proprietary nature and the interests of unsecured creditors should
not be a barrier to Larkden seeking to vindicate those rights.
Further, it was held that Larkden "would not steal a march
over any other creditor or potential creditor" by the court
recognising and enforcing the Award.
The decision creates greater prospects for enforcement and
recovery to arbitrating parties in the face of an existing risk of
other parties to the arbitration entering into administration. The
traditional position to rarely exercise the discretion to lift a
stay on proceedings has been replaced with the view that the
discretion is one at large, and should be exercised on a case by
case basis. Section 36 of the Arbitration Act which sets out the
circumstances where recognition and enforcement of an award may be
refused reflects article 36 of the UNCITRAL model law on
International Commercial Arbitration. This decision demonstrates a
trend across Australia to ensure consistency in relation to
international arbitration rules and arbitration awards and secure
their enforceability. This is, however, in contrast to the current
position in the UK, where the effect of moratoria under the UK
Insolvency Act 1986 appears to be broader than the s440D
Corporations Act stay on proceeding. It appears that if a similar
application were adjudicated upon by the UK courts, the enforcement
of the award would not have been sustained.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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