Administrators sometimes find themselves appointed in
circumstances that may create problems for themselves, and the
Administration, in the future. Some recent cases serve as examples
of how the court will treat an application to validate an otherwise
invalid appointment as an Administrator. In particular, this
article discusses the outcome in In the matter of Creative
Memories Australia Pty Ltd (Administrators Appointed) 
NSWSC 652 (13 May 2013).
On 30 April 2013, Atle Crowe-Maxwell and James White of BDO were
appointed joint and several Administrators of Creative Memories
Australia Pty Ltd (the Company).
The only potential problem was that neither of the two directors
who appointed them were residents of Australia. They resided in the
USA. The previous Australian resident director had resigned on 19
The Administrators therefore approached the NSW Supreme Court
for orders under section 447A of the Corporations Act 2001
(the Act) validating their
Section 201A(1) of the Act requires that a company has at least
one resident Australian director. Section 436A(1) permits the
directors to appoint an Administrator. Section 447A of the Act
The Court may make such order as
it thinks appropriate about how this Part [5.3A] is to operate in
relation to a particular company.
Justice Hammerschlag noted that while the discretion provided by
section 447A is wide, it is not unlimited.
His Honour was also not convinced that the resolution appointing
the Administrators was necessarily invalid. However, the two
overseas directors had formed the view that the Company was
insolvent, and had purported to appoint the Administrators, so
something had to be done about those resolutions.
Why persist with the Administration?
There were sound commercial reasons why the Administration
should remain on foot. The Company was still left with a
significant quantity of its scrap-booking stock, and 22 employees.
The remaining directors had formed the view that the best way to
maximise a return to creditors was to continue to trade through an
Administration. The Administrators had also secured the leased
premises to allow trading to continue.
In those circumstances Justice Hammerschlag considered it
entirely appropriate that the Administration should continue, and
so declared the appointment valid pursuant to section 447A. The
costs of the court application were ordered to be a cost of the
When in doubt, make an application!
If an Administrator has any doubt about the validity of
his or her appointment, and there are reasonable commercial grounds
for the continuation of the Administration, the Court will
generally exercise its discretion under section 447A of the Act to
validate the appointment. So, if in doubt, make an application!
But section 447A won't fix everything!
However, while section 447A may assist with validating many
appointments that would otherwise be invalid, it won't cure all
of them. In a more bizarre case, two practitioners, who were
appointed to a group of companies by a director, made an
application to the Queensland Supreme Court under section 447A in
August last year to validate their appointment as joint
Administrators. They were concerned that the director may not have
even existed at the time of their appointment.
In that case, ASIC intervened in the proceedings and sought to
appoint separate liquidators, rather than validate the
Administration, since otherwise the validation might be applied in
a manner which would validate a fiction. The Court refused the
validation order, and instead appointed separate liquidators.
1In the matter of Creative Memories
Australia Pty Ltd (Administrators Appointed)  NSWSC 652
(13 May 2013).
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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