A recent decision of the Supreme Court of New South Wales  has highlighted the need to carefully approach the appointment of administrators to a registered club in New South Wales. For the Coffs Harbour Catholic Recreation and Sporting Club Limited (Club), administrators were appointed too early and their appointment was ultimately held to be invalid.
A practical solution was reached in the case, but it is an important lesson on the complications that can arise when appropriate procedures are not followed.
What's so special about registered clubs in New South Wales?
General provisions governing the appointment of administrators are set out in the Corporations Act 2001 (Cth) (Corporations Act). In particular, section 436A provides that a company may appoint an administrator if the board thinks the company is or is likely to become insolvent.
However, all registered clubs in New South Wales are governed by the Registered Clubs Act 1976 (NSW) (Registered Clubs Act).
Section 41 of the Registered Clubs Act provides that a registered club which is a company or co-operative cannot appoint an administrator, controller of property, official manager, receiver and manager or liquidator unless that person is appointed to act in that capacity by the Supreme Court or is approved by the NSW Casino, Liquor and Gaming Control Authority (Authority).
What happened in Coffs Harbour?
Earlier this year, the Club fell into financial difficulty and the board of directors unanimously appointed voluntary administrators on 2 April 2015.
The administrators went about the usual business of securing the assets, changing the locks, organising insurance and valuations and commencing their investigations into the affairs of the club.
It was not until 16 April 2015 that one of the administrators considered the provisions of section 41 of the Registered Clubs Act and, realising that it had not been complied with, immediately ceased all work on the matter pending an application to the Supreme Court.
As was expected, the Supreme Court confirmed the New South Wales Court of Appeal's earlier decision in Correa v Whittingham , where it was held that if the Authority has not given prior approval to a registered club appointing an administrator pursuant to section 436A of the Corporations Act, then that appointment is invalid and there is nothing the Court can do under that legislation to retrospectively remedy the issue.
Meanwhile, the Club continued to receive invoices from creditors such as utility providers, and the administrators considered themselves hamstrung by the operation of section 41 of the Registered Clubs Act.
Ironically, the Supreme Court's judgment noted  that the Club had, between January 2011 and November 2013, already undertaken a previous administration in which the same two administrators had been appointed. That earlier administration had also been conducted without any approval from the Authority or the Court, and had even proceeded all the way through to a Deed of Company Arrangement which was ultimately effectuated and resulted in payment to the then creditors of a very respectable $0.84 in the dollar. However, since the Authority was not joined to the current proceedings, there was not much the Court could say about that history.
To avoid complicating issues, such as conflicts of interest and potential disqualification arising out of any fees owing to the administrators in relation to any new appointment, they gave an undertaking not to press for payment of the $50,000 in remuneration that had been incurred in the current administration up to that point.
It was clear that there was still plenty of work to be done by the administrators to get the Club into a position to maximise a return for the creditors, and other work was urgently required to maintain the condition of the Club.
The Court ultimately took a practical approach. After acknowledging the Club's sensible decision to try and deal with its problems by asking the Court for an order appointing the administrators under section 41 of the Registered Clubs Act, the Court agreed that there were pressing reasons for granting that order and proceeded to do just that. However, the administrators' appointment was only effective from the date of the Court's judgment, and not from the earlier date of 2 April 2015.
For practitioners, the lesson that emerges from this case (and the earlier Whittingham decision) is that, whenever they are asked to undertake an insolvency appointment in relation to a registered club in New South Wales, it is vital that either the board of the Club, or otherwise the incoming administrators themselves, notify the Authority of the proposed appointment, and obtain the Authority's approval before passing any resolution to appoint any administrators under Part 5.3A of the Corporations Act. Otherwise, a Court order is required and must be obtained.
If administrators are appointed without following one of these two courses, their appointment will certainly be invalid and can lead to complications. In this case the administrators lost $50,000 in their fees, though it could have been worse. An invalid appointment could also give rise to other risks and liabilities, such as the exposure of any actions that may have been taken by invalidly appointed administrators. Practitioners must be aware of the special circumstances that apply in the case of registered clubs in New South Wales, and take care to ensure the appropriate procedures are followed.
1In the matter of Coffs Harbour Catholic
Recreation and Sporting Club Ltd  NSWSC 1088 ('Coffs
Harbour') (judgment delivered on 6 Aug
2 NSW CA 263.
3Coffs Harbour  NSWSC 1088 at .
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.