This week's TGIF considers the decision of In the matter
of THO Services Limited  NSWSC 509 in which the Court
exercised its general power to extend the voluntary administration
moratorium period to a commercial arbitration.
THO Services Limited (theCompany) entered into a contract with the
Commonwealth of Australia (the Commonwealth) for
the construction of a fitness complex. The contract provided for
any dispute between the parties to be referred to arbitration. The
Company carried out the works and the Commonwealth subsequently
notified the Company of a number of alleged defects.
In September 2015, the Commonwealth commenced arbitration
proceedings and claimed damages in excess of $12 million. In
January 2016, the Company appointed voluntary administrators
pursuant to the Corporations Act 2001 (Cth) (the
The administrators of the Company sought an order to stay the
commercial arbitration for six weeks until the second
Section 440D of the Act provides that:
During the administration of a company, a proceeding in a
court against the company or in relation to any of its property
cannot be begun or proceeded with, except with the
administrator's written consent or with the leave of the
Court. (Emphasis added).
Brereton J considered two questions:
Whether the order sought could be made; and
Whether if the order could be made, it ought to be
Could the order be made?
Section 440D of the Act uses the words "in a court",
thus prima facie limiting its application only to proceedings which
take place in a court.
Brereton J confirmed that an arbitration does not fall within
the stay under s 440D.
The administrators therefore sought relief pursuant to the
Court's general power to make orders under s 447A of the Act,
to extend the application of s 440D and the stay to the
arbitration. Section 447A permits the Court to make a broad
range of orders that it sees appropriate regarding how Part 5.3A is
to operate in relation to a particular company.
Whilst Brereton J proceeded on the basis that arbitration is
excluded from s 440D, he was not convinced that this reflected a
conscious policy decision that arbitration should be permitted to
proceed despite an insolvency administration.
Accordingly, His Honour held that the order sought was within
the Court's power.
Should the order be made?
The policy that informs s 440D is founded on avoiding disruption
and distraction of administrators from performing their functions
and duties. Brereton J held that to continue with arbitration
proceedings appeared to be inconsistent with the scheme of a
moratorium associated with voluntary administration.
His Honour stated that another element of the underlying policy
is the avoidance of expenditure of an insolvent company's
limited resources in the defence of claims.
The Court also added that it is not clear why a potential
creditor should be afforded a preferred position over other
creditors whose claims are stayed. Moreover, as a stay would
only be for a short period, it would not involve any jeopardy to
the Commonwealth's ultimate right.
Weighing all the circumstances, considering that a stay would
only be for six weeks, and that in any event, it will remain open
to the Commonwealth to apply for leave under s 440D, Brereton J
held that the purpose of Part 5.3A of the Act will be better
achieved by extending the operation of s 440D to catch the
arbitration proceedings in the company's circumstances.
The decision confirms that s 440D of the Act does not apply to
arbitration proceedings. However, in appropriate circumstances, a
Court can use its general power under s 447A of the Act to extend
the operation of s 440D to obtain a stay on commercial
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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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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