Earlier this year, Thynne + Macartney's Business
Advisory and Dispute Resolution Team, led by Mark Winn, brought an
application in the Supreme Court of New South Wales challenging the
scope of section 440J of the Corporations Act 2001 (Cth). It was
ultimately held that section 440J does not apply to proceedings for
enforcement of a director's guarantee if that proceeding was
commenced prior to the appointment of administrators.
This article considers the protection afforded to directors by
section 440J during the administration of a company in light of
this recent decision.
Section 440J of the Corporations Act 2001 (Cth)
(Act) protects directors from enforcement of
guarantees provided on behalf of a company during the company's
Section 440J(1) reads:
In the recent decision of Mizuho Bank Ltd v Mark Anthony
Ackroyd  NSWSC 1148, the New South Wales Supreme Court
was asked to consider whether the protection afforded by section
440J prevented the continuance of proceedings against a director
for enforcement of a guarantee commenced prior to the company going
It was found in this case that proceedings to enforce a
guarantee which had already been commenced prior to administrators
being appointed was not precluded by section 440J and could
The plaintiff bank lent a company the sum of $44,481,375.87,
approximately half of which was secured by a personal guarantee
provided by the defendant director.
In June 2016 the plaintiff bank begun proceedings against the
defendant director on his guarantee.
In July 2016 the company appointed administrators under s 436A
of the Act.
The defendant director brought an application seeking a stay of
the proceedings on the basis that the proceedings were precluded by
section 440J from continuing whilst the company was in
administration without leave of the court.
In determining that section 440J did not prevent a creditor from
continuing to pursue a proceeding begun before the administration,
the court followed the Queensland decision of Wilson J in Bank
of Western Australia Limited v Clift  QSC 366 (Clift) in
which her Honour held the continuation of proceedings did not
amount to the 'enforcement' of a guarantee liability within
the meaning of section 440J.
In Clift, her Honour:
made reference to (amongst other things) the Explanatory
Memorandum accompanying the introduction of s440J(1), which
referred to a concern that directors of insolvent companies would
be discouraged from appointing administrators if guarantees became
enforceable as soon as administrators were appointed. Her Honour
considered that there was a relevant distinction between the
appointment of an administrator triggering liability under a
guarantee on the one hand, and the continued maintenance of
proceedings on foot on the other, and that in the latter case,
potential for discouragement seemed less
drew attention to the fact that s440J(1) differs from other
provisions of the Act such as ss440D, 440F and 471B by which
proceedings may not be begun or proceeded with
observed that there is a temporal sequence in which subsections
(a) and (b) of section 440J(1) appear, which may be an indication
that the legislature did not intend the maintenance of a proceeding
already on foot to be caught by the prohibition.
Points to take away
Proceedings to enforce a guarantee commenced prior to the
appointment of administrators will not be stayed by section 440J of
the Act and may be continued.
Directors should be mindful of this limitation in the
protections afforded by the Act particularly considering any cross
claim against the company (such as an indemnity) whilst it is in
administration would require leave under section 440D of the
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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