Australia: Invalid appointment of administrators on grounds of improper motives of directors

Last Updated: 12 May 2017
Article by BRI Ferrier

In this issue:

  • Where the appointment of an administrator may be terminated as a consequence of directors being motivated by improper purposes extraneous to the statutory objectives of the voluntary administration process
  • Case law examples of termination of voluntary administration on grounds of improper purposes of directors
  • The duty of enquiry (if any) of the administrator as to the motive of directors and the possibility of an invalid appointment on those grounds
  • UK developments in cases where, notwithstanding the improper motives of directors, the statutory purposes of the administration process remain likely to be achieved
  • Whether Australian courts could usefully adopt the UK approach on this issue


The ease with which an insolvent company may appoint an administrator following the resolution of its board presents an opportunity for unscrupulous directors to take advantage of the administration procedure for extraneous and improper purposes.

Australian courts have often intervened to terminate a voluntary administration where the decision to appoint an administrator over an insolvent company has been actuated by directors for purposes other than in furtherance of the object of Part 5.3A, Corporations Act as formulated in section 435A. Termination of the voluntary administration in these circumstances will most often result in the company proceeding from administration into winding up under order of the court.

In dealing with such cases Australian courts have consistently employed the principle referred to in Kazar v Duus (1998) FCA 1378, namely:

"A statutory power must be exercised for the purpose for which it was conferred. If the power is exercised for more than one purpose, where one of those purposes is improper, the exercise of the power will be vitiated if the improper purpose was a substantial purpose in the sense that the decision would not have been made but for the ulterior purpose."

Essentially, the principle is premised on causative effect. Where directors are found to have been motivated by an improper purpose that is causative in the sense that but for its presence their powers would not have been exercised, the tainted action is rendered invalid by the impermissible purpose.

Cases where improper motives of directors have resulted in termination of the administrator's appointment

The following list is compiled from cases where directors have been motivated to put their insolvent company into administration for purposes extraneous to those envisaged by the voluntary administration process:

  • Installing an administrator who might be more compliant than the provisional liquidator already in office and with whom the directors were in dispute: Aloridge v Christianos (1994) FCA 972
  • Where a sole director appointed an administrator with a view to the adoption of a deed of company arrangement by a decision of creditors (being himself and two persons allied with him) of doubtful value, and which would have the desired effect of placing a stay on claims being litigated against the company: Blacktown City Council v Macarthur Telecommunications Pty Ltd (2003) NSWSC 883
  • Where an administrator was appointed by a sole director in the face of a winding up application in order to manipulate the relation-back day to his own personal advantage: St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd (2004) NSWSC 85
  • Appointment of administrator enabled directors through their control of the majority of creditors to avoid having their conduct of the affairs of the company scrutinized: In the matter of Sales Express Pty Ltd (Administrators Appointed)(2014) NSWSC 460
  • Appointment of administrator was inappropriately used as a means of resolving shareholders' dispute: Cadwallader v Bajco (2001) NSWSC 1193: see also Re Keneally as administrator of Australian Blue Mountain International Cultural and Tourist Group Pty Ltd (Administrator Appointed) (2015) NSWSC 937
  • Appointment of administrator for the predominant purpose of forestalling ASIC's application to wind up the company and to appoint a provisional liquidator: ASIC v Planet Platinum Ltd (2016) VSC 120
  • Where the appointment of the administrator was a defensive tactic used by directors knowing that they would be removed by shareholders on the following day: In the matter of Condor Blanco Mines Ltd (2016) NSWSC 1196

At the time of their appointment, is the administrator under a duty to assess the validity of the appointment by inquiring into the purpose or motives of the directors?

The Court in Condor Blanco Mines Ltd (see above) has provided useful guidelines on this issue. They can be summarized as follows:

  • In general, it is not part of the administrator's responsibility in assessing the validity of his or her appointment to delve into any purpose or motive of the directors beyond that of ensuring that the directors have resorted to administration in response to actual or impending insolvency of their company. In this last respect, the administrator's duty of enquiry extends to ensuring that directors genuinely hold the requisite opinion concerning insolvency and have validly and regularly passed a resolution in terms of section 436A, Corporations Act.
  • In exceptional cases where without any form of enquiry it is apparent to the administrator that the directors were resorting to administration for an extraneous purpose e.g. because they actually said so, or the improper purpose is patently obvious, the intended administrator is obliged not to accept the appointment
  • Where following appointment the administrator learns of the alleged improper or extraneous purpose of the directors in appointing him or her, it will be appropriate for the administrator to exercise the power to bring court proceedings or obtain directions as to the status of the appointment.
  • In the event that legal proceedings involving allegations of improper purposes are brought by a person other than the administrator, e.g. a creditor or dissenting director, the administrator should adopt a position of neutrality and assist the court in the progression of the proceedings

Can an administrator's appointment be valid notwithstanding the improper purpose of the appointing directors?

The underlying concern raised by this question is whether improper purposes of directors should be allowed to frustrate cases where the statutory objectives of administration are likely to be achieved, notwithstanding the improper motives behind the appointment and their causal effect.

Recently this issue has received the attention of UK courts with respect to that jurisdiction's administration procedure. Their approach has revealed a reluctance to allow directors' motivation and conduct to obstruct the administration process where there are reasonable grounds to expect that the statutory objectives of administration remained achievable.

In the most recent UK case on this issue, Thomas v Frogmore Real Estate Partners GP1 Ltd (2017) EWHC 25 the Court observed that even if it is established that the appointor had an improper motive, the achievement of the statutory purpose of administration "would normally be the main touchstone for the court." If the statutory purpose is likely to be achieved then the appointor's motive "may become of relative insignificance in such circumstances."

The approach of the UK courts is to give priority to the likely achievement of the statutory purposes of administration and ensure that the appointor's improper motives are only likely to result in the termination of administration in the most extreme cases of director abuse of process.

For Australian purposes this approach has much to commend it and could readily be achieved by an administrator applying under section 447C, Corporations Act for an order declaring his or her appointment to be valid and in accordance with the object and spirit of Part 5.3A, Corporations Act notwithstanding the improper purposes of the appointing directors.

Concluding comments

Australian courts have demonstrated a willingness to terminate a voluntary administration where it has been found that directors have been motivated by an improper purpose, "in the sense that the decision would not have been made but for the ulterior purpose": Kazar v Duus (see above).

We have seen that UK developments on this issue have become more focused on whether the statutory purpose of administration is likely to be achieved irrespective of the directors' improper motivation behind the administrator's appointment.

This approach has much to commend it, and essentially gives priority and effect to the statutory objectives of the administration process as formulated in section 435A, Corporations Act. In allowing the objectives of the administration process to prevail, the improper or ulterior motives of directors will be treated as being of "relative insignificance" except in the most extreme cases of abuse of process being in complete disharmony with the objectives of the voluntary administration process.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions