Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48 – Last Director Rule

Big Village Australia Pty Ltd (Administrators Appointed) [2023] FCA 48, is an important case in Australian corporate and insolvency law. It is best known for being the first significant judicial interpretation of section 203AB of the Corporations Act 2001 (Cth), often described as the "last director rule." This rule was introduced to stop directors from abandoning companies in financial distress, particularly in situations linked to illegal "phoenixing" practices.

Background

Big Village Australia, an advertising and research company, was placed into administration after experiencing serious financial difficulties. The central legal issue arose because the company's sole remaining director at the time lived outside of Australia. Under section 201A(1) of the Corporations Act, a proprietary company must have at least one director who ordinarily resides in Australia. Although this requirement was not met, the more critical question was whether the administrator's appointment was valid, given that the director had attempted to resign just before the appointment.

Legal Issues

Section 203AB operates to prevent a last remaining director from resigning if their resignation would leave the company with no directors at all. In such cases, the resignation simply does not take effect. This provision was intended to stop directors from removing themselves from responsibility when the company is failing and creditors are at risk. In Big Village Australia, the director submitted a resignation under the company's constitution. However, because she was the last director and because no replacement had been appointed, section 203AB meant her resignation was legally ineffective.

Court Finding

The Federal Court held that the consequence of the rule was that the director had never validly resigned and therefore remained in office at the time she appointed the administrators. Her powers as a director continued in full, and her duties remained in place. This meant that the resolution to appoint administrators was, in law, capable of being validly made by her. The Court made it clear that a company's constitution cannot override section 203AB, and directors cannot rely on internal documents to avoid the statutory rule.

A secondary question concerned the director's residency. Although the company was in breach of section 201A(1) because it had no Australian-resident director, the Court determined that this breach did not automatically invalidate the administrator's appointment. The section does not state that corporate acts performed by a non-resident director are void or of no effect. The Court therefore treated the breach as a compliance issue rather than a fatal flaw.

To ensure clarity and protect the integrity of the administration process, the Court exercised its powers under the Corporations Act to declare that the administrators were validly appointed. This "curing" power allows the Court to adjust the operation of the Act in relation to a particular company to achieve a fair and practical outcome.

Broader Implications

The decision has several broader implications. First, it confirms that section 203AB is a strong and automatic rule. A director cannot resign if doing so would leave the company without directors, unless specific statutory exceptions apply. Second, the case shows that last directors remain responsible for important decisions, including the appointment of administrators, even if they believe they have stepped down. Third, the judgment reinforces that courts will prioritise protecting creditors and the orderly administration of companies, especially when technical issues might otherwise complicate or invalidate necessary insolvency steps. Finally, the case provides helpful guidance for practitioners. It clarifies that breaches of director residency rules do not automatically invalidate corporate decisions and that courts may intervene to ensure that insolvency appointments proceed smoothly when companies are in genuine financial distress.

Conclusion

In summary, the Big Village Australia case is a landmark interpretation of the last director rule and confirms that directors cannot walk away from a company if doing so would leave it without leadership. It strengthens protections against phoenixing behaviour and provides certainty for administrators, creditors and directors about how the law operates in situations where a company is on the brink of collapse.

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