Administrators can be appointed by the directors of the company, the court or a secured creditor. But can a liquidator appoint himself or herself as administrator of the same company? Interestingly, a liquidator or an interim liquidator may appoint himself or herself as an administrator of the company in certain circumstances.
The situation can arise where an interim liquidator or liquidator forms the view that it is in the best interests of the creditors to put the company into administration to enter into a deed of arrangement.
In this article we examine the circumstances in which a liquidator may appoint himself or herself as an administrator under the Insolvency Law Reform Bill (Bill). We also examine the relevant principles which have emerged from the cases in Australia on the comparable section 436B of the Australian Corporations Act 2001 (ACA).
Clause 474 of the Bill inserts a new section 239J of the Companies Act 1993 (Act), which in part provides that:
- A liquidator or interim liquidator of a company may appoint an administrator if he or she thinks that the company is insolvent or is likely to become insolvent;
- The liquidator or interim liquidator may appoint himself or herself administrator if he or she first obtains –
- The permission of the court; or
- In the case of a liquidator but not an interim liquidator, the approval of the company’s creditors in the form of a resolution passed at the meeting of the creditors.
The clause also prevents a liquidator or interim liquidator from appointing a person who has an association (eg employee or fellow partner of the same firm) with the liquidator unless the appointment has been approved by the company’s creditors in the form of a resolution passed at a creditors meeting. This prevents a person being appointed who is effectively a puppet of the previous liquidator unless the creditors approve the appointment.
A liquidator may appoint himself or herself as administrator without seeking the court’s permission provided that he or she obtains the approval of the company’s creditors in the form of a resolution passed at the meeting of the creditors. If the resolution is not passed or for some reason it is not practicable to seek the approval of the creditors it will be necessary to obtain the permission of the court.
In the case of an interim liquidator it is always necessary to obtain permission of the court.
It is likely that the Australian cases will provide some guidance in interpreting the provision when it becomes law and first comes before the New Zealand courts.
In determining whether to give permission to a liquidator to appoint himself or herself, the following factors have been taken into account by the Australian courts:
- Whether the company is presently insolvent.
- Whether the liquidator or interim liquidator is an appropriate person to be an administrator.
- Whether the liquidator is not disqualified from being appointed as an administrator.
- Whether the liquidator is sufficiently independent (for example, if there was a possibility that the directors may have engaged in misconduct, there could be a conflict in appointing the same person).
- Evidence as to the creditors’ attitude.
- Some evidence of the purpose of moving from winding up to administration (for example, will the creditors receive a greater dividend?).
- The public interest involved in insolvent companies not going out into the market place.
- The court will weigh the relevant factors in deciding whether to exercise a discretion in favour of the liquidator.
In Rupert Co Ltd v Chameleon Mining NL the NSW Supreme Court placed particular emphasis on whether the liquidator was an appropriate person to be appointed as administrator having regard to the absence of disqualifying characteristics (ie unfit, disqualified or a past association with the company).
His Honour was of the view that the onus on the liquidator to satisfy the court is not a high one.
Liquidators under the new insolvency regime should be aware that there is a capacity to act as an administrator of the company that he or she is a liquidator of provided the court is satisfied that it is an appropriate course of action based on an assessment of the above factors.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.